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Fund managers ditch Mothercare as woes deepen

Fund managers ditch Mothercare as woes deepen

by Michelle McGagh Mar 06, 2018 at 13:05

 

Fund managers are slashing their stakes in Mothercare (MTC) as they abandon hopes of a turnaround for the embattled baby products retailer.

The shares are the worst performers in the FTSE All-Share since the turn of the year, down 71%, hit by January's profit warning, then escalating fears over the future for the business following the collapse of Toys R Us, which ran rival Babies R US.

Mothercare was last week forced to announce that profits for the year ending March were likely to be at the lower end of the previously guided range of £1 million to £5 million in January's profit warning. The retailer is asking for waivers from some of its lenders.

'The retail sector continues to face a number of pressures that are clearly having a profound impact on the sector as a whole,' said chief executive Mark Newton-Jones.

'We are working together with all our stakeholders, including colleagues, franchisees, financiers, suppliers and pensions trustees on this next phase of our transformation.'

The news will have a familiar ring to longstanding investors in the business. It's not the first time Mothercare has been forced to go cap-in-hand to its lenders, entering into refinancing talks in 2014.

But its latest woes come just a year after the business returned to profit growth, with pressures from online rivals being compounded by its faltering international business.

For Citywire A-rated Matthew Tillet, manager of the Allianz UK Opportunities fund, the downturn in the international business was the final straw.

Tillett sold his remaining position in the company in January. 'The original investment thesis was based on the undervaluation of the company’s capital light international franchise business, the cash flow from which could be used to help fund the turnaround of the struggling the UK business. Unfortunately both of these drivers have become impaired,' he said in his latest update to investors.

'The international business is no longer growing and it is likely that many of Mothercare’s overseas markets will soon face similar structural issues to the UK,' he added.

'Meanwhile, the UK business turnaround has taken much longer and required more investment. Whilst this was expected to some extent, the problem is compounded by a weaker International business, leading to an impaired balance sheet that will, in my view, require fresh equity capital again in the not-too-distant future.

'The fund is not prepared to commit more capital to the company at this stage and with a small position the decision was taken to sell out.'

Tillet followed in the footsteps of his boss, Simon Gergel, who invested in Mothercare in 2011 in the Merchants (MRCH) investment trust, but sold out last year.

‘The company had made good progress in turning around its troubled UK operation,’ said Gergel in the half-year report for the trust, issued last September.

‘However, the international franchise operation, which had been the key profit earner, has suffered from a prolonged period of weak trading. Although there remains considerable value in the overseas business, the recovery there will take some time and is not without risks.’

Stock exchange fillings meanwhile show UBS has slashed its stake in the group from just under 10% of its shares to below a 'notifiable threshold'. Investors are not required to notify the stock exchange once their holding in a company falls below 3%.

Thomson Reuters data lists the main UBS funds holding Mothercare as UBS Global Allocation (UK) , UBS UK Equity Income , and UBS UK Opportunities .

Standard Life Aberdeen has meanwhile cut its stake from 7.4% of the shares to 4.3%. Funds holding Mothercare include Aberdeen European Smaller Companies , Aberdeen UK Mid Cap , and the  Dunedin Smaller Companies (DNDL) and Aberdeen Smaller Companies Income (ASCI) investment trusts, according to Thomson Reuters. 

Also selling was Legal & General, which reduced its stake from just above 5% of the business to below 3%. The  Legal & General UK Smaller Companies fund was listed as an investor by Thomson Reuters.

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Comments  (4)

  • David Calder: 

    Amazing that this company, originally a leader in its field and having a monopolistic trading name, has fallen to these depths. What calibre of management has let this happen!

    17:15 on 06 March 2018

  • Roger Savage: 

    The biggest story and (I believe) the largest investor is Richard Griffiths who holds 15.5% and has kept adding to his holding in large amounts over the last few months. I wonder that his intentions are...

    21:50 on 06 March 2018

  • Roger Savage: 

    *what his intentions are!

    22:04 on 06 March 2018

  • Andrew Stevenson: 

    I've been following this company since 2005 (but never invested in it)

    27 July 09

    Sell 27-Jul-09 £1,693,750.02 Ben Gordon 312,500 @ 542.00p

    Sell 27-Jul-09 £442,835.69 Ben Gordon 81,704 @ 542.00p

    Sell 27-Jul-09 £307,742.18 Ben Gordon 56,779 @ 542.00p

    Sell 27-Jul-09 £153,564.86 Clive Revett 28,333 @ 542.00p

    Sell 27-Jul-09 £102,042.34 Neil Harrington 18,827 @ 542.00p

    Sell 27-Jul-09 £79,706.52 Clive Revett 14,706 @ 542.00p

    Sell 27-Jul-09 £73,413.90 Neil Harrington 13,545 @ 542.00p

    Sell 27-Jul-09 £55,397.82 Clive Revett 10,221 @ 542.00p

    This sort of thing put me off ! I never seemed to find any indication that these characters were buying and holding onto any shares (I presume the sort of details above, were them exercising their share options and immediately dumping them).

    17:16 on 07 March 2018

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