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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.
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.'
‘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%.
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.