Berenberg downgrades Mothercare on international weakness

Berenberg downgraded Mothercare to ‘sell’ from ‘hold’ and slashed the price target to 130p from 250p following the company’s update on Thursday.

The bank said the fourth quarter trading statement was downbeat, highlighting a material slowdown in the international division.

In the 11 week period to 26 March, International retail sales were down 9.7% at constant currency, with sales in actual currency down 10.8%, Mothercare said on Thursday.

“We have been cautious about the name since our initiation, but had believed that the International division would provide something of a solid backbone around which the rebuilt UK business could start to contribute.”

However, Berenberg said that although the UK business has shown some improvement in the past year, it is still loss-making.

Amid a deteriorating outlook for the International business, the bank cuts its full year 2016/17 and 2017/18 earnings per share numbers by 32% and 34%, respectively.

It expects earnings before interest and tax in the International business to go backwards and now forecasts £34.5m EBIT in 2016/17 versus £45.9m in 2014/15.

“We believe restructuring the assets will continue to come with a greater-than -average risk and, as such, downgrade our recommendation.”

At 0900 BST, Mothercare shares were up 1.9% to 152.34p.