Shore Capital upbeat on Mothercare's future, but stock still a 'hold'

The broker said the current financial year is expected to be "another year of transition for the company" as it refinances to improve financial flexibility, improve profitability and appoint a new CEO (the search for a new boss has been reset, with interim management taking the helm for now).

The retailer reported on Friday that adjusted EBITDA fell 44% to £6.7m in the year to 25 March, just ahead of the market's £6.6m estimate.

Worldwide retail sales by franchise partners fell 16% to £323m, but for continuing markets (which excludes the Russian operations which were suspended last year) revenues actually rose by 9%.

"Perhaps the most significant positive was the considerable reduction in the pension scheme deficit, which stood at £35million, down from £78 million in March 2022 and a substantial £124.6 million in March 2020," said Shore Capital analysts.

"As the company navigates a leadership transition, it has also initiated refinancing discussions to better cope with rising interest rates. Looking ahead, Mothercare aims to complete the refinancing process soon and projects its franchise operations to exceed £10 million in operating profit.

"Therefore, we maintain our 'hold' rating for FY24F as the company seeks to diversify its brand further and penetrate new markets."

The stock was up 3.6% at 4.3p in morning trade.