Company in the news: Mothercare

High-street retailer Mothercare has issued a £100m rights issue. Should you buy in? Phil Oakley investigates.

Back in May, I tipped shares in troubled retailer Mothercare (LSE: MTC)at 139p. The shares are now 245p, having seen a 300p per share takeover approach from US company Destination Maternity rebuffed in July.

I argued, at the time, that Mothercare's international business was a hidden gem due to the company's loss-making UK stores. I also said that there was a risk that the company might have to ask its shareholders for more money to help it fix the problems in the UK.

This has come to pass with the announcement of a £100m rights issue, on Tuesday this week. This gives existing shareholders the right to buy nine new shares at 125p for every ten shares that they already own.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free
https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

The money raised will be used to pay off all the company's debt. On top of that, up to 75 UK stores will be closed and a better internet business will be created.

I think this is good news and may attract another bid for the company. At a theoretical ex-rights issue price of 188p that's the expected price after the rights issue the company would have a debt-free market value of around £317m, which is arguably less than the international business is worth.

Verdict: buy and take up rights

Phil spent 13 years as an investment analyst for both stockbroking and fund management companies.

 

After graduating with a MSc in International Banking, Economics & Finance from Liverpool Business School in 1996, Phil went to work for BWD Rensburg, a Liverpool based investment manager. In 2001, he joined ABN AMRO as a transport analyst. After a brief spell as a food retail analyst, he spent five years with ABN's very successful UK Smaller Companies team where he covered engineering, transport and support services stocks.

 

In 2007, Phil joined Halbis Capital Management as a European equities analyst. He began writing for MoneyWeek in 2010.