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
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
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
-
Landlords ‘positive’ about buy-to-let market despite Renters Reform BillNews New research has found landlords are not being put off investing in the rental market, even though the Renters Reform Bill is on its way.
-
Lloyds Bank unveils new pension service – is it any good?Lloyds is the first high-street bank to launch a ready-made pension service. How does it work, is it any good and who can save in it?
-
Mothercare’s inevitable demiseFeatures Mothercare's UK arm has gone into administration, But that's hardly any surprise.
-
If you'd invested in: Coats Group and MothercareFeatures Venerable British thread-maker Coats is flying high, while Mothercare continues to struggle.
-
If you’d invested in: Flowgroup and MothercareFeatures Gas boiler-maker Flowgroup relaunched its product in January following a few tweaks to its design. Since then, its shares have heated up.
-
Shares in focus: How our tips have fared this yearFeatures It's been a tough year for stocks. Phil Oakley looks back over the share tips he made in 2014 to see how they have fared, and what investors should do next.
-
Tips update: MothercareFeatures Phil Oakley tipped children’s goods retailer Mothercare as a risky but potentially good value turnaround story back in May. But are the share still a buy?
