Investment Column: Mothercare is having a few teething troubles

Booker Group; Probability
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The Independent Online

Our view: Hold

Share price: 502p (-14.5p)

Yesterday's second-quarter trading update from Mothercare was rather a mixed bag. All the totals were good: worldwide network sales up 7 per cent in the quarter and 7.5 per cent in the first half, and total group sales up 4.7 per cent and 2.5 per cent during the six months. But the majority of the good news rested on the babycare retailer's "rapid" international growth.

Not only has Mothercare just opened its 50th shop in India, taking its total estate outside the UK home market to 800. It has increased its international expansion plans for the current year from 100 to 150 new stores, enough to boost its retail space by at least a fifth, and also recently acquired a 25 per cent stake in its Australian franchisee, with significant growth plans there.

The company's UK home-shopping arm is also making good progress, as is its wholesale initiative in partnership with Boots. So far, so good. But British high street sales are trickier. The first six months of the year also saw Mothercare's international sales outstrip those in the company's domestic market for the first time ever. At the same time, total UK sales actually fell by 0.5 per cent, while like-for-like sales were down by a worrying 3.8 per cent. Ben Gordon, the chief executive of Mothercare, remained bullish yesterday. "We continue to see strong results from our global growth strategy," he said. "We are benefiting from the strategic initiatives we have taken and the rapid growth of [our] international, direct and wholesale [businesses]."

But he acknowledged that the UK retail market was still "uncertain" and the City was taking a guarded view of the company's prospects. Mothercare's shares are already down by nearly 30 per cent so far this year, and lost another 2.8 per cent yesterday. The retailer's progressive dividend policy also remains attractive, particularly with interest rates still in the doldrums, so hold on to the shares.

Booker Group

Our view: Buy

Share price: 53.65p (+4.21p)

A quick Google search of "Booker" this week would return a slew of results about Howard Jacobson and his long awaited, and well deserved, literary prize for The Finkler Question. But the author and Independent columnist was not the only Booker winner this week. Investors in the cash-and-carry wholesaler were also pleased when it reported a 24 per cent increase in first-half profits yesterday, driven largely by a spike in demand caused by the World Cup – imagine what the number would have been if our "stars" had got further than the second round.

The company, which runs more than 170 branches supplying convenience stores, restaurants, pubs, schools and prisons, made a pre-tax profit of £36.9m in the 24 weeks to 10 September and yesterday's numbers are the accumulation of a decent run for Booker shares, which have climbed by more than 20 per cent in the past three months.

Trading in the second half is so far going well. The company said yesterday: "Group turnover in the second half to date is ahead of the same period last year. Working capital levels and costs are in line with plan."

The numbers are clearly inflated by the World Cup, but there may well be a spike in demand as customers try to trim costs in the wake of next week's spending review. Trading on an enterprise value to Ebitda rating of eight times, the shares are "up with events," according to analysts at Shore Capital.

With a reasonable, if not terribly exciting, dividend yield of 2.7 per cent, we are just about convinced. In these newly austere times, it will become more important than ever to back the winners. Buy.


Our view: Speculative buy

Share price: 56.5p (+4.5p)

Probability, the mobile phone gambling business, announced some fancy numbers in a trading statement, together with a move to Gibraltar. The fact that the total cash deposited by players into gaming accounts last month was 27.1 per cent higher than in April, while the total wagers placed in September were 54.9 per cent higher than in April, was good news for the company.

The addition of new products for "must-have" gadgets such as Apple's iPhone is encouraging . But the relocation to Gibraltar could be the most important part of the trading statement. The island is remote gaming central: being there ought to raise the company's visibility.

And the shares have been on the rise recently. Probability trades on just 10 times 2012 forecast earnings, although these could be volatile. All the same, it is worth keeping a close eye on the company and could be worth a roll of the dice. We would chance our arms with a speculative buy.