US Edition Mothercare
628p
Questor says BUY
IN India, there are 24m babies born every year. In China, there are 19m. These figures underscore the level of opportunity the group has in its new international growth markets.
There are opportunities in Britain too. In the next three years about 60pc of its UK store leases are up for rent review. It is likely that the company can secure significant rent reductions across its stores – or walk away.
The group has also launched a fourth channel – which is part of its efforts to create a global Mothercare/Early Learning Centre brand. The company is launching a global wholesale business selling children's goods to third-party retailers. This is in addition to its UK stores, its international franchise operations and its internet sales business.
Interim figures from the group last week were good, although some exceptional charges meant that it posted a loss at the pre-tax level of £7.1m. Interim pre-tax profits last year were £13.2m, but this was boosted by some exceptional tax credits. Stripping this out, pre-tax profits rose 11pc.
Significantly, the dividend was hiked by almost 20pc to 5.5p. It will be paid on February 5 next year.
The key international business saw sales rise almost 30pc in the period. The group has a new joint venture in India and it plans to launch Mothercare in Australia and the Early Learning Centre in South Africa.
In the UK, like-for-like sales rose 4pc, which is pretty good given market conditions.
The shares were first recommended at 439¾p on May 27 and the shares are now 43pc ahead of their recommendation price. The yield is now 2.6pc. The main question is on valuation. The company's shares are trading on a March 2010 earnings multiple of 18.8, falling to 16.2 in 2011.
For a retailer this is undoubtedly expensive. However, the company has an excellent strategy that has solid prospects in the medium term. Questor is therefore keeping a buy stance for those with a longer-term time horizon.
Niche is good for Fisher
James Fisher
429½p
Questor says BUY
AS a company, James Fisher has skills and technical knowledge that are very rare. That makes them valuable. The market appears to be stuck on concerns about James Fisher Everard, which ships oil around the UK and Europe. Obviously, prospects will not improve in this business until there is a significant upturn in the economy.
In its recent trading update, the company confirmed that third-quarter trading was in line with expectations, with a strong performance at all of its technical divisions – the main reason Questor recommended the shares.
These units offer services such as submarine rescue services, North Sea oil and gas engineering and support and nuclear decommissioning operations. These are high-margin operations with skills that are in demand.
This niche strategy is important for the company's future and it is one where the company will continue to invest – as shown by its August purchase of MB Faber – which provides engineering services in nuclear and aerospace. The shares were recommended at 455p on August 15 and they are now a fraction below that level. However, the investment case remains strong and the valuation attractive.
The shares are trading on a December 2009 earnings multiple of 11.1 – close to a historical low for this company – and they are yielding 3.2pc. The stance remains buy.