LONDON (ShareCast) - (ShareCast News) - Analysts at Canaccord cut their 2018 pre-tax profit forecast for Mothercare by 43% on Friday to £12.0m, reassessing their estimate for losses from its UK business from £500,000 to £7.8m.
In parallel, Canaccord dropped Mothercare's target price from 103p to 47p and reiterated its 'sell' rating on the retailer.

To take note of, the Canadian broker's PBT estimate for the firm was also reduced, by 36%.

Critically, the analysts adjusted their projections for Mothercare's like-for-like sales, anticipating a 4% drop in the second half of 2018 and flat gross margins.

At the company's international unit, Canaccord reduced its full-year EBIT forecast from £36m to £33m driven by weakness in its Saudi business unit, which had accounted for "the bulk of the pressure" on sales and operating profits.

"Our DCF-based price target falls from 103p to 47p. High operational gearing and balance sheet risk makes this no place to be in a difficult consumer environment. Maintain Sell," the broker said.

Canaccord said it agreed with Mothercare's management in terms of its strategy to reduce the number of retail stores in the UK from 143 down to 80-100 sites, as well as its efforts to push as much as 50% of its business online, but said it "simply can't be implemented quickly enough at a reasonable cost."

"The pace of cost reduction is set to quicken in H2, but there are plenty of inflationary pressures as well as a need for investment in staff, service and the multi-channel proposition. Cut too hard on costs and sales intensity improvements will unwind - in common with many others in UK retail, management is in a hard place," the analysts wrote.

As of 1700 GMT, shares had fallen back 1.47% to 67.00p.

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