Small Cap Value Report (10 Apr 2014) - MTC, NXR, ACM

Thursday, Apr 10 2014 by

Good morning!



Mothercare (LON:MTC)

As you can see from the chart below, Mothercare has had an awful year so far in 2014, with the shares really plummeting. I last reviewed them on the big profit warning on 8 Jan 2014, where I came to the conclusion that with a weak Balance Sheet, and probably now trading at a loss, the shares if anything looked like a good short at 295p. As the chart shows, that was a very good call, even if I do say so myself!

A trading update this morning indicates that tradnig in Q4 has improved somewhat. Various sales data is given in a table, for the UK, International, in constant & moving currencies, for Q4, and the full year, etc. It's probably easier if I just copy/paste the table here:


As you can see, there's quite a big adverse currency effect, as overseas sales are translated into (stronger) sterling. Their overseas business is actually very good, and decently profitable. However, the problem is the UK business, which is heavily loss-making, and needs to be drastically down-sized or even closed down altogether.

I just can't get my head round why Moterhcare works overseas, but doesn't work in its home market. That is such an unusual situation, usually it's the exact opposite with UK retailers.


We remain profitable at Group level and are focused on eliminating UK losses whilst also continuing to exploit our growth potential across our International markets.


I reckon they can only be (at best) marginally profitable, and when I last crunched the figures it looked like they would make a loss for year ending 29 Mar 2014, so the statement above today surprises me. It depends how you measure profit though, so perhaps the company has managed to classify enough costs as non-recurring so as to eke out a paper profit? I'd like to see the full accounts before even considering a purchase here.

The other key issue to research is what their leasehold terms are in the problem UK division. If the bulk of those leases are going to expire fairly soon, then it might be the case that UK losses could be stemmed at a sufficiently brisk…

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Mothercare plc is a retailer for parents and young children. The principal activity of the Company is to operate as a specialist omni-channel retailer, franchisor and wholesaler of products for mothers-to-be, babies and children under the Mothercare and Early Learning Centre brands. The Company's operating segments include the UK business and the International business. The UK business segment includes the United Kingdom store and wholesale operations, catalogue and Web sales. The International business segment includes the Company's franchise and wholesale revenues outside the United Kingdom. Its clothing and footwear product includes ranges for babies, children and maternity wear; home and travel includes pushchairs, car seats, furniture, bedding, feeding and bathing equipment, and toys are mainly for babies. It operates in the United Kingdom through its stores and direct business, and across the world in over 60 countries through its international network. more »

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Norcros Plc is a holding company for the Norcros Group. The Company's principal activities include development, manufacture and marketing of home consumer products in the United Kingdom and South Africa. The Company's segments include UK and South Africa. The Company has six United Kingdom businesses, including Triton Showers, Vado, Croydex, Abode, Johnson Tiles and Norcros Adhesives, and three businesses in South Africa, including Johnson Tiles South Africa, TAL and Tile Africa. The Company is focused on showers, taps, bathroom accessories, tiles and adhesives. In the United Kingdom, the Company offers a range of bathroom and kitchen products both for domestic and commercial applications. The Company offers mixer showers and accessories; tile and stone adhesives; taps, bathroom accessories and valves; bathroom furnishings; ceramic wall and floor tiles; kitchen sinks; tile adhesives, pourable floor coverings and tiling tools through its United Kingdom and South Africa business. more »

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  Is LON:MTC fundamentally strong or weak? Find out More »

13 Comments on this Article show/hide all

MGinvestor 10th Apr '14 1 of 13

Hi Paul,

If you have time is it possible for you to revisit ACM please? They released an in-line trading update today and their in-house broker has upgraded the price target..

Disclosure - I hold.

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Welshborderer 10th Apr '14 2 of 13

Morning Paul

MKL is not a Small cap but what about this for shareholder relations?

"This is your company. We as managers are stewards of your capital. You’ve entrusted us with the authority to run this business, and this annual report functions as our report card to you."

I am a shareholder.

Regards and thanks for an interesting service. Please keep up the fight for more shareholder recognition

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Paul Scott 10th Apr '14 3 of 13

In reply to post #82604

Hi chillax,

Sure, I'm looking at Accumuli (LON:ACM) now actually. Looks interesting.

Regards, Paul.

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bsharman 10th Apr '14 4 of 13

I suspect someone like Tesco will come in for Mothercare. a good statement from acm which is good value. I'm in!

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lucien2k 10th Apr '14 5 of 13

Definitely interested in thoughts on ACM as well. I picked up some 7 days ago, given the current global security issues surrounding Heartbleed, and the Target breach last year, I think IT Security has a big future potentially.

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kenobi 10th Apr '14 6 of 13

>> I suspect someone like Tesco will come in for Mothercare.

yes quiet possibly, though I think tesco have enough problems of their own, I don't know whats gone wrong at mothercare, I recall when they were part of storehouse and sold off the other bits and rebranded the company mothercare. Its had good times since then but I've always wondered if there's a market for this kind of shop, especially with the supermarkets and even toys r us have quiet a bit prams and cots business these days. they have a mixture of big out of town and smaller in town shops I wonder if one or the other is making a profit ?

I recall they spent a lot of money buying the ELC some years back, perhaps this is something to do with their problems.


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MGinvestor 10th Apr '14 7 of 13

In reply to post #82608

Great write up Paul - thank you.

Good to have you on board to.

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bsharman 10th Apr '14 8 of 13

I have noticed that Spain, Italy and France have more boutique/specialist shop formats on their high streets. This maybe answers why mothercare is more successful abroad than in the UK? My money is on a takeover in the next 12 months - Tesco is moving towards large warehouse stores with boutiques, coffee shops and restaurants (Giraffe) so I recon that they would be the front runner. It is a bit of a gamble however, as this may not happen and a risk i'm not prepared to take.

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Bezhe 10th Apr '14 9 of 13

"The word "Maiden" only arouses any interest from me if it is preceded by the word "Iron", or alternatively has the word "dividend" after it!" One of the wittiest statements seen on here. Like it.

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kevanp 10th Apr '14 10 of 13

Apropos of nothing, I read in John Lee's article in last weekend's FT Money that he is invested in MS International (LON:MSI), a heavy engineering company that seem to take investor communication (or indeed any other sort of communication) to a new level. A low level.

But… they do have a rather green Stocko page, and Lord Lee's is a voice worth listening too. I wondered if you'd ever cast your analytical eye over them.

Cheers. Kevan

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Paul Scott 10th Apr '14 11 of 13

In reply to post #82615

Hi Kevan,

Yes I have looked at MS International (LON:MSI). It looks great until you see what Director remuneration has been like in recent years. They run it like a private company, and help themselves to excessive salaries in my view, hence that makes it uninvestable in my opinion. Pity, as it looks quite an interesting business.

Regards, Paul.

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Paul Scott 10th Apr '14 12 of 13

In reply to post #82613

I think it's extremely unlikely that anyone would consider buying MotherCare, other than some sort of aggressive vulture type finance company, who would have no qualms about putting the UK operation into a prepack Administration. Nobody in their right mind would take on all the lease liabilities of their heavily loss-making UK operation.


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kevanp 10th Apr '14 13 of 13

Thanks for the response Paul. Point taken about remuneration: in their last financial year the three directors who control the company paid themselves £2.4 million — pretty steep for a company with an operating profit of £5m! Works out at 13p a share, vs 8p dividend a share.

I'd like to know what John Lee thinks about this apparent imbalance. I know he likes to invest to companies whose directors have skin in the game, but one would prefer that they derived the bulk of their income from democratic dividends rather than excessive salaries.

Best, Kevan

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About Paul Scott

Paul Scott

I trained as an accountant with a Top 5 firm, but that was so boring that I spent too much time in the 1990s being a disco bunny, and busting moves on the dancefloor, and chilling out with mates back at either my house or theirs, and having a lot of fun!Then spent 8 years as FD for a ladieswear retail chain called "Pilot", leaving on great terms in 2002 - having been a key player in growing the business 10 fold. If the truth be told, I partied pretty hard at the weekends too, so bank reconciliations on Monday mornings were more luck than judgement!! But they were always correct.I got bored with that and decided to become a professional small caps investor in 2002. I made millions, but got too cocky, and lost the lot in 2008, due to excessive gearing. A miserable, wilderness period occurred from 2008-2012.Since then, the sun has begun to shine again! I am now utterly briliant again, and immerse myself in small caps, and am a walking encyclopedia on the subject. I love writing a daily report for on most weekday mornings, constantly researching daily results & trading updates for small caps. Cheese! more »


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