Should You Sell Mothercare plc And Poundland Group PLC & Buy Halfords Group plc After Today’s News?

Is today’s slide a buying opportunity for Mothercare plc (LON:MTC) — or are Poundland Group PLC (LON:PLND) and Halfords Group plc (LON:HFD) better choices?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Shares in Mothercare (LSE: MTC) fell by as much as 19% this morning, after the firm said that sales in its international stores fell by 10.8% during the fourth quarter.

A 0.8% increase in UK sales wasn’t enough to offset this drop. This means that Mothercare’s worldwide sales fell by 6.7% during the 11 weeks to 26 March, compared to the same period last year.

To be fair, the firm’s UK figures are slightly better than they appear. Mothercare has been closing lossmaking stores in the UK, so the rise in UK sales was achieved against a 6.4% reduction in retail space. UK like-for-like sales rose by 2.1%, while online sales rose by 5.6%.

However, international sales have been hit hard by the oil crash in the Middle East and by weaker consumer confidence in Asia, especially in China. There’s no way for us to know whether conditions will worsen or improve this year.

Mothercare expects full year results for the 2015/16 financial year to be within current forecasts. This puts the shares on a 2015/16 forecast P/E of about 16. The real question is whether expectations for next year will be downgraded when the group reports its results. I suspect they might be.

Although Mothercare is in much better shape than it was a couple of years ago, I’m not sure how much growth potential this business really has.

Is there more profit at home?

Unfortunately for shareholders in Poundland Group (LSE: PLND), their business wasn’t able to replicate Mothercare’s success with UK customers.

Poundland said today that although UK sales rose by 17.9% last year, this was due to opening new stores and the integration of the 99p Stores’ chain. UK like-for-like sales fell by 3.9% during the second half of the year, and by 4.9% during the final quarter.

This worsening trend isn’t very encouraging, in my view. Nor is Poundland’s guidance that underlying pre-tax profits are expected to be “broadly in line” with expectations. Use of the word broadly is often a code for slightly lower than expected.

Poundland still has some attractive characteristics. The group has net cash and has historically generated plenty of free cash flow. But with UK stores reporting falling sales, profit margins and cash generation could come under pressure.

Poundland shares now trade on 16 times 2016 forecast earnings. I’m not sure this is a good time to buy.

A better alternative?

One of the stars of this week has been Halfords Group (LSE: HFD). Shares in the car accessories and cycle retailer rose by 10% on Wednesday after it reported a 3.1% increase in fourth quarter sales.

Booming sales of in-car cameras, known as dash cams, helped lift motoring-related sales by 3.5% during the fourth quarter, and by 2.5% last year.

Another attraction is Halfords’ car servicing and repair offering, under the Autocentres brand. Autocentres sales rose by 4.1% last year, and tend to have higher profit margins than the retail stores.

After Wednesday’s gains, Halfords shares trade on about 13 times 2016/17 forecast earnings, with a 4% forecast yield. They aren’t the bargain they were in January, but in my view they’re still a reasonable buy.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Could the JD Sports Fashion share price double in the next five years?

The JD Sports Fashion share price has nearly halved in the past five years. Our writer thinks a proven business…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

If interest rate cuts are coming, I think these UK growth stocks could soar!

Falling interest could be great news for UK growth stocks, especially those that have been under the cosh recently. Paul…

Read more »

Investing Articles

Are these the best stocks to buy on the FTSE right now?

With the UK stock market on the way to hitting new highs, this Fool is considering which are the best…

Read more »

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »