Here are the three stocks that gave the most pain to their holders over the last 10 years. 

Wealth killer

Considering the sea change in the fortunes of many high street retailers over the last decade, it is not surprising that two of them make the cut.

In bronze medal position is baby goods seller Mothercare (LSE: MTC). According to Refinitiv, shares in the battered firm lost almost 96% of their value over the last decade, with a compound annual growth rate of -27.23%. 

Mothercare’s demise is a cautionary tale on the importance of moving with the times, at least as far as UK trading is concerned. While factors such as rising wages and expensive rents clearly played a role, it was the company’s inability to offer shoppers something distinct in terms of quality, price, or convenience that proved to be the final nail in its coffin.  

With no sign that the onslaught from online-only operators is going to slow anytime soon, I think we can be fairly sure that Mothercare won’t be the last once-mighty name to fold.

Money pit

The fact that a commodity-focused firm makes the list is another non-surprise. Weak prices led the Basic Materials sector to perform particularly poorly over the last decade with an annualised growth rate of just 3.1%.

Occupying second spot on our list of stinkers is Russian gold miner Petropavlovsk (LSE: POG). Its shares fell a little more than 96% over the period, with a compound annual growth rate of -27.68%.

That’s not to say that the company is done for. Despite its valuation tumbling over the years, Petropavlovsk remains a sizeable business with a market capitalisation of a little over £400m. What’s more, holders enjoyed a steller 2019 with shares almost doubling in value. 

With the gold price continuing to rise on concerns over the health of the global economy, it’s possible to imagine this stock could still make money for those brave (or reckless) enough to buy it. Just don’t expect a comfortable ride. 

And the winner is….

Mothercare and Petropavlovsk have been awful stocks to own since 2010. There is, however, one UK-listed firm that’s fared even worse. 

Top spot among the worst shares over the last decade goes to floor covering supplier Carpetright (LSE: CPR). The value of the company fell 99% over the last decade with a compound annual growth rate of almost -40%.

Like Mothercare, the firm’s value was destroyed by a challenging consumer market and crippling finances. It agreed to be purchased for a paltry £15.2m by its largest shareholder (Meditor) last November. At the time, the Purfleet-based business owed around £56m and said that it needed £80m if it was to return to growth. 

The fact that the stock traded around the 800p mark in 2010 and sold for just 5p per share a decade later shows just how brutal a game investing can sometimes be. It also provides Fools with a reminder of the importance of exiting a losing position as early as possible if the investment case changes. 

The post Stand back! Here are the WORST performing UK stocks over the last decade appeared first on The Motley Fool UK.

It shouldn’t come as a shock that City analysts expect the battered retailer to record another hefty profits drop – of 23% – in the current financial year (to March 2020). A 1% drop is being touted for fiscal 2021, too, but given Marks & Sparks’ long-running failure to get demand for its fashions firing it’s another forecast I can easily see being downgraded in the months ahead.

But would you still be better using your cash to buy shares in the bashed-up retailer than locking it up in a low-yielding Cash ISA?

Another divi cut?

It’s probably no surprise to you that broker expectations of another severe bottom-line reversal mean that the annual predictions are expected to be hacked down for a second year in a row (last year’s 13.9p per share reward is tipped to drop to 10.7p in the current period).

The good news is that this forward figure still yields 6.1%, which trounces the mid-cap forward average of around 3.3%, not to mention the sub-2% interest rates that Cash ISA savers still receive.

As I’ve explained time and again, I’m no fan of the Cash ISA. The returns that savers can expect to make from these products lag those that stock investors can expect to make – between 8% and 10% per year over the long term, studies show.

Cash ISA or M&S?

But this isn’t the worst of it: despite inflation in the UK falling to its lowest level in almost three years at 1.5% in October, the best that Cash ISA savers can hope for is to make zero return, with most actually seeing the value of their money erode (the best-paying of these instant-access products from Newbury Building Society has an interest rate of just 1.5%).

That said, I’d much rather have my money parked in one of these products than to use said funds to buy shares in Marks & Spencer. The prospect of pathetic interest rates is much more appealing than hitching your wagon to a share which is haemorrhaging in value (the retailer’s share price has fallen by around two-thirds since 2014).

And there’s the chance that M&S investors could eventually see the value of their stock reduced to zero. As the failure of Debenhams, Mothercare, BHS, and House of Fraser (to name just a few) over the past few years show – firms which have either gone bust or slipped into administration – no British shopping institution is too big to fail.

And given the number of false starts we have seen at Marks & Spencer over the past decade it’s quite possible that this former FTSE 100 stalwart could be on the road to ruin, too.

The post Calling ISA investors! Is this 6% dividend yield a better buy than a Cash ISA? appeared first on The Motley Fool UK.

Although the UK business will no longer exist, the shares are not being de-listed, as the worldwide company still exists and in its latest annual report to 30 March, international profits exceeded £28m. However the pension fund has a shortfall of £139m which the international arm of the business will have to absorb. 

Sentiment surrounding the store’s collapse on social media is not particularly complementary. Many consumers saw it coming and are not surprised. Some shoppers found it overpriced, with a lack of choice and slated it for not having basic mother/baby feeding and changing facilities in the store, concluding that they’re not shocked it ran itself into the ground.

However, some customers are outraged at blame being pointed to online competition, instead chalking it up to the rise in austerity, reduction in spending money, and government price hikes, stating that many baby clothes are in fact far more expensive to buy online.

Others feel Mothercare cannot be considered another casualty of Brexit. Back in 2014, Mothercare lost £28m, followed by £15m in 2015. Since Brexit, Mothercare went on to do much better with pre-tax profits of £6m in 2016 and £8m in 2017.

Whatever the reason, it’s a very sad day for all involved. Although some people are still jumping in to buy Mothercare shares at this discounted price, I think it could have further to fall and will avoid with a barge-pole. 

Considering the very depressing state of the British High Street and the UK retail sector in general, where is a good place for stock market beginners to invest their hard-earned cash?

Telecommunications

After enduring a period of being out of favour with investors, Vodafone (LSE:VOD) is making a comeback. The Vodafone share price has been steadily rising over these past few months as shareholder sentiment has turned positive. It acquired telecoms assets across Europe from Liberty Global in a deal worth €18.4b.

Shareholders see this as a strategic move by Vodafone, which has positioned itself as a major telecoms player in Europe, and Germany’s largest paid-for-television operator.

Vodafone offers a 4.8% dividend yield, which seems reasonable at first glance, but its important to be aware that this is after a cut earlier in the year.

Unfortunately, the group’s borrowings are closing in on $55b since the Liberty acquisition, with a current debt ratio of 46% and negative earnings per share.

It does intend to sell some assets to offset some of its debt, which includes the closure of 1,000 shops across Europe. This will not be a quick fix, but should help the company regain solid ground and return to growth in the future.

Now that moves have been made to streamline the business, I think investors are seeing that leveraging the strength of the Vodafone brand while de-risking the business will take Vodafone in a positive direction. Its average yearly price-to-earnings ratio is 16. I think it’s well positioned for a steady climb and consider it a Buy. 

The post Forget Mothercare! The Vodafone share price is rising appeared first on The Motley Fool UK.

The shares had already been giving up some of their recent gains, having fallen back from a 24.6p peak in June. The latest drop puts them down at 17.5p.

Tough trading

Mothercare has downgraded its medium-term outlook for the UK, suggesting the market “will continue to be uncertain and volatile, accompanied by fragile consumer confidence.” As a result, “gross margin improvements in the UK are expected to take longer to materialise than previously anticipated.“

Underlying pre-tax profitability for the current year looks set to come in at similar levels to last year — when the firm recorded a statutory pre-tax loss of £66.6m, and an adjusted loss of £20.4m. To help with the longer time now expected for the company’s recovery, lenders have agreed to a temporary deferral of planned loan reductions.

I’m convinced we’ll still need to be cautious for some time to come. I think it could easily take another couple of years to see the shape of a hopefully-recovered Mothercare and to have enough information to work out some sort of rational valuation for the shares. Right now I can’t do that, and I’m sticking to my rule to never buy a recovery stock until after it’s recovered.

Growth plus income

By contrast, Speedy Hire (LSE: SDY) looks like a recovery that’s actually happened. Last November, Kevin Godbold re-examined the firm and saw both dividend and growth prospects. Since then, the share price has been erratic and has dipped a little overall, so did he get it wrong?

No, I think it’s the market that’s missing a trick here, possibly because our Brexit-led uncertainty is driving investors to seek mega-cap safety. And that can leave bargains for those of us willing to take a little risk. The industrial equipment hire firm’s last set of results in May showed strong figures across the board, with adjusted EPS up 21% and the dividend lifted by the same proportion to provide a 3.7% yield.

Rising dividend

With double-digit EPS growth on the cards, forecasts suggest a dividend yield of 3.9% for the current year and 4.4% next. And with P/E multiples dropping to under 10 and the company showing attractive PEG growth characteristics, what’s there to fear? I’ll sound two notes of caution.

One is that net debt has built up a bit, reaching £89.4m (from £69.4m a year previously). That’s still less than 1.2 times EBITDA, and I don’t see any major concern on that measure alone. But my second concern is that the business is typically cyclical. So a lower-than-average P/E is probably appropriate, and I wonder if debt might become an issue in any future down cycle.

All in all, though, I’m seeing Speedy Hire as an overlooked buy right now, and it’s on my shortlist.

The post A ‘secret’ small-cap recovery stock I’d buy today, and one I’d avoid appeared first on The Motley Fool UK.

UK like-for-like sales were down 8.9% and the company recorded an adjusted pre-tax loss of £11.6m (though with a statutory loss of £87.3m). But that’s not what really counts this time round as it’s the non-financial progress people are watching out for (though a big reduction in net debt from £44.1m to £6.9m certainly helped).

Closures done

The retailer, which focuses on parents and young children, told us it has completed its UK store closures ahead of schedule, reducing the count from 134 to 79. The firm has exceeded its target of £19m in annual cost savings, and the sale of the Early Learning Centre for £11.5m made a big difference to the balance sheet.

And though the UK market is still tough, international sales were down only 0.3% at constant currency (down 3.9% at actual rates), and Mothercare reported growth “in core markets of Russia, China and Indonesia.”

Share price

Investors reacted by pushing the Mothercare share price up 22% in early trading, continuing the upward trend of the past couple of weeks. Despite that enthusiastic reaction, I’m still cautious. I’m impressed the company has made a good start on the plans it set out a year ago, and forecasts suggest a return to (a very small) profit this year.

But, though the firm’s “primary focus in the UK will be the development of our online proposition,” I’m still concerned about the UK retail market. Overall, I’m seeing significant progress, but I’m also seeing a need for caution.

Focus

Spectris (LSE: SXS), the developer of precision instrumentation and control equipment, is another business that’s been refocusing, though nowhere near to the extent of Mothercare. 

When full-year results were released in February, chief executive Andrew Heath (who has been with the company since September 2018) spoke of his desire to focus the company more on scalable products “in attractive high growth markets.”

With Heath suggesting economic conditions could put a bit of a squeeze on its business and lead to a slowing of sales growth, he set a 2019 target of “increasing productivity and operational efficiency,” saying he expects to see efficiency benefits of £15m-£20m during the year.

Despite the firm’s caution, a trading update released Friday reported a 3% rise in like-for-like sales, with growth from acquisitions adding an extra 1%.

Lots of cash

What I like most is the company’s strong cash generation, with a conversion rate of more than 100% helping cut net debt by £32m since the last year-end. That’s despite capital expenditure of £28m, and brings the figure down to £265m. That’s less than last year’s adjusted EBITDA and well within my comfort zone.

Spectris’ cash generation funds a progressive dividend policy, with the 2018 dividend hiked by 8% — well ahead of inflation. While yields are modest at around 2.5%, we’ve seen the dividend climb from 46.5p in 2014 to 61p in 2018, and that’s a 31% rise in just four years. And if forecasts come good, we should see a further 12% over the next two years too.

The share price is up 10% over five years, and we’re seeing an average-looking P/E of around 14. I see Spectris as an attractive long-term buy.

The post Time to buy after Mothercare share price soars 20%? appeared first on The Motley Fool UK.

In crisis

Finding itself in a “perilous financial condition” as a result of increased competition and poorly performing stores, Mothercare revealed that it would refinance the business and restructure its UK portfolio through company voluntary arrangements (CVA) — agreements with creditors that allow a business to repay its debts over a fixed period of time.

The company has proposed to raise £28m in July through the issue of new shares. Revised debt facilities of 67.5m (with a final maturity date of December 2020) were also disclosed along with £18m worth of loans from the company’s largest shareholders and a trade partner. The latter will allow Mothercare to meet its short-term liquidity requirements.

All told, this should provide the company with up to £113.5m of funding as it attempts to turn things around.

On top of this, Mothercare will accelerate the reduction of its store estate to reduce losses and save on rent. A total of 50 stores will go, leaving a portfolio of 78 by 2020. There will also be “material rent reductions” at 21 other stores.

With Interim Executive Chairman, Clive Whiley, stating that the potential for the brand “remains significant”, is it time to reconsider investing in Mothercare? Not unless you have the patience (and optimism) of a saint.

Today’s huge rise needs to be put in context. In a little under three years, stock in the Watford-based business has collapsed in price from 300p to 21p (before today) as its market share has been pretty much eradicated by online competitors, low-price retailers (e.g Primark) and supermarkets. How the company can possibly stage a meaningful recovery when its UK operation hasn’t delivered a profit in six years is beyond me. 

Those inspired by legendary value investor Benjamin Graham’s penchant for finding “cigarette butt” stocks will be drawn to Mothercare, but I think most investors should steer clear. A price-to-earnings (P/E) ratio of 9 for the current financial year looks enticing but — with no compensation for taking on so much capital risk — the suggestion that it remains anything but a value trap remains fanciful.

Today’s news may be enough to postpone its permanent inclusion in the growing list of high street casualties, but I’m still of the opinion that the death knell for Mothercare will eventually sound.

A safer bet

Despite its undeniably punchy valuation, lifestyle clothing brand Joules (LSE: JOUL) feels like a far safer alternative. 

January’s interim results revealed an 18.2% rise in revenue and 22.5% increase in underlying earnings before interest, tax, depreciation and amortisation (EBITDA). With the company now starting to make serious strides overseas, it’s no wonder management anticipates full-year profit being “slightly ahead” of analyst expectations. 

As mentioned, there’s just one problem. Since arriving on AIM two years ago, Joules’s stock has climbed almost 75% in value, leaving the company trading at 28 times earnings for the soon-to-be-over 2017/18 financial year. That said, a PEG ratio of 1.55 suggests growth hunters would still be getting a reasonable deal. In complete contrast to Mothercare, Joules also has net cash on its balance sheet.

While I wouldn’t rush to buy the shares right now, the retailer is certainly one to consider should markets correct once again.

The post Here’s why Mothercare’s share price is flying today appeared first on The Motley Fool UK.

The group’s shares have fallen by nearly 75% since my last article, as further updates have revealed continued poor trading.

During the 12 weeks to 30 December, UK like-for-like sales fell by 7.2%, while UK online sales fell 6.9%. International sales were 3% lower during the period, excluding currency effects.

The good news is that the firm’s sales performance did improve slightly during the final quarter of the firm’s financial year, which runs to late March. UK like-for-like sales only fell by 2.8% during this period, while UK online sales returned to growth, rising by 2.1%.

However, international sales continued to worsen, falling by 3.7% during the final quarter. Full-year sales for the whole group are expected to be 1.9% lower than last year.

More shareholder cash required?

Despite raising £100m from shareholders in 2014, Mothercare’s net debt was expected to be about £50m at the end of March. As of 12 April, the company remained in discussion with lenders about refinancing.

One reason for this delay may be that lenders are waiting for the firm’s new chief executive, David Wood, to produce a fresh turnaround plan. Recent press reports suggest that this might include a company voluntary arrangement (CVA) to allow the firm to close about 47 of its 143 stores.

If this happens, I’d also expect the lenders to require an equity fundraising to improve the group’s cash position. Mr Wood may have been referring to this in comments on 12 April, when he said that Mothercare was continuing “to explore additional sources of funding”.

A glimmer of hope?

Looking ahead, broker forecasts suggest that adjusted earnings could recover to 2.4p per share in 2018/19. This gives the stock a 2018/19 forecast P/E of about 7.5.

This might seem cheap, but if new shares are issued as part of a restructuring, existing shareholders could face significant dilution. I think it makes sense to wait until the company has completed any refinancing before considering whether to invest.

This is how it could work

Mothercare isn’t the only well-known retailer with financial problems. Flooring specialist Carpetright (LSE: CPR) has seen its share price fall by more than 70% since it reported a “sharp deterioration in UK trade” with a “significant impact on profitability” in January.

However, Carpetright appears to be several steps closer to a solution than Mothercare. On Thursday, the company announced details of a CVA proposal that would allow it to close 92 sites, and agree a rent reduction on a further 113 sites.

If the firm’s landlords approve this plan, then management also plans to raise £60m through an equity placing and open offer. This cash will be used to help reduce debt and fund the group’s turnaround plans.

I’m not rushing in

Without its lossmaking stores, Carpetright’s profitability could improve significantly. This could become an attractive recovery play.

The problem for small investors like us is that if the plan is approved, most of the new shares will be issued to institutional buyers. They may well be sold at a big discount to the current share price. If this happens, the existing shares could fall sharply.

On balance I think it’s probably still too soon to buy, but I’ll be watching this situation with interest.

The post Can the Mothercare share price make a successful comeback? appeared first on The Motley Fool UK.

Shareholders and senior management alike have been pinning their hopes on the turnaround strategy set out by CEO Mark Newton-Jones, who came to the business four years ago from online retailer Shop Direct with an impeccable record. 

However, after a disastrous Christmas trading period, exacerbated by Newton-Jones’s strategic decisions at a time when the rest of the retail industry slashed prices to attract shoppers, the CEO was replaced with immediate effect at the beginning of April. 

David Wood, a former Tesco executive, has now stepped into the breach. Wood has also recently been working as president at the US department store giant Kmart, so it certainly seems as if he has the right credentials.

Unfortunately, the challenge he has inherited might prove to be too much even for this retail veteran.

On the edge of a cliff 

Mothercare is currently locked in talks with its lenders over a new finance package to keep it afloat. According to a trading update published by the company yesterday, these talks have been “constructive“, and the group is looking at alternative sources of funding as well. Floor space was reduced by 11% for the 12 weeks to March 24, and Woods is reportedly planning to eliminate another third of outlets that are underperforming. Sales fell 5.6% in the UK and 11% overseas for the period. These figures illustrate the challenge facing new management.

Nevertheless, in my opinion, it’s not time to give up on Mothercare just yet. The company does have some strengths, its brands are recognisable throughout the UK, and the online business registered a turnaround sales growth of 2.1% for the 12-week period.

That said, threats to the group’s existence are numerous. Cheaper competition online, falling discretionary incomes and rising costs across the firm’s store portfolio mean that Mothercare is operating in a very hostile environment. There’s also the company’s debt to consider. Management has been guiding for debt of £50m for 2018, which according to my calculations, will give a debt-to-equity ratio of around 100%.

Buy, sell or hold? 

So, Mothercare does have some strengths, but the company is being hobbled by its sizeable physical store presence and weak balance sheet.

With this being the case, it’s no surprise the company is considering a CVA to shut down 47 of its 143 stores (according to news reports) and change rent terms on the others. This may be the best outcome for the group. Exiting unprofitable stores and reducing the rent roll will allow it to focus on the development of the online business, one of the firm’s principal strengths.

However, if management does choose to go down the CVA route, it’s unclear how investors and the Mothercare share price will fair. For the time being then, until we have more clarity on Mothercare’s outlook, it looks to me as if the shares are uninvestable, although my Foolish colleague Peter Stephens seems to disagree. 

The post Will the Mothercare share price ever make a successful comeback? appeared first on The Motley Fool UK.

However in the long run, the retailer could now offer turnaround potential. It appears to have a wide margin of safety, with investors seemingly having priced in further disappointment for the mother and baby goods business. As such, it could be worth a closer look alongside another company which is expected to deliver improving levels of profitability over the medium term.

Uncertain outlook

The key Christmas period was a relatively disappointing one for Mothercare. It was unable to deliver the performance which it and the market was expecting. A lack of discounting for most of the period seems to have been a key reason for its sub-standard performance, while discounting late in the season meant that gross margin was relatively weak.

This comes after a period where the company appeared to be putting in place an improved strategy. Now, though, its future prospects appear to be highly uncertain. This could mean that there are more challenges ahead for the business – especially since the outlook for UK consumers is downbeat due in part to inflation being above wage growth.

Improving outlook

Despite the problems it faces, Mothercare is expected to report a rise in its bottom line in the 2019 financial year. Its earnings are due to increase by 30%, and then by a further 81% in the 2020 financial year. Clearly, there is scope for these figures to change and the company may miss its guidance due to difficult trading conditions. However, the figures also serve to show that the company may be able to deliver a turnaround faster than the market is currently expecting.

With the stock having a price-to-earnings growth (PEG) ratio of 0.1, it seems to offer growth potential at a reasonable price. While at the riskier end of the investment spectrum and currently experiencing financial uncertainty, it could be worth a closer look for less risk averse investors.

Future potential

Also offering turnaround potential is oil and gas production company Gulf Keystone Petroleum (LSE: GKP). It released results for the 2017 financial year on Wednesday which showed a profit for the first time since its entry into Kurdistan. Its net profit of $14.1m shows that it’s moving in the right direction, with significant operational progress having been made in recent years.

In 2017, the company met its gross production target, delivering average production of 35,298 barrels of oil per day (bopd). It also remains confident of meeting its near-term target of 55,000 bopd as it invests more heavily into its Shaikan project.

Looking ahead, Gulf Keystone Petroleum is expected to report a rise in earnings of 194% in the current year, followed by additional growth of 82% next year. Since it trades on a PEG ratio of 0.1, it appears to offer a worthwhile risk/reward ratio for the long run.

The post 85%-faller Mothercare isn’t the only turnaround stock I would buy today appeared first on The Motley Fool UK.

Like many of its peers in the retail sector, Mothercare stumbled over the Christmas period as it struggled to win over shoppers. The group said its same-store UK sales fell 7.2% in the 12 weeks to December 30 compared with last year and online sales also slumped by 6.9% for the period.

Following this dire trading, the company is expected to produce a result significantly below previous expectations for the year. Mothercare said adjusted pre-tax profits would be in the range of £1m to £5m in the year to May. This compares with a figure of £19.7m in 2017 and is more than 50% below the previous analyst estimate of £12m for the year ending 31 March 2018. 

Multiple headwinds 

According to CEO Mark Newton-Jones, the company suffered from its decision to hold off on price reductions until the end of sale season. Higher prices pushed consumers away but since the discounting started the firm has “seen good progress with strong sell through rates on Autumn Winter clearance lines.” However, these sales “carry lower margins and will lead to a further reduction in full-year margin as a result.“

Going forward, management is not “anticipating any improvement in the short-term market conditions for the UK,” and as a result, it seems as if Mothercare’s outlook is going to be unclear for some time yet. 

Turnaround has hit a wall

Mothercare’s poor Christmas is somewhat of a surprise. Even though the whole retail industry is suffering from similar pressures, at the beginning of 2017 it looked as if the company’s efforts to rebuild itself for the modern retail world was paying off. As I covered last year, for the 52-week period to 25 March 2017, group sales expanded 6.2% year-on-year and digital efforts were starting to pay off. 

Nine months on and it looks as if the firm is going backwards. What’s surprising is that the company’s online sales are now sliding. Changing consumer shopping habits have resulted in most retailers reporting a fall in in-store sales over Christmas, although in most cases, higher online sales have helped offset the decline. For example, last week high street bellwether Next reported a 6.1% decline in store full price sales for the 54 days to 24 December, but online sales for the period jumped 13.6%, helping the group report positive overall sales growth for the period.

With sales falling across the board at Mothercare, it looks to me as if consumers have completely turned against the company’s offering. Management’s decision to stop discounting in the most important sales period of the year seems to have been a big error, and now the firm is having to dump its stock at knock-down prices. 

In today’s highly competitive retail environment, Mothercare can’t afford to be making these mistakes. That’s why I’m not catching this falling knife today; it looks as if the group’s turnaround has hit the rocks.

The post Why I’m avoiding Mothercare plc after today’s 25% slump appeared first on The Motley Fool UK.