Its been a dire month for investors in Mothercare (LSE: MTC) whose shares have lost 38% of their value in the last 30 days. This collapse was caused by a trading statement on April 14, which revealed a 10.8% drop in international sales.
Until recently, Mothercares franchised international sales were a reliable source of profits for the firm. The Middle East oil crash and subdued conditions in Asia have put paid to this. Although the firms UK store estate is starting to perform better, the poor international outlook concerns me.
Broker earnings forecasts for 2016/17 have been cut by 27% over the last month, to 10.2p per share. This puts Mothercare on a forecast P/E of 11.5 for the current year. That seems fairly cautious, especially as the franchised nature of Mothercares international operations means that potential store closures wont cost the group anything.
Despite this I dont think theres any rush to buy. Im going to wait for Mothercares results next week and then review the situation again.
Was the board right to reject this offer?
Premier Foods (LSE: PFD) shares rose from 32p to a high of 62p at the end of March, after the firm received a surprise 65p per share takeover approach from US firm McCormick.
Premier owns popular brands including Mr Kipling and Bisto but is struggling against the impact of a supermarket price war and its 585m net debt. Given these headwinds, the chance to become part of a larger and financially stronger organisation looked attractive for shareholders.
Premiers board didnt agree and gave McCormick the cold shoulder. Instead, the firm opted for a partnership deal with Japanese firm Nissin. Investors werent impressed by the rejection of the McCormick proposal and Premiers shares have since fallen by 32%.
Given that interest costs swallowed up half of Premiers operating cash flow during the first half of the year, reducing debt is an urgent priority.
Investors will find out whether Premier has been able to make good on its commitment to cut debt and boost sales on Tuesday, when the firms final results are due. However, my view is that there are almost certainly better buys elsewhere.
Consumer confidence or company problems?
Shares in Restaurant Group (LSE: RTN), which owns brands including Frankie & Bennys and Chiquito have fallen by nearly 60% so far this year.
Last months 18% drop was driven by new guidance that like-for-like sales will fall by 2.5% to 5% this year. This translates to a fall in pre-tax profits of around 10% compared to last year.
The company is blaming weaker consumer confidence, but has also said its changing the mix of restaurants its opening this year. I suspect the core Frankie & Bennys brand may be underperforming.
Im also concerned by the sudden departure of chief financial officer Stephen Critoph, who left with immediate effect in April. Such a sudden departure usually means a big boardroom disagreement or a looming disaster.
The good news is that theres very little debt and strong free cash flow. With the shares trading on less than 10 times forecast earnings and offering a forecast yield of 5.5%, Restaurant Group could be a bargain.
Personally, I may wait until a new CFO is appointed before considering a buy.
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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.
