Oriel reiterates 'reduce' on Mothercare amid pricing pressure

22nd May 2014 12:23

Oriel Securities has reiterated its 'reduce' advice on Mothercare, saying the baby product retailer's core UK business may take time to return to profit due to price competition.Mothercare on Thursday reported another fall in annual UK sales, but said they were dropping more slowly than the year before.Oriel, which has a 175p target price on Mothercare, said its pre-tax profits were above its forecasts, but operating losses were "a touch worse" than it expected.The broker said the addition of a further £10m to the group's banking facilities was welcome, but it suspected Mothercare was "closer to its banking covenants than it might like". It added that pressure on prices in Mothercare's home and travel division remained and internet competition was likely to push them down further."Overall much remains to be done here and there is little sign of a medium term solution to the pricing pressure Mothercare faces," Oriel said."We remain cautious about the time-frame in which the UK business can hope to return to profitability and reiterate our 'reduce' recommendation."Investors in Mothercare nevertheless appeared to welcome the results, boosting its shares by 22.5p or 16.2% to 161.25p by 13:06 in London.PW