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Banking on the royal baby boom

There may be no historical correlation between royal births and stock market moves, but there may be other ways to cash in on the hype surrounding the arrival of the new monarch.

All trading involves risk. Losses can exceed deposits.

Careful research undertaken by my colleague Chris Beauchamp shows that there is little correlation between the stock market moves and a royal birth; yet with the barrage of media surrounding the event, one could expect to see some movements in specific stocks upon the birth.

The number of babies born in England and Wales has increased by more than a fifth in the past decade, figures indicate. Data from the Office for National Statistics show that there were 723,913 live births in 2011, up from 594,634 in 2001 - a 22% increase. Twins, triplets and other multiple births also increased over the decade, partly due to fertility treatments. Anecdotally, there also seems to be quite a few expectant mothers on the London tube recently. It stands to reason, therefore, that a great deal of money will be spent on the new arrivals, so it might be time to capitalise on the prospect.

Mothercare cash in

On 23 May, Mothercare reported 2013 pre-tax profits of £8.3 million, versus consensus expectations of between £7 million and £8 million, on reported group sales of around £749.4 million and worldwide network sales of £1.23 billion. The company has cut yearly losses by 80%, insisting that a string of cost-cutting measures placed it on a ‘firmer footing’.

UK sales did drop 11% to £500m last year; it reported a loss of £21.7m, a slight improvement on the £24.7m loss recorded in the previous 12 months. However, since March this year, Mothercare has seen an increase of 84.4% in its share price.  (I expect to be admonished but I feel if the baby is a girl, we could well see more upside moves.)

Boost from online

Nearly 60% of the company’s sales are generated outside the UK which signals excellent prospects for growth using the online function, which was launched in May. Mothercare also owns the Early Learning Centre retail brand, as well as social network gurgle.com, which means there is extensive scope for the social networking arm to become pivotal to the online business, giving it real weight with which to take on the pure online clothing retailers. In a world of internet shopping, fixing its online problems has been a great start for the company.

It certainly helped make up for UK shortfall in May – overall, there was a 5.6% hike in sales seen. Expansion in China, Russia and Brazil still on-going. The company intends to set up 15 new outlets every year in China over the next few years; an ambitious target considering Mothercare only arrived in 2008. The race is now on to close loss-making stores as part of a three-year restructuring plan.

Coming from a very low base (121p per share in November 2011) the 500p mark remains elusive – last seen in February 2011, a correction is overdue. I would look to see the price fall on profit taking to the 430/440p mark – this should provide a good entry point.

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