5 January 2011 – interim management statement
An update on Christmas trading has been provided ahead of schedule and the downbeat contents have seen the share price move to a new historic low. Total sales were down by 8.8% and although Waterstone’s was relatively resilient HMV stores in both UK & Ireland and overseas were disappointing.
The covenant test on the group’s bank facilities in April could prove to be a problem and this is a serious worry. However, HMV remains profitable and cash generative. Even though profit for the current year is expected to be at the bottom end of market expectations, the lowest estimate is £46m prior to tax and exceptionals. On that basis there is scope for the share price to rebound strongly on any positive news moving forward. Although the shares have performed badly since our tip we maintain a HOLD rating at the current share price.