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Via Yahoo Finance

The Mothercare (LSE: MTC) recovery looks to be gathering pace, after the firm released news of progress along with full-year results Friday.

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.

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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.

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Alan Oscroft has no position in any of the shares mentioned. The Motley Fool UK has recommended Spectris. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Motley Fool UK 2019