KEY POINTS:
Shares in kids clothing retailer Pumpkin Patch continued to fall today despite it being tipped as a takeover target.
Analysts quoted in today's Independent Financial Review said the stock had been so heavily sold as a result of its struggles to penetrate the United States and British markets it made the company an attractive prospect.
In a research note titled, "A prime takeover target", ABN Amro's Carolyn Holmes said the share price of $1.87 was too low and the company "appears a very attractive takeover target".
But she is very critical of the company's overseas expansion efforts.
Guy Hallwright, from Forsyth Barr, said it was "pretty cheap at the moment" as a result of the sustained losses from its entry into the US and British markets, making takeover a possibility.
Australian businessman Solomon Lew, who is trying to take over the retail chain Just Group, which has 143 New Zealand stores, is cited as a potential buyer.
Pumpkin Patch shares have plunged 63 per cent since hitting a peak of $4.95 at the start of last year. Today, they were down 3c to 182.
Mr Hallwright said the market appeared to believe the international expansion strategy would not succeed. Even so, he was mystified why it had fallen so far.
Ms Holmes forecast the UK and US stores would deliver a combined Ebit loss of $8.2 million in 2008.
She sees heavy capital requirements, a rise in inventory and a decline in stock turnover.
Operating cashflow, she said, was insufficient to cover capital expenditure and dividend payments, while increased debt levels would be funded at higher short-term rates.
She suggests the company would be better off quitting the US and UK markets and an acquirer would do that.
However, Pumpkin Patch chief executive Maurice Prendergast told The Independent the company strategy was to expand overseas.
- NZPA
