25 May 2012

HMV shares soar

20/01/2012 Miles Nolan

Shares in cash strapped music to games retailer HMV (HMV) have doubled this afteroon after agreeing improved terms with its banks.

Following a shift in its relationship with its key music and film suppliers, its main bankers have agreed to waive the January 2012 covenant test and to re-set tests relating for the years ending April and July 2012. As a result, HMV expects this to have a 'materially positive impact' on its profitability and and cash flow.

Indeed, it reckons that if current trading continues it will slash its debt pile by 50 per cent over the next three years, which is before any planned sales proceeds from its Live business - currently undertaking a 'strategic review'. In the year to April the retailer expects net debt to be £175-180 million, but due to ongoing tough trading it predicts higher than expected losses of £10 million.

In its trading update for the nine weeks to December, sales in its retail arm fell 16.9 per cent but more worryingly it warned that its interim statements were prepared on a going concern basis and there was the possibility it may struggle to continue as a going concern.

The news today is a welcome shot in the arm, but having consistently expressed our concern at trading, the shares remain high risk at 5.2p.

Tags: Banks agreed covenant test, Main market, Retailer, Troubled high street

Sector: General Retailers

Companies: HMV Group

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