HMC Capital acquires major stake in Baby Bunting following profit warning

HMC Capital has acquired a significant stake in Baby Bunting, Australia's largest children's products retailer, after the company's shares declined due to a profit warning.

Transaction snapshot

  • Deal value: N/A
  • Deal multiples: N/A
  • Deal type: Acquisition of shares
  • Investors: HMC Capital

HMC Capital Partners Fund 1 disclosed a 10.3 per cent holding in Baby Bunting on Friday, with sources close to the transaction stating that HMC acquired just over 5 per cent last week. The stake in Baby Bunting is the fifth significant holding in the fund, which also owns stakes in Lendlease, GrainCorp, Ingenia Communities, and Sigma Healthcare.

Baby Bunting's shares fell 22 per cent in a single day last week after the company reported worse-than-expected sales declines, attributing the drop to its customers being more sensitive to widespread cost-of-living pressures. Over the past 12 months, Baby Bunting's shares have fallen almost 33 per cent, and the company cut its first-half dividend to 2.7¢ after its statutory net profit fell 67 per cent to $2.7 million for the six months to December 31.

Baby Bunting is the country's largest specialty maternity and baby goods retailer, with 74 stores in Australia and New Zealand. Despite the company's plans for rapid growth and expansion online, the company reported negative revenue growth due to the current trading environment which is characterised by lower customer demand, elevated levels of competitive discounting, and increased input costs.

HMC Capital, which operates two listed real estate trusts and has considerable expertise in retail properties, is expected to push Baby Bunting to improve its store network given its significant stake in the company. HMC Capital Partners Fund 1 reported net returns of 46.5 per cent over the 12 months to March 31, aided by a surge in Sigma's share price and improvements at Ingenia.

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