Tip Update Home Retail Group PLC (uk:HOME)
Our previous tip
- We said Sell
- When 30 September 2010
- Price 208p
- Tip performance to date -40%
In its first half, covering the 26 weeks to the end of August, Argos's like-for-like sales tumbled 9.1 per cent, with the gross margin having slipped 100 basis points in the second quarter alone. Management point to a weakening consumer electronics market as the main culprit. Meanwhile, Homebase's like-for-like sales fell 3.1 per cent in just the second quarter, with the gross margin down 25 basis points over the half. Performance here was hit by weakness in big-ticket items.
The shares actually rose about 4 per cent on the back of this update to 125p - but only because analysts had expected worse. The problem is that Home Retail's already tough markets could worsen as consumer pressures mount. And it's unclear whether the group's woes are merely cyclical or reflect a more ominous structural shift. So, while a forward PE ratio of about nine isn't pricey, those uncertainties could send the shares lower still. Sell.
Last IC view: Sell, 175p, 9 Jun 2011