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Radical rethink for Home's Homebase

Home Retail Group's new boss, John Walden, has announced plans to reposition DIY retailer Homebase.
October 22, 2014

John Walden, the new chief executive of Home Retail Group (HOME), has unveiled plans to reinvigorate a "financially challenged" Homebase, including shrinking the store estate by a quarter over the next four years. The announcement has put the kibosh on rumours of a possible spin-off of the DIY chain. Instead, the group will pursue a three-year project to improve productivity, with a big focus on customer service and higher, more uniform operating standards. The goal is a "smaller but stronger" business.

IC TIP: Buy at 174p

The Argos transformation plan will also remain a strategic priority, as it offers "the greatest potential source of shareholder value", said Mr Walden. A tie-up with eBay last year is to be rolled out to 700 Argos shops, servicing 65,000 eBay merchants. Mr Walden hinted that other retailers might benefit from a similar deal. Argos is also working to broaden its customer base by introducing more aspirational brands.

With like-for-like sales up 2.9 per cent, the group's adjusted half-year pre-tax profit grew 13 per cent to £30.9m - towards the lower end of expectations. The profit weakness was down to cost front-loading at Argos, which makes 90 per cent of its operating profit in the more festive second half. Full-year guidance remains unchanged, but as ever is predicated on a good Christmas.

Investec expects pre-tax profit of £131m for the full year, giving EPS of 12p, up from £115m and 10p last year.

HOME RETAIL GROUP (HOME)
ORD PRICE:174pMARKET VALUE:£1.4bn
TOUCH:174.2-174.4p12-MONTH HIGH:225pLOW: 157p
DIVIDEND YIELD:1.9%PE RATIO:27
NET ASSET VALUE:322p*NET CASH:£333m

Half-year to 31 AugTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20132.614.21.61
20142.713.51.21
% change+3-5-25-

Ex-div: 12 Nov

Payment: 22 Jan

*Includes intangible assets of £1.75bn, or 216p a share