It may be too late for Home Retail to turn around Argos, Canaccord says

Home Retail’s interims did little to dispel the doubts of analysts at Canaccord Genuity about the ability of the company to turn around the financial performance of its Argos division.

“The investment case on the shares hinges on a view of Argos, with Homebase in effect something of a sideshow. While we believe Argos's embracing of a digital future is the correct strategy, we have concerns on its ability to transform its financial performance,” analyst David Jeary said in a research note sent to clients.

Initiatives such as its new next day “Fast Track” delivery service and increased marketing spend will boost costs before any longer-term benefits flow through, Jeary added.

Indeed, had it not been for £8m in timing benefits then Argos, the company’s general retailing arm, would have reported a £2m operating loss.

The company is a late arrival in the digital space and there is intense competition, the broker said.

The stock’s approximately 25% discount to its peers on a price-to-earnings multiple basis, “clearly reflects market doubts on the group's ability to deliver a sustainable improvement in its profit delivery over the medium- and longer-term”.

Canaccord Genuity placed its previous investment recommendation of ‘hold’ and target price on the shares under review.