Home Retail downgraded to 'sell' by Canaccord

The company said its full year profit was forecast to come in at the lower end of expectations after Argos sales over the festive period fell.

Sales at Argos for the 18 weeks to 2 January dropped 2.2% compared to consensus for a 0.3% increase. A 5% increase in sales at Homebase also missed forecasts for a 5.3% rise.

The group said annual profits were now set to be at the bottom end of current expectations of £92m-£118m.

The company has been in the sights of supermarket Sainsbury’s in recent months and also announced on 13 January it was in talks to sell off Homebase to an Australian conglomerate.

“Were a bid at a higher price to emerge, we would regard this as a ‘get out of jail free’ card for beleaguered Home Retail shareholders, given the stuttering trading performance under its digital transformation strategy against some formidable competitors,” said Canaccord Genuity.

“We are therefore moving to ‘sell’ from ‘hold’ on the basis of our view of fundamental valuation and our view of the uncompelling strategic rationale of a potential bid from Sainsbury. We believe today's trading update makes a bid from Sainsbury less rather than more likely.”

The broker kept its target price unchanged at 115p.

Shares dipped 0.87% to 148.10p at 1332 GMT.