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

“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.