Broker snap: Home Retail benefits from rivals' demise

11th Jun 2009 11:43

Home Retail Group looks to be a major beneficiary of the collapse of Woolworths after its Argos division reported this morning that consumer electronics sales continue to grow while toy sales are strongly ahead of last year.Meanwhile, the demise of MFI could be a major factor in the growth of kitchen sales at Home Retail's Homebase outlets, broker KBC Peel Hunt reckons.The misfortunes of now extinct retailers have brightened the outlook for Home Retail, giving 'scope for measured forecast upgrades,' KBC reckons. 'Given the good start for the year from Homebase and also an improving exchange rate for US dollar:sterling, we see scope for further upgrades for Home Retail this morning. We assume cost savings initiatives remain on track,' KBC analyst John Stevenson said. Singer Capital Markets is also expecting earnings forecasts to be upgraded as a result of better than expected trading in Home Retail's first quarter, even if sterling continues to be weak.'Despite this continued pressure [from the weak currency], and as a result of today's better than expected performance we would expect market estimates to creep up by c.3-4% from the current c. £190m towards £200m PBT [profit before tax],' Singer notes. Singer regards Home Retail as a bit of a mixed bag. 'Positive characteristics include a conservative capital structure with net cash, strong management and strategic value in the Argos business. However, Homebase remains an area of concern as conditions get more challenging and as it loses share to the other sheds, in particular to a recovering B&Q.' the broker notes.