Broker snap: Home Retail overvalued, sell says Merchant Securities

2nd May 2012 10:48

Merchant Securities has maintained its sell recommendation for Argos and Homebase owner Home Retail Group, saying that while the preliminary results were broadly in line, there are tough market conditions ahead.Pre-tax profits fell 60% to £90.2m in the year to 25 February while sales were down 6% to £5.58bn. Like-for-like (LFL) sales fell 8.9%."The outlook statement is weak and provides very little information on current trading. Low consumer confidence, inflationary pressures and uncertainty surrounding consumers' disposable income does not provide us with confidence for the future," said analyst Amisha Chohan.Merchant Securities thinks that Homebase LFL sales in the current financial year will have suffered from the weather in April 2012, compared to the heat wave experienced last year."Fundamentally we believe the stock is overvalued, trading at a premium to the sector. The slowing run rate, continued pricing pressure, difficult product mix, structural challenges in the form of intense competition from supermarkets and internet players, weaker consumer sentiment encourages us to reiterate our sell recommendation," Chohan said.Shares had dropped 9.55% to 91.35p by 10:46 on Wednesday.BC