Broker snap: Tesco threat to Home Retail's Argos

28th Sep 2009 12:50

Concerns about the threat Tesco Direct poses to the Argos brand has prompted Credit Suisse to downgrade Argos owner Home Retail.The Swiss bank now expects the shares to underperform, having previously been neutral on the stock. Analysts at Credit Suisse (CS) have been poring over the Argos catalogue and reckon that prices in the current season are up by around 10% year on year, though the effects of these increases are typically offset by tactical price cuts.'This, in our view, is increasing the volatility of the business model and also seeks to mask the current higher entry prices but also what we believe is a more fundamental weakening of its price position,' CS said, adding that Tesco Direct was cheaper than Argos 'across a far greater number of products'.CS reckons the catalogue business is showing 'evidence of maturity' and that future growth may well have to come from Internet-only products, though the nature of the Internet and easy access to price comparison web sites makes Argos's online offering 'susceptible to price-led competition.'The bank has a 235p price target for the stock.