Home truths for Argos owner

21st Oct 2010 12:04

Yesterday's half year results from Home Retail Group are a good indication of the economic pressures facing Britain's less well-off.Reporting a 6.5% fall in like-for-like sales at Argos, the catalogue-based retailer of household products, chief executive Terry Duddy said the chain's 'core customers have been under greater pressure and there were some particularly challenging conditions in certain product categories.'Profits in the half year to August were down to £54.4m from £79.7m in the same period the previous year, much more dramatic than the decline at Homebase, where profits fell from £48.9m to £46.2m.While Homebase and Argos sell some similar products, Argos is much more tailored towards the lower end of the market. As the broker Investec delicately puts it, Home Retail is 'more dependent in Argos on the lower socio-economic groups than the higher ones.'Broker Shore Capital points out that Home Retail has been cutting margins in both businesses, but also asks how long this can continue for.However, it's not all doom and gloom for shareholders. Declines of around 30% in the share price over the past year mean that the stock is trading at about 10 times 2010 earnings. The shares are yielding about 6.7%.A strong balance sheet and cash flow, according to the broker Investec 'should enable further share buybacks and could also be attractive to a private equity buyer.'The first part of the statement proved prescient as Home Retail bought back 665,000 shares today.The latter part is particularly interesting given yesterday's announcement by the outdoor clothing retailer Blacks that it is in takeover talks with possible bidders.Sky's LimitsTonight, the day before BSkyB's results are released, News Corporation chairman Rupert Murdoch will make his first major speech in Britain in more than 20 years.The speech also comes at a time when News Corporation, which currently owns a 38% controlling stake in BSkyB, is trying to take full control of the satellite TV group. News Corp, the owner of the Sun and Times newspapers, is due to make a formal submission to the EU to gain regulatory approval for the deal in the next few days.The title of Murdoch's speech tonight is 'Free Minds and Free Markets.' Some may see this as an allusion to his freedom to buy Sky if he wants to.The broker KBC Peel Hunt expects the deal to go ahead, despite opposition in the UK from politicians and media organs, at a price nearer to 800p than the indicative proposal of 700p.