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Home Retail Group expectations

Ahead of figures later this week Home Retail is 3.2p higher at 224.5p, helped by a bit of takeover speculation and a broker upgrade - analyst Freddie George at Seymour Pierce has turned more positive on the business:

The trading update will show that sales and gross margins for the quarter ended August 2010 remain relatively weak but are likely to be better we suspect, than market expectations and better than the previous quarter. We expect Homebase is expected to report flat like for like sales and a gross margin decline of 75 basis points while at Argos we project a like for likedecline of 5% and gross margins down by 75 basis points. Homebase, we believe, will have benefited from price increases of up to 5% over the previous year and less promotional activity, while Argos will have received some help from better TV sales ahead of the World Cup.

Ahead of these figures, we are upgrading our recommendation from sell to hold. Our view is that a possible downgrade to earnings is fully reflected in the current share price. The stock, which has been the worst performing FTSE 100 stock to date declining by 28% over the last year, is beginning to look good value. The company also has a relatively strong balance sheet with cash forecast at £320m by end of March 2011, even after a share buyback of £150m, and strong cashflow, which would be attractive to a predator.

Source : The Guardian.co.uk

06 September 2010
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