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HRG's shares are worth 165 pence says Morgan Stanley

Morgan Stanley believes there is some 40 per cent upside to share in Home Retail Group after the recent sell off in the shares.

The investment bank, which has moved to ‘overweight’ on the shares, thinks the share sell off is overdone and is “convinced that Argos and Homebase remain viable businesses and are far from worthless, which is what Home Retail’s current share price is very close to implying”.

In a brief research note on the firm released today, Morgan Stanley made the point that while Argos is vulnerable to UK supermarkets’ non-food expansion plans, not to mention the growth of Amazon, its main problem has “simply been that it is trying to sell high-ticket items to low-income consumers”.
“We still see Argos as a valuable, and strategically attractive, asset,” it said.

Furthermore, Morgan Stanley added, Home Retail “has no debt, is sitting on a cash pile of more than £300 million, and has a customer loan book worth more than £450 million, which it could sell or securitise, if necessary”.

Near the end of June, Home Retail acquired the rights to the Habitat brand for £24.5 million. As well as gaining exclusive use of the brand, brand designs and intellectual property in the UK and Republic of Ireland, Home Retail also acquired the Habitat UK Web site and three of its London stores as well as brand support functions.

Morgan Stanley has set a target price 165 pence.

Source : Jon Mainwaring - Proactive

08 August 2011
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