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Investors face buy/sell dilemma over Home Retail Group shares

Should you buy Home Retail Group on its bid potential or sell the Argos-owner because of fears of an imminent profits warning?

That was the dilemma being mulled over by investors today after the return of yet more takeover talk was tempered by concerns that it is in line for a tough festive period.

Claiming the retailer was "in need of a change in direction", Peel Hunt said the business - which also owns Homebase - was "towards the top of our list of retailers we are expecting will deliver a Christmas profit warning". However, the broker also noted that, with Home Retail's share price having dropped more than two-thirds in little more than six months, its present market capitalisation discounted any value for Argos.

It pointed out that although the firm's struggles were well documented, the catalogue chain was still profitable and generating cash which, it added, meant Home Retail could attract the attention of a predator, claiming "an aggressive management team would extract clear value if the current team does not".

But in spite of this latest rerun of takeover talk, Home Retail still found itself being knocked back, retreating 1.9p to 72.8p.

Although traders said they were waiting for Dixons' interim results later in the week for the latest update on the run-up to Christmas for the retailers, they were hardly positive, predicting further pressure on profit margins for the sector as more and more introduce deeper sales discounts in a desperate attempt to lure cash-strapped shoppers.

Source : Toby Green - This is London

21 November 2011
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