Financial Trading Blog
Stock of the day 08/06/2016 – Home Retail Group PLC
Having climbed above £1.80 by the middle of March (almost a 12 month high to the day), Home Retail Group plunged 10% on the 18th of that month following the news that South Africa’s Steinhoff International Holdings had signalled it was no longer going to provide an offer. Interestingly, even when Sainsbury’s threw its own bid into the ring later that day (post-close) the stock failed to climb back to those highs seen in the initial enthusiasm for a takeover.
After Steinhoff exited the M&A-arena Home Retail Group did manage a gentle rise, inspired largely by the acceptance of Sainsbury’s £1.4 billion bid at the start of April. Yet things began to turn lower as the end of that month approached, with the stock in part pushed lower by its full year figures.
(Source: IT-Finance.com 08/06/2016)
Pre-tax profit plunged 28% to £94.7 million, with group sales sliding 1%. While the brunt of that sales decline came from the now Wesfarmers-owned Homebase (which slipped 3%), the Sainsbury’s-bound Argos hardly impressed, with sales flat for the 12 months to the end of February. That is an improvement in what had looked like an uninterruptable sales decline for Argos, but isn’t significant enough to convince those sceptical Sainsbury’s investors that the acquisition was a good idea.
More troubling news came at the end of May, with the CMA revealing it intends to investigate the Sainsbury’s/Home Retail Group merger due to its potential to cause a ‘substantial lessening of competition’ for customers (though one could argue Amazon already did that a long time ago). This sent the stock back below the £1.60 mark, a place it hasn’t spent this much time at since the middle of February. Home Retail Group has sits at a current trading price of £1.59 (IT-Finance.com, 08/06/2016).
As mentioned Sainsbury’s investors will be the ones carefully eyeing Thursday’s first quarter figures. Any further improvement in the Argos situation will go somewhat to soothing fears over the wisdom of the deal, while another sales drop may only exacerbate Sainsbury’s struggles (the supermarket dealing with its own declining revenue).
Home Retail Group PLC has a consensus rating of ‘Hold’ with an average target price of £1.47.
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