Argos to bring profits back home

Next Thursday 12 March Home Retail Group will release its full-year figures. The adjusted earnings per share is expected to increase from £0.104 up to £0.118 while its sales are forecast to rise from £5.663 billion up to £5.743 billion. Additonally, the company’s full-year pre-tax profits are called to dramatically improve, increasing from £71.2 million in 2014 up to £127.643 million in 2015.

Of the 22 institutions that rate Home Retail Group, eight rate the company as a buy, eight as a hold while four are sell ratings. The average twelve-month price target for is 202p which is slightly lower than the current 205p market price.

The last few years have seen Argos – the driving component of Home Retail Group – come under renewed pressure from Amazon as it has chipped away at its market share with its competitive pricing, leading to squeezed profit margins. With the assistance of the improving UK economy, Argos has managed to claw some of this back and at the turn of the year it embarked on a new project.

Like food retailers, Argos is testing out the viability of operating a store inside Cannon street tube and train station. The idea behind this is based on the click-and-collect model but with the store location based around commuters existing routes home. It is still early but considering the success food retailers have experienced, and without the same perishable goods issues to address, this could see an improvement in the company’s profits.

Home Retail Group’s shares have returned to a bullish trend and the current market price has moved above the 50-, 100- and 200-day moving averages. If the full-year figures come in as positively as expected then a fresh challenge of last year’s April 220p high should materialise.

Source: Alastair McCaig - IG.com.

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