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Broker snap: Mixed signals from Home Retail

Homebase and Argos owner Home Retail Group 'posted a mixed but incrementally positive fourth quarter update' earlier this week, according to Numis Securities, but the broker thinks the group will be 'challenged to make progress in 2010/11.'

Like for like sales (LFL) figures from Argos were weak but the performance of Homebase compensated for this.

'The LFL performance of Argos should be viewed in the context of a sequential quarterly comp [comparative] c.6%pts tougher, a 3%pt impact from a later catalogue release, and a c.3%pt hit from the snow,' the broker notes.

'Homebase LFLs surprised positively as the retailer managed to clear a delivery backlog (c.+5/6%pts in a low volume quarter) despite the in-store impact of the snow (c.-3%pts),' Numis added.

The broker has kept its 'hold' recommendation on the stock and 260p target price. 'The group surprised positively by guiding to a YE [year end] net funds position of £410m (previously £385m). However, with timing reversals in working cap, higher capex [capital expenditure] and newly agreed pension contributions we now expect net funds to be broadly flat to Feb-11F [fiscal year to February 2011],' Numis concluded.

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