Thursday, October 25, 2012

Thu 25 Oct - HOME

Good morning. I have been quietly digesting the Home Retail Group (HOME) analyst presentation, and have come to the obvious conclusion that this group needs a massive shake-up. Check it out for yourself.

In particular, the group structure is irrational, and needs to be broken up. From what I have seen, The Argos MD has a brilliant turnaround plan, which may or may not work, but seems to me bang on the money. 4% LFL sales growth seems ambitious though, coming on the back of 4 years decline, and this year just stabilising sales. So I doubt that turnaround will happen quite as quickly as they plan.

The Group FD is sound, but there is no reason at all to have a Group in the first place. Argos has no synergies with Homebase. The weakest link is obviously the Group CEO, who has presided over many years' decline & should be ditched as soon as possible in my opinion. Harsh, but true.

Observing the analyst meeting yesterday, the Group CEO came across to me as the weak link in the chain - full of his own self-importance, but failing to demonstrate what he was actually there for? Apart from awarding himself big bonuses for poor performance - usual corporate arrogance & greed that is not acceptable any more (not that it ever was).

A couple of times in today's meeting, he snapped at other people - talking right across his very capable FD, who was mid-sentence - dismissive & rude. Then again, snapping at an analyst who dared to say something he disliked. Simple message - get rid of this idiot (Terry Duddy). He's been in situ too long, and has failed. Simple as that. Time to go.

I see this CEO is also a Non-Exec at Hammerson. Err, why? If he's only working part-time at HOME, then he should be paid a part-time salary. A bit like all the minimum wage slaves on the shop floor. Not having his snout in the trough with other Directorships, when he is already paid a king's ransom to run HOME full-time. What a disgrace.

The American guy (John Walden) has a terrific turnaround plan for Argos, but the group needs to be broken in two - Homebase, and Argos, and ditch the entire pointless group structure. It just creates unnecessary cost, and inflated egos.

Homebase has a credible plan, as does Argos. What is now needed is a takeover knight to get rid of all the dross at the centre, and let the 2 businesses become lean & productive. Just in my opinion.

There is also a ton of surplus capital sitting on the balance sheet here, roughly equal to the entire mkt cap - namely net cash of £350m average daily balance (far more meaningful than the year-end snapshot), and about £450m in net debtor book (store card) with no corresponding creditors.

I sold my shares at 105p, as a 50% gain is more than acceptable, but there is still value here if someone grabs HOME by the balls and shakes it up a bit.

This may be hard-hitting, but it's true.


  1. Hi Paul, ref your views on Home, whilst I whole heartily agree on the removal of Terry, I don’t agree on your view that there are ‘no synergies between the two companies’, there are huge benefits to group product sourcing, savings from conjoined distribution networks and depots, not to mention the pooling of central resource – property, IT, HR, to mention a few. Splitting these up would be the tipping point for Homebase which is struggling to wash its own face.


    1. Hi Jonny,
      Hmmm, yes you could be right. I was focusing on the big company central costs (like Director salaries, and the trappings of big company stuff, like expensive advisers, etc). But you're probably right that cost savings exist too from the 2 companies being combined.
      Regards, Paul.

  2. Any thooughts yet on AIP? see comment on Tuesday's post.