The shares of Home Retail Group Plc (LON: HOME) have now doubled in less than a year.
The shares of Home Retail (LSE: HOME) jumped 17p, or 14%, to 138p during early London trade this morning after the company said its full-year profits would be higher than expected.
Home Retail, which owns the Argos and Homebase retail chains, said profits before tax would be about £10m ahead of the current £73m City consensus forecast. The FTSE 250 member also revealed its year-end cash balance would be in excess of £300m.
The upbeat performance was due to "good operational management and cash generation" during Christmas.
Argos reported total revenues up 1.6% to £1,744m for the 18 weeks to 5 January, with like-for-like sales up 2.7%. Progress was supported by strong demand for tablets, white goods and toys, which offset weaker jewellery sales.
Meanwhile, turnover at Homebase fell almost 5% to £453m, with like-for-like sales down 4%.
Gross margins at both chains fell by 50 basis points during the 18-week period.
Terry Duddy, Home Retail's chief executive, said:
"Argos had a good peak trading period building on its first-half performance… While we anticipate consumer confidence will remain subdued in the coming year, we are focussed on delivering the transformation plan to reinvent Argos as a digital retail leader and the ongoing development of the Homebase proposition."
Going on today's uplifted guidance, earnings may now be running at between 7p and 8p per share, which puts the shares on a potential P/E of about 18 or 19.
The present rating does not look a bargain, although Home Retail's five-year transformation plan for Argos may encourage longer-term recovery investors.
Announced last year, Home Retail reckons Argos could earn a mid-single-digit margin on sales of £4.5bn during the next five years.
Potential operating profits could therefore be £225m and provide possible earnings of £170m by 2018, which compares quite well to Home Retail's current market cap of about £1.1bn.
Home Retail's recovery has seen its shares rally from a 69p low last year, thereby making the share a nice double for investors smart enough to spot the handsome buying opportunity.
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> Maynard does not own any share mentioned in this article.