By Richard Hunter (Hargreaves Lansdown)

Home Retail Group is a major general goods retailer. The group is composed of two main divisions: Argos – the catalogue specialist with over 670 stores and Homebase - the DIY retailing group whose goods are sold from over 300 stores nationwide.

Investors had for sometime questioned the mix of businesses within the group's former parent company GUS (Great Universal Stores), which during mid 2005 included both credit checking agency Experian and a 65pc stake in luxury goods retailer Burberry. Management eventually began to agree with investors and the last piece of the planned break-up  of the group was completed in October 2006, when Experian was de-merged, leaving Home Retail Group (HRG) to go it alone. Today Argos and Homebase are two of the UK’s leading brands with large customer bases across the UK and Ireland. Argos was originally founded in 1973 and Homebase in 1981.

The group’s recent half year results (21 October 2009) saw the company registering a small first half profit increase on last year. Profit before tax and exceptional items rose 1pc to £122.7m, boosted by Homebase which benefited from good weather and tight cost control. Home Retail, like the majority of non-food retailers in the U.K., has been hurt by the economic downturn as consumers cut back on spending amid concerns about the economy and general job security. Although Argos was impacted by both intense competition and the hit to product prices which a weaker pound brings, the group’s product base was again expanded – over 15,000 lines now available – with internet sales now accounting for 28pc of total sales and ‘Check & Reserve’ increasing to nearly 50pc.

On the potential downside for shareholders, management outlook comments remain cautious in tone, given likely tax increases going forward, whilst competition from the likes of Tesco Direct remains intense. Furthermore, a decline in the pound is making imported goods from Asia more expensive, whilst the half year dividend has been left unchanged. Moving to the positive, the group’s product offering has been refocused, whilst management has already taken out £32m of operating and distribution costs from the previously guided cost saving target of £50m by 2010/2011. In addition, the group’s multi-channel business model should help keep costs below many rival, while a dividend yield of over 4pc (as of 21Oct09) remains attractive in a low interest rate environment. On balance, market consensus indicates a strong hold.