Bombed-out Argos-to-Homebase owner Home Retail (HOME) is marked up 8% to 111.10p on excitement surrounding a possible bid for Homebase, the DIY part of the group. This shakes the stock out of the torpor they have been in following a recent profit warning (21 Oct).

The Financial Times reports that Nicholas Marshall, the man responsible for turning around and founding the Garden Centre, is eyeing a bid for Homebase, the home and garden improvement retailer in the midst of a productivity plan involving store closures. Marshall is thought to have sounded out a number of private equity firms to aid a buyout of Homebase, which bankers, according to the article, suggest would be worth several hundred million pounds.

Web chart - HOME - Dec 15

In a note this morning, broker Cantor Fitzgerald Europe suggests Marshall will look to make the stores more female friendly, expanding the space of the garden centres, concessions and sub brands including Habitat.

Cantor's retail scribe Freddie George, a buyer of the stock, writes: 'Home Retail, in our view, is very much "in play". We continue to believe Home Retail is significantly undervalued and has a break-up value of circa 260p per share.'

Investec Securities, another buyer with a 155p price target, notes that 'although any offer is yet to be made, the weakness in HOME's share price due to issues relating to Argos does leave it vulnerable, in our view, to a bid for one of its operating companies or the group as a whole. We view the latter option as likely to wait until after peak at Argos given the importance of H2 (over 90% of Argos EBIT).'

Investec believes 'a splitting up of the group is feasible, in our view. On a SOTP (Sum of the Parts) basis, we conservatively value Homebase at £230 million with the balance sheet supporting a group value of £1.45 billion (180p per share). Sentiment is likely to remain sceptical given Argos’s issues and recent profit warning, but the group’s balance sheet support & potential corporate activity should underpin the shares in our view.'

Issue Date: 01 Dec 2015