Following a meeting with Home Retail, Freddie George of Seymour Pierce both reduced his earnings forecast and upgraded the shares to a ‘buy’. Although the group has two profits streams, Argos is the dominant business generating 85% of profits. The internet, which generates 21% of its sales, provides Argos with a ‘significant opportunity’. Internet sales grew by 30% last year.

Argos has a wide portfolio and is able to exploit new opportunities such as games. George is supportive of management, which has a ‘very strong record in managing sales, mix and margins’. George believes Argos has a ‘significant lead over Tesco in terms of stock management, ranges and customer gratification.’

Although concern has been expressed about the £400 million-plus credit book, the average loan is under £300. Will individuals destroy their credit rating for such a debt or will they transfer it to credit cards?

The shares are selling on a PER of 8 times and 4.8 times cash flow and offer a well covered yield of over 6%.

The writer holds shares in this company

by John Marshall