SILVER BULLETS - Espirito Santo Investment Bank incorporating ...

THIRD QUARTER 2010
Home Retail Group
Valuation Metrics, y/e Feb 2009 2010 2011e 2012e 2013e
Recommendation: SELL Execution P/E 8.2 -9.6 -9.2 11.2 8.6
Fair Value: 175p Reported P/E -4.5 8.7 10.6 11.2 8.6
EV / Sales 0.3 0.3 0.3 0.3 0.3
Share Price: 210p EV / EBITDA 3.3 3.6 4.2 4.6 3.9
Upside / Downside -16.7% EV / EBIT 5.1 5.7 6.3 7.2 5.8
FCF Yield 18.6% 18.0% 7.8% 4.9% 16.3%
Previous Fair Value Dividend yield 7.0% 7.0% 7.0% 7.0% 7.7%
% change to fair value
Bloomberg: HOME LN Key ratios, y/e Feb 2009 2010 2011e 2012e 2013e
T-One: HOME-LN
Model Published On: 03 July 2010 EBITDA margin 7.8% 7.0% 6.2% 5.7% 6.5%
EBIT margin 5.1% 4.5% 4.1% 3.7% 4.4%
Capex / Revenue 1.9% 1.2% 2.1% 2.6% 2.7%
Shares In Issue (Less Treasury) 849 Capex / Depreciation 0.7 0.5 1.0 1.3 1.3
Market Cap 1,783 Net Debt / EBITDA n/a n/a n/a n/a n/a
Net Debt / (Cash) -268 EBITDA / Net Interest n/a n/a n/a n/a n/a
Adjustments For Associates & Minorities 0 ROE 8.1% -6.6% -7.1% 5.5% 7.0%
Enterprise Value 1,515
Net Pension Deficit 25
P&L Summary, y/e Feb 2009 2010 2011e 2012e 2013e
Forthcoming Catalysts Revenue 5,897 6,023 5,876 5,776 6,012
% change -1.5% 2.1% -2.4% -1.7% 4.1%
2Q Trading statement 09 September 2010 EBITDA 460 420 363 332 388
1H2011 results 20 October 2010 % change -17.9% -8.7% -13.5% -8.7% 17.1%
3Q Sales (tbc) 13 January 2011 % margin 7.8% 7.0% 6.2% 5.7% 6.5%
0 00 January 1900 Depreciation & Amortisation -159 -150 -121 -119 -124
Operating profit 300 270 242 213 264
% change 13.4% -10.2% -10.2% -12.2% 24.4%
% margin 5.1% 4.5% 4.1% 3.7% 4.4%
Associates (2) (2) (2) (2) (2)
Execution Analysts EBIT 298 268 240 211 262
Caroline Gulliver +44 20 7456 9173 Net Financials 30 5 5 7 12
Robert Evans +44 20 7426 4210 Other Pre-tax Income (18) 0 0 0 0
Richard Cathcart +44 20 7456 9155 Pre Tax Profit (core) 328 272 245 218 274
Income Tax Expense (104) (91) (74) (63) (74)
Minority Interests 0 (371) (367) 0 0
Revenue breakdown (2011e) Net Income (core) 224 (190) (195) 155 200
Net income (published) (413) 210 168 155 200
Execution EPS 25.6 -21.8 -22.9 18.8 24.4
Reported EPS -47.1 24.1 19.8 18.8 24.4
DPS 14.7 14.7 14.7 14.7 16.2
Payout Ratio 57.5% -67.5% -64.2% 78.1% 66.4%
Shares In Issue (Less Treasury) 877 872 849 822 822
Argos
71%
Cash Flow Summary, y/e Feb 2009 2010 2011e 2012e 2013e
EBITDA 460 420 363 332 388
Taxes Paid (75) (107) (72) (63) (74)
Profit breakdown (2011e) Interest Paid / Received 17 7 5 7 12
Sales growth trends
4%
2%
0%
-2%
-4%
-6%
-8%
-10%
-12%
Homebase
27%
Homebase
17%
Financial
Services
2%
Financial
Services
2%
Argos
81%
2009 2010 2011e 2012e 2013e
Argos LFL Homebase LFL
Change in Working Capital 164 30 (46) (43) 93
Associate & Minority Dividends 0 0 0 0 0
Other Operating Cash Flow (157) 4 (5) 0 0
Operating cash flow 409 354 245 233 419
Capital Expenditure (111) (74) (121) (151) (160)
Free Cash Flow 298 280 124 82 259
Acquisitions & Disposals (44) (18) 0 0 0
Dividends Paid To Shareholders (127) (126) (120) (120) (131)
Equity Raised / Bought Back (22) (9) (150) 0 0
Other Financing Cash Flow 6 3 0 0 0
Net Cash Flow 111 129 (146) (37) 127
Balance Sheet Summary, y/e Feb 2009 2010 2011e 2012e 2013e
Cash & Equivalents 284 414 268 231 358
Tangible Fixed Assets 559 525 525 557 594
Goodwill & Intangibles 1,645 1,634 1,634 1,634 1,634
Associates & Financial Investments 8 8 6 4 2
Other Assets 1,693 1,696 1,708 1,719 1,694
Total Assets 4,190 4,277 4,142 4,145 4,282
Interest Bearing Debt 0 0 0 0 0
Other Liabilities (1,431) (1,411) (1,376) (1,344) (1,413)
Total Liabilities (1,431) (1,411) (1,376) (1,344) (1,413)
Shareholders' Equity 2,758 2,867 2,765 2,800 2,869
Minority Interests 0 0 0 0 0
Total Equity 2,758 2,867 2,765 2,800 2,869
Net Debt / (Cash) (284) (414) (268) (231) (358)
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