GUS: 2005/6 results

12:03 p.m. Fri 26 May 2006

It was a difficult year for Argos Retail Group (Argos and Homebase) with like-for-like sales and margins lower but Experian continued its strong organic growth (10%) and strengthened its margins. The separation of the two businesses is now expected in October.

Cost increases have affected other retailers but we have seen few as badly hit. With gross margin is little changed, expansion adding fixed costs and sales little higher the effect on EBIT was strong down 9% at Argos and 54% at Homebase.

In the longer term, despite the past strength of the Argos format, the comparative lack of gains from the most recent expansion of its product line, does make us fear that it is approaching the limits of its expansion.

Acquisitions added another 17% to Experian's growth. We are somewhat concerned at the range of businesses Experian is moving into - comparision shopping websites seem to be a long way from its core credit, vehicle and property database businesses. Not all of Experian's non-core acquisitions have been successful: it recently announced the closure of a significant part of the operations of Metareward which was acquired at the end of 2003.

GUS completed the de-merger of Burberry during the year and now plans to separate Argos Retail Group and Experian. This is expected to take place in October.

At 954p GUS is trading on a prospective PE of 15× with a 3.3% yield. Experian is growing (but we have reservations about some recent acquisitions) but this is diluted by stagnation at Argos and cyclical decline at Homebase.