More on GUS
GUS full year results
It is very encouraging that GUS has recognised that its three businesses (Argos, Experian and Burberry) have little in common and should be separated. GUS has not committed itself to a definite date for the separation of Argos and Experian but its plans to demerge its remaining 66% stake in Burberry later this year. GUS has also sold its remaining stake in South African retailer Lewis Group for £140m
GUS’s retail businesses (Argos, Homebase and Burberry) are not producing much LFL growth, although both are expanding. The biggest disappointment has been the failure of Argos stores with expanded ranges to increase sales, as past expansions of the Argos range have had a strongly positive impact on sales. It may be that the limits of the Argos model are being approached but given recently weak consumer demand it is not unlikely that the expanded range will do better in the long term (once consumer spending starts growing again). Under current circumstances it does appear likely the benefits of the increased range are real but are being offset by declines in consumer demand.
Experian continued to grow, partly as a result of acquisitions but organic growth remains good at about 9%. Margins have shrunk reflecting changes in the mix.
GUS shareholders should receive approximately one Burberry share for every three Argos shares in the planned demerger. Investors buying GUS therefore get one third of a Burberry share per GUS share. Valuing this at the current market price of Burberry (413p) GUS shareholders are paying a prospective PE of approximately 12× for Argos (including Homebase etc.) and Experian. The planned share consolidation may affect the yield but it is likely to remain a little below 4%. This is a reasonable rating against the sector for a growth business although the the future growth path of Argos no longer seems as clear as it once did.
Random picks: Alliance and Leicester | BP | BT | Dairy Crest | Easyjet | Glaxosmithkline | Vedanta | Woolworths | John Wood | Capita