The doom and gloom that surrounds retailers continues and it’s thrown Argos and Homebase into my sights. As things currently stand the FTSE 250 listed company has a price to book ratio of 0.27 and price to tangible book of 0.76, so it’s cheap by book value. For those that like to look at liquidity the headline figures are net cash of £200m (at the last interim report), quick ratio of 0.72 and current ratio of 1.63.
The market cap is over £700m so it’s quite big for a net-net, even a 21st century one. In terms of the original net-net ratio, it does have a positive number which on its own is a stretch for most companies, but at more than 2 it’s well past Ben Graham’s old limit of 0.66.
However, that’s the whole point of using an updated set of ratios, so that the pool of available stocks is wider in order to allow greater diversification in a smaller market like the UK.
Looking at the most recent reports, it’s obvious and completely expected that times are tough. You aren’t going to get many net-net type companies that aren’t having lots of trouble, but that’s exactly why the requirement is that they have net cash, i.e. enough ‘cash’ assets to pay off all borrowings.
Home Retail passes my 10-minute sanity check, which just includes a quick glance at the most recent reports and statements and any news about the company. I didn’t find any obvious signs that the company was about to collapse in the next few weeks or months so I will be adding Home Retail Group PLC to the 21st Century Net-Net model portfolio is due course.
You can see below the top 10 stocks by this screen, sorted by price to book. All else being equal I’ll be adding AGA next week.