More Asda acquisitions likely, say analysts

Retailers such as Argos owner Home Retail, fashion group Matalan or department store chain Bhs may all be candidates as Asda seeks to become the UK’s leading non-food retailer within five years.

The purchase of Netto provided concrete evidence that Asda is willing to buy further scale to achieve its goals, which were set out at the Walmart analysts’ event in April.

The grocer said it wanted to increase the number of Asda Living shops from 25 to 150 - a “big ask” in the opinion of Shore Capital analyst Clive Black - and roll out its click-and-collect service nationwide, which the Netto deal will only in part achieve.

Oriel Securities analyst Jonathan Pritchard said: “Given Tesco’s lead in non-food, an acquisition from Asda must be on the cards.” He said he would not “list runners and riders in the race for Asda’s attention”, but added he is “pretty convinced a race exists”.

There has been speculation about a potential bid for Home Retail for several months. Black said it is a “highly attractive cash-generative business model” meaning it will “always be a candidate on a non-food target list”. Matalan has also been mooted. The retailer was put up for sale last year, but founder John Hargreaves instead decided to refinance.

A source close to Asda also suggested Bhs might be an option, if owner Sir Philip Green were to sell. Green offloaded a clutch of Bhs stores to Primark last year, but has been revamping the rest of the chain.

Collins Stewart analyst Greg Lawless said: “Asda has enough on its plate now with Netto but this deal signals that if the right opportunity comes up, it will go for it.”