Wesfarmer's credit rating and generous dividend are at risk from its $705 million acquisition of UK hardware outfit Homebase, according to Bank of America Merrill Lynch analyst David Errington, who has compared it to Woolworths' disastrous foray into the home improvement sector.

Mr Errington said the damage to investor returns and business performance at Wesfarmers from Homebase would "equal" the impact of Woolworths' costly Masters experiment.

Wesfarmers in January said it planned to spend more than $1 billion rolling out the Bunnings hardware brand in the United Kingdom and Ireland within five years after buying the second-largest home improvement chain in the UK market. Chief executive Richard Goyder said at the time the investment was a "deep step" into the overseas market that increased the company's risk profile, but one that had been made with "eyes wide open".

"We were critical towards Woolworths entering the Australian home improvement sector via Masters and we believe Wesfarmers entering the UK market via Homebase will be as equally a compromising decision for Wesfarmers," Mr Errington said on Tuesday.