Loss-making hardware chain Masters has weighed heavily on Woolworths’ earnings but there are hopes that it’s yet to realise its full potential.

UBS analyst Ben Gilbert says there’s room for Masters in Australia’s $45 billion home improvement market despite tough competition from entrenched player Bunnings.

“There is definitely a business there and there is no reason why it can’t be stronger in the longer term,” he said.

“Whether they go after Bunnings or another retailer such as Harvey Norman, there’s space for them, it’s just about how quickly they can do it.”

Woolworths and business partner US hardware chain Lowe’s have poured billions of dollars into Masters since its launch in 2011.

But it is yet to turn a profit despite recent lifts in sales and its future is now under a cloud after one of its main architects, Grant O’Brien, resigned as Woolworths chief executive in June.

O’Brien’s sudden resignation coincided with Woolworths downgrading its full year profit guidance by $300 million to $2.15 billion as it struggles with a price war with its main supermarket rival, Coles.

Mr Gilbert questioned whether selling Masters would be enough of a “game changer” for Woolworths.

“If it were to sell, who would buy it? What would they pay for it?,” he said.

He is forecasting Woolworths to struggle to maintain its eight per cent earnings margin.