Hornby has agreed to sell off a loss-making subsidiary which makes Oxford Diecast models.

Shares in the scale models group rose after it confirmed the deal, which comes as part of a strategy to boost profitability at the Mike Ashley-backed business.

The Margate-based company told shareholders it has entered into a conditional agreement to sell its LCD Enterprises business to EKD Enterprises.

EKD, a business owned by former chairman and current non-executive director Lyndon Davies and his family, will pay £1.38 million for the operation.

The sale will see EKD take control of the Oxford Diecast brand, which was started in 1993 and is one of the world’s largest manufacturers of 1:76 scale models.

Hornby said Oxford Diecast made a roughly £200,000 pre-tax loss for the year to March 31, and has net book value of almost £3 million on the group’s balance sheet.

Mr Davies will also step down from the board of Hornby once the deal is completed.

The firm said the disposal is part of efforts by Hornby to “rationalise” its portfolio in order to make it more streamlined.

In March this year, retail tycoon Mr Ashley said he would advise Hornby after building up a stake in the model train specialist.

The toy company said the Frasers Group founder and majority owner “entered into a consultancy arrangement” as it sought a financial turnaround.

Neil Sachdev, non-executive chairman of Hornby, said: “On behalf the board, I would like to thank Lyndon for his commitment to, and support of, Hornby in various roles over the last seven years.

“He has been a passionate member of the board, and we wish him well with Oxford Diecast in the future.”

Shares in Hornby were up 8.3% at 19.5p on Tuesday morning.