Few things in life are certain, but among UK listed companies few things are more likely than James Halstead increasing its profits and dividends. After all, the floor coverings specialist has managed to increase its dividend payout every year for the past 35 years. And it's not as if the dividend teeters on the brink of being cut. Quite the reverse. The payout is comfortably covered by after-tax earnings and Halstead has a useful pile of cash, too. Oh, and turnover and profits to the year ending June 2011 were both at record levels.
- Dividend raised for 35th consecutive year
- Cash in hand
- New plant opens up access to new markets
- Strong overseas sales
- Exposure to mainland Europe
- Rising raw material costs
Granted, June seems like a long time ago, and there was little indication then of the torrid six months that were to follow. But in that period James Halstead has continued to make progress, confirming that sales in a very tough UK market were ahead by 4 per cent, while global sales continue to run at record levels. And the good news just keeps on coming because there has also been some respite from the constant rise in raw material costs, which the company reckons will help to boost profits at a faster rate than the increase in sales. Even so, management previously showed a nice touch by raising the group's stock holdings of raw material stocks associated with making vinyl floor coverings by more than the growth in output - inventories finished 2010-11 36 per cent higher than they started, at almost £49m. Chief executive Mark Halstead pointed out that the group's cash pile was generating just nominal rates of return, while raw material costs were rising at a lively rate, so it made sense to turn the cash into stock.
None of this would make much sense were it not for management's ability to boost turnover year after year. And this is being achieved in a number of ways. First up, the company has diversified its revenue stream away from the UK, so that two thirds of the group's sales now come from overseas. These vary widely, and include flooring at the event centre at the Nurburgring and the Niagara Falls convention centre. Contracts such as these all help to complement the run-of-the-mill yet important work providing floor coverings for hospitals and schools.
| JAMES HALSTEAD | ||||
|---|---|---|---|---|
| ORD PRICE: | 445p | MARKET VALUE: | £464m | |
| TOUCH: | 430-445p | 12-MONTH HIGH: | 500p | LOW: 365p |
| DIVIDEND YIELD: | 3.4% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 82p | NET CASH: | £33.8m | |
| Year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 159 | 29.9 | 19.9 | 8.8 |
| 2009 | 169 | 33.0 | 24.2 | 10.9 |
| 2010 | 186 | 35.7 | 24.8 | 12.5 |
| 2011 | 214 | 38.5 | 26.4 | 13.9 |
| 2012* | 240 | 40.3 | 27.7 | 15.0 |
| % change | +12 | +5 | +5 | +8 |
Normal market size: 600 Matched bargain trading Beta: 0.4 *Altium Securities estimates | ||||
Australia has shown the biggest growth, with sales up 28 per cent in the last full year, and where the group picked up one of the largest flooring contracts awarded in the past 25 years. There are now six warehouses in Australia to cope with infrastructure projects that will lead to government investment to refurbish all major schools. Growth in Germany was also impressive at 27 per cent.
Product innovation remains one of the key elements that has helped to drive sales forward. So having the flexibility to meet customer requirements is paying off, with notable examples including the launch of Halstead's Pearlazzo range of a very hard wearing floorcoverings, and Polysafe Hydro-Evolve flooring, which has a raised 'emboss' surface to reduce slip risk in wet areas like swimming pools. To generate the ability to offer even more flexibility, the company has revamped its Riverside plant on Teeside, and expects to make further improvements in the year ahead. And all of this has been achieved while maintaining output almost continuously. These improvements, such as replacement ovens and automated packaging, all help to bear down on costs. And the company has also shown its green credentials by reducing the amount of energy required per square metre of product by 43 per cent over the past 10 years.
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The full benefits have yet to show, and investment costs last year together with keen pricing and raw material costs did drag back profit margins from 42.6 per cent in 2009-10 to 40.2 per cent. This trend is expected to be reversed. And Halstead does quite a lot of business on the continent - in 2010-11, Europe and Scandinavia was its biggest geographical segment, producing 40 per cent of group turnover. Meanwhile, its finances are in pretty good shape and in November the company bought back 2.5 per cent of its issued share capital.
