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Howden dishes out treats

The shares rose 3 per cent after the kitchen specialist hiked the dividend and unveiled buybacks
February 27, 2015

Howden Joinery (HWDN) surpassed £1bn in sales for the first time in its 20-year history as the kitchen supplier benefited from a revitalised construction market. Opening 30 new depots in the UK helped it bring the number of its customers, mainly local builders, to over 350,000 and increase revenues by 14 per cent.

IC TIP: Buy at 458p

Adding depots is a key part of management's plan to capitalise on the myriad growth opportunities in kitchen installation. It also plans to ramp up investment in manufacturing and logistics, as well as adding seven more depots to its small operations in France.

These investments will double capital expenditure to about £60m in each of the next three years. But Howden's strong cash flow, which drove the net cash balance up 55 per cent in 2014, makes the expansion plans easily affordable. Indeed, the group has deep enough pockets that a huge dividend hike is once again in the offing, and management plans to return a further £70m of cash to shareholders via buybacks.

The group's bottom line remains healthy, too, thanks to its ongoing focus on price discipline. Lower manufacturing costs and less outsourcing, together with the benefit of a strong pound, boosted its gross profit margin by 2 percentage points to 63.7 per cent.

Broker Canaccord Genuity forecasts adjusted pre-tax profit of £199m for the year ahead, giving EPS of 23.3p (from 21.6p in 2014).

HOWDEN JOINERY (HWDN)
ORD PRICE:458pMARKET VALUE:£3bn
TOUCH:458-459p12-MONTH HIGH:461pLOW: 288p
DIVIDEND YIELD:1.8%PE RATIO:20
NET ASSET VALUE:46pNET DEBT:£218m

Year to 27 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20100.8110111.1nil
20110.8511113.50.5
20120.8911214.03.0
2013*0.9613515.95.5
20141.0918923.28.4
% change+14+40+46+53

Ex-div: 21 May

Payment: 19 Jun

*Restated