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Halfords suffers on sterling weakness

Margins are under pressure due to sterling's post-referendum decline
May 31, 2017

When we wrote about Halfords (HFD) at the half-year, there were concerns over whether it would meet the full-year consensus profit forecast of £74.8m. In the event, the bicycle/motoring retailer bettered that figure, at least on an underlying basis, but a 260 basis point reduction in the gross margin for the retail division, which accounts for the bulk of revenues, highlights the group's susceptibility to adverse foreign currency movements. The FTSE 250 group said that its leisure-linked sales could eventually benefit from sterling weakness if more people stay in the UK for their holidays, but why that means that we'll suddenly be running out to buy bicycles is anybody's guess.

IC TIP: Hold at 374p

However, the group's prospects are being helped by the focus on premium cycling brands, as it expects growth in cycling numbers of 3-5 per cent per year over the medium term. This is borne out by the strengthening top line, boosted through the year due to new product ranges and the acquisition of upmarket bike businesses Tredz and Wheelies.

Analysts at Numis are forecasting profit before tax of £74.1m, giving earnings per share of 30.1p in 2018 (from £75.4 and 30.2p in 2017).

HALFORDS (HFD)

ORD PRICE:374pMARKET VALUE:£744m
TOUCH:373.7-374p12-MONTH HIGH:436pLOW: 292p
DIVIDEND YIELD:4.7%PE RATIO:13
NET ASSET VALUE:205p*NET DEBT:21%

Year to 31 MarTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)**
20130.8771.027.217.10
20140.9472.628.614.30
20151.0383.833.816.50
20161.0279.832.517.00
20171.1071.428.717.51
% change+7-11-12+3

Ex-div: 3 Aug

Payment: 25 Aug

*Includes intangible assets of £394m, or 198p a share **2017 dividend excludes 10p special dividend