What's new
■ Cycle sales recover
■ Car-related sales tumble
■ £75m share buy-back announced
Amidst tough conditions for consumer-facing businesses, Halfords’ fourth quarter figures last week revealed a mixed picture. Cycle sales did return to growth, with like-for-like-sales pedalling up 8.7 per cent in the final quarter. But the car maintenance and car enhancement operations both saw underlying sales tumble - by 11.7 per cent and 8.8 per cent, respectively. Total retail like-for-like sales dropped 6.8 per cent in the fourth quarter, while autocentres' underlying sales slipped 1.4 per cent. Management now anticipate pre-tax profit for the year to end-March 2011 of between £124 and £127m – compared to consensus estimates of around £127m.
Management flagged cost pressures, too, with operating costs such as payroll, energy and occupancy expected to bolster the cost base by 2.5 per cent. Investment and IT spending will add a further 1.5 per cent to costs. Gross margins are expected to fall by at least 30 basis points.
Still, Halfords has launched a £75m share buy-back programme. "The strength of our cash generation and our balance sheet means that we can both return capital to our shareholders, maintain our dividend policy and retain the flexibility to invest," remarked chief executive David Wild.
Peel Hunt says…
Hold. Halfords reported a mixed fourth quarter, with a positive sales recovery for bikes and a tough period for car maintenance - against tough comparatives. We have downgraded our 2011 estimates by £3m, giving pre-tax profit of £124m and EPS of 43.3p, and expect to downgrade 2012's pre-tax profit forecast from £140m to £127m. Although 2012’s EPS estimate of 47.3p benefits from the £75m share buy-back and a lower tax charge – leaving the shares trading under eight times 2012's expected earnings. We see more limited downside for the year ahead, with strong cash generation and the buy-back providing support.
Investec Securities says…
Buy. It's disappointing to make further cuts to our already lowered full-year 2012 pre-tax profit forecast – we now expect £121m for 2012, with £127m anticipated for 2011 - but the accretion benefits of the share buy-back broadly offset this. Given the forecast revisions, we feel it's appropriate to increase the discount that we previously applied to Halfords' mid-cap peer sector, from 10 per cent to 15 per cent – on 2011's estimates. That drives a new price target of 390p which, combined with the expected 20.7p dividend for 2011, continues to support our buy recommendation.
