Halfords (HFD)

Many bosses of retail companies would give their eye teeth to be in the driving seat of Halfords, the car accessories and cycles retailer. Indeed, the group's newly appointed chief executive, David Wild, is one of the sector's few chief executives who could still afford to return cash to shareholders without raising eyebrows in the City.

Halfords' operations are sufficiently cash-generative for the company to pay a secure-looking dividend, which at the current price leaves the shares yielding over 5 per cent. And it has just concluded a £50m share buy-back programme, which did not prompt accusations that management was wasting shareholders' money by propping up a faltering share price.

That's because Halfords - which sells one out of three bikes in Britain - is benefiting from a boom in cycling, which has been fuelled by high petrol prices as well as more schemes to make Britain's cities bicycle-friendly.

Indeed, the trend towards cycling looks strong enough for Halfords to have launched a retail format - Bikehut - dedicated to bikes. After the success of its first five stores, management intends to open 10 more in the current financial year and sees room for 50 stores in the long term.

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Yet, further upside for Halfords' share price might still be driven by its car accessories side. True, City analysts are worried that the boom in demand for satellite navigation might soon come to an end, which would hit Halfords. Even so, the UK's current economic environment could still help the car accessories side.

New car registrations in the UK fell by 1.6 per cent during the first half of the year, and dropped by 6.1 per cent in June alone, as consumers postponed - or abandoned - purchases of big ticket items. That means more ageing cars on Britain's roads and increased demand to maintain them as cheaply as possible.

In addition, the group operates primarily from out-of-town retail parks, where rents per square foot are much lower than high street locations. But management also has a plan to develop in-store mezzanine floors, which effectively add cheap - and therefore profitable - selling space.

This combination of favourable factors leads many City analysts to believe that Halfords will be a defensive play in the downturn. That said, the group is not immune to consumers' woes (see ). A new bike, for instance, remains a big-ticket item, even if it helps consumers to cut their travel costs in the long run (as well as their gym membership).

In particular, sales of expensive bikes look vulnerable. For example, demand for Boardman bikes, on which Nicole Cook won her Beijing gold medal, might suffer because they can cost up to £1,400. Yet Halfords has strong credentials at the value end of the market. It sells some bikes for under £100, which means it can always undercut its main competition - independent cycle retailers.

Elsewhere, Halfords might have a bumpy ride in eastern Europe, where it is expanding. Despite an early start hailed as encouraging, and Mr Wild's experience in the region with both Wal-Mart and Tesco, local currencies have appreciated sharply against the pound, potentially harming profits in the short term.

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