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Halfords' final dividend slashed

TIP UPDATE: Halfords sacrificed income for growth alongside a sharp fall in profits and we exit our buy advice.
May 23, 2013

Shares in Halfords (HFD) slumped 16 per cent as the motor and cycling retailer slashed its dividend, in order to free up funds to grow the business, and announced a sharp fall in profits.

IC TIP: Sell at 331p

Chief executive Matt Davies announced the final payout would be cut by 35 per cent to 9.1p a share, yet autocentre openings of 20-30 a year and a capital investment plan in retail would continue. This news led JPMorgan Cazenove to downgrade current year adjusted pre-tax profits from £73m to £57m and pencil in a further 19 per cent cut in the dividend to 14p. On that basis, the shares are trading on 15 times prospective EPS of 22.2p, and offer a forward yield of 4.2 per cent.

Halford's retail sales fell slightly to £745m, and have declined in 10 of the last 13 quarters on an underlying basis. So, with operating costs up by £24m to £399m, this sent retail profits sharply down by £19m to £73.6m. The plan is to spend £50m upgrading 150 of the 466 stores over the next three years, and focus on growth areas such as the £700m-a-year cycle market. Last year that market grew at 8.5 per cent, of which Halfords' share is between 20 and 25 per cent. There is scope to make gains in the £100m cycle repair market, too.

Halfords ongoing investment in autocentres is also proving a drag on profits, which fell 10 per cent to £6.3m. Cash profits here are only likely to be marginally ahead in 2013-14.

HALFORDS (HFD)

ORD PRICE:333pMARKET VALUE:£663m
TOUCH:333-333.1p12-MONTH HIGH:408pLOW: 187p
DIVIDEND YIELD:5.1%PE RATIO:13
NET ASSET VALUE:150p*NET DEBT:37%

Year to 31 MarTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20098107826.615.9
201083211036.820.0
201187011840.722.0
20128639434.222.0
20138717127.217.1
% change+1-25-20-22

Ex-div: 3 Jul

Payment: 2 Aug

*Includes intangible assets of £342m, or 172p a share