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Forterra, Headlam reinstate dividends after housing recovery

Both groups saw sales lift in the second half even as lockdowns were brought back in across their markets
Forterra, Headlam reinstate dividends after housing recovery
  • Headlam's recovery was led by residential revenue during the second half 
  • A booming housing market also boosted demand for Forterra

The UK has done enough shuffling around the house in lockdown to inspire hope in flooring manufacturer Headlam (HEAD) that elevated sales enjoyed during the second half of 2020 will continue this year. 

The group has restored its dividend at 2p after cancelling 2020 payouts. Both residential and commercial sales recovered during the latter months of the year after revenue was down 10 per cent and 25 per cent, respectively, during the first half. 

Chief executive Steve Wilson said the commercial division relied predominately on refurbishment activity rather than selling directly to new developments, which meant it would not be a victim of changing office demand. Residential demand recovered more sharply, with revenue rising 9 per cent in the UK during the second half. 

The company took around £11m from government furlough schemes last year. Wilson said Headlam was “not intending to” pay this back, adding the company had stopped using government support schemes in the most recent lockdown, covering the “furlough-like arrangement” costs itself. 

Forterra’s (FORT) also benefited from stronger demand from the residential market. Chief executive Stephen Harrison said the brick maker’s housebuilding customers were already seeing “lengthening order books” so was optimistic about further recovery this year. 

Nevertheless, Forterra’s underlying cash profits fell by more than half in 2020, to £38m, after sales plunged in the first lockdown. However, with housebuilders keeping construction sites open, the company said the second lockdown “had no impact”. 

The group's two divisions are the ‘bricks and blocks’ and bespoke divisions, with around a 70/30 split in sales. Bespoke was hit harder by the pandemic because it is more exposed to office blocks and apartment blocks. Self-help measures included reducing headcount by 160. 

Managing liquidity was a key concern last year because Covid-19 arrived as Forterra was getting closer to the fit-out stage for its new Desford factory. The company asked investors for help to keep the project running, raising £53m in July, and added £20m to an existing loan. Forterra also tapped the government for £9.9m under the furlough scheme.

Anyone who topped up their stake in July has been well rewarded so far – Forterra’s share price is up over 40 per cent from the 195p placing price. Now, the company has also brought back a dividend of 2.8p a share. 

Buy Headlam at 416p and hold Forterra at 275p.

Last IC Views: Headlam: Buy, 305p, 10 Sep 2020; Forterra: Hold, 188p, 10 Sep 2020

HEADLAM (HEAD)    
ORD PRICE:415pMARKET VALUE:£351m
TOUCH:412-417p12-MONTH HIGH:455pLOW: 235p
DIVIDEND YIELD:0.5%PE RATIO:na
NET ASSET VALUE:261pNET CASH:£8.3m
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201669438.236.822.6
201769340.739.124.8
201870840.440.017.5
201971935.234.07.55
2020609-17.1-24.22.00
% change-15---74
Ex-div:0 May   
Payment:31 May   
 
FORTERRA (FORT)   
ORD PRICE:276pMARKET VALUE:£626m
TOUCH:275-277p12-MONTH HIGH:314pLOW: 144p
DIVIDEND YIELD:1.0%PE RATIO:na
NET ASSET VALUE:90pNET DEBT:3%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201629537.013.85.8
201733159.323.89.5
201836864.826.510.5
201938058.223.6*4.0
2020292-5.4-2.62.8
% change-23---30
Ex-div:17 Jun   
Payment:9 Jul   
*Restated after 2020 rights issue