James Halstead gains home advantage

Although disruption to global supply chains is rarely welcome, it can benefit companies that manufacture products locally, but which can compete with imported goods on price. Flooring manufacturer James Halstead (JHD) registered a double-digit increase in profits on the back of rising sales and a 94 basis point increase in the operating margin. Reported profits were ahead of their pre-pandemic levels, as the group built its share of key growth markets in the UK, Europe and Australia. In the UK, which represents 37 per cent of group revenue, sales rose by 24 per cent as competitors, who import and rebrand goods from the Far East, struggled.

Homeowners have been spending freely on home improvements throughout the pandemic, so while James Halstead provides non-slip vinyl flooring mainly for commercial customers, it has extended into the high-end domestic market as lockdown shortages have narrowed the field of competitor products. Its European arm, responsible for 42 per cent of sales, increased sales by 6 per cent as some customers opted for luxury vinyl tiles over harder-to-source wood laminate flooring.

The group suffered higher raw material and transportation costs as well as employee absences due to self-isolation protocols, but increased efficiencies saw net earnings rise at a faster rate than sales. The company also deferred some new product launches, with chief executive Mark Halstead saying there was no need to “compound the complications of supply and delivery”. There are signs that shortages in raw materials are easing, though, which should stabilise pricing.

Panmure Gordon upgraded next year’s earnings forecast by 4.2 per cent to 19.6p per share, leading to a forward P/E of 28 times forecast earnings, which is in line with competitors. A robust balance sheet should enable the company to pursue further export opportunities, but earnings growth will tend to be incremental over time, particularly when compared with FY 2021. Hold. 

Last IC View, Hold at 498p, Mar 31, 2021