Howden expands despite economic climate

Kitchen materials supplier Howden Joinery (HWDN) continued to expand last year, posting healthy revenue and profit figures despite the worsening macroeconomic environment. The company now has 808 UK depots having opened 30 in the trading period, as well as net 20 new depots in France and five in Ireland. All of this puts it well on the way to its goal of 1,000 UK depots, and shows that there are markets for the company beyond the UK once it hits that number.

Howden puts its increased earnings figures and successful expansion down to its “trade-only, in-stock” business model, whereby it only sells to other businesses and makes sure it supplies its entire range of products – one-third of which it makes itself – to all its depots. The continued strength of its results even as it expands is evidence of demand for precisely this sort of service from local tradespeople. And the strength of this customer base means Howden has been able to increase its costs while maintaining a 17.9 per cent operating profit margin, less than 2021’s figure but more than 2019’s.

The concern going forward is Howden’s net debt position. Clearly, expanding in three different countries has not been cheap and as a result the business now has a net debt-to-equity ratio of 41 per cent. This is not worryingly high, but it is much higher than Howden’s net debt has been historically. Indeed, for several years before the pandemic, it was in a net cash position – but progress usually comes at a price.

Its appetite for further growth could see its debt pile increase, which is something investors should consider in a high-interest-rate environment, but the underlying investment case remains intact. Buy.

Last IC view: Buy, 653p, 21 Jul 2022