Howden Joinery's kitchen gold rush

Brits became obsessed with their homes in 2021. Given that most people were confined to them for large chunks of the year, it's not surprising that many set out on home improvement efforts. This helped kitchen material supplier Howden Joinery (HWDN) post an exceptional set of results for the year.

Group revenue increased 35.3 per cent to £2.09bn and even despite growing inflationary pressures gross operating margin rose 660 basis points to 19.2 per cent. Higher-priced kitchen ranges grew strongly – people seem willing to dig a little deeper in their pockets to pay for good quality materials. This bodes well for 2022 when inflationary pressures will persist.  

Management are not resting on their laurels though. It opened 31 new UK depots last year to bring the total to 778 but sees for potential for 950. It spent £90mn on capex last year – which was more than double depreciation – and plans to increase capex to 100mn next year.

There is still enough cash lying around to hand out to shareholders though. Its total dividend of 19.5p was more than double the 9.1p last year and it has announced a new £250mn share buy-back.

The new year has started strongly with 16 per cent like-for-like revenue growth so far and Broker Peel Hunt thinks “RMI activity in the UK this year will be stronger for longer than the market expects.”

Peel Hunt has Howden trading on a 2022 PE of 13.8 which looks very affordable for such a high margin and cash generative business. The fear is that rising costs and a slowing housing market will eat into profitability.  However, capex investment means even if the market is shrinking, Howden is likely to capture a larger proportion of it. Buy.

Last IC View: Buy, 903p, 22 July 2021