Howdens' shares leap after sales in line with last year's record

When your previous year's sales were at a record high due to a pandemic-fuelled home improvement frenzy, simply maintaining that performance is impressive in itself. So it was for Howden Joinery (HWDN), whose shares leapt 8 per cent on the morning of its preliminary results after it posted flat revenue on its record performance in 2022. For context, the figure remains 46 per cent up on 2019.

To ensure it can build on these record sales levels, Howdens is investing in international expansion. In the short term, this has had the effect of increasing operating expenses, decreasing its margins and driving profit down. However, once again, context matters: pre-tax profit is still up 26 per cent on 2019.

Howdens increased its dividend, which remains well covered by earnings per share (EPS). Analyst consensus forecasts EPS will hit 60.75p by the end of 2026 as it continues its stellar growth, covering a 23p dividend almost three times over. If those predictions prove accurate, the current price/earnings ratio looks undemanding.

Such forecasts depend on the UK, Belgian, Irish and French economies, where Howdens trades, either recovering or not getting drastically worse. Kitchens are very much a non-essential spend driven by consumer purchasing power, and the good news is there are many signs that the worst is over for Western European economies. Cautious optimism abounds.

The net debt position remains stable at 41 per cent of equity. With interest rates peaking or even coming down, Howdens' balance sheet looks healthy. It is funding expansion with cash flows rather than debt, so we are confident of its growth case. Buy.

Last IC view: Buy, 739p, 21 Jul 2023