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Howden Joinery staves off slowdown fears

The supplier of kitchen materials lifted capital expenditure (capex) estimates to expand its chain of depots in the UK, France and Ireland
July 21, 2022
  • Price rises offset building materials inflation and lifted gross margins by 60 basis points
  • Plans to open 30 new depots in the UK in 2022, with another 25 in France 

After a frenzied few years for housing and home improvements, fears of an imminent slowdown have caused kitchen materials supplier Howden Joinery (HWDN) to lose over a quarter of its value in 2022. Cash-strapped consumers are already slashing their spending on discretionary items such as home furnishings, and housebuilding activity slowed for the first time in two years in June, according to the S&P construction purchasing managers’ index. 

Despite this gloomier backdrop, Howdens has kept growing sales in the double-digits in the six months to June, and like-for-like growth was up by 6 per cent in its UK depots and 13 per cent internationally over the last month. Meanwhile, high inflation in building materials and freight rates have been more than offset by price rises, which delivered a 60 basis point increase in gross margins to 61.9 per cent.

Howdens’ future growth will depend on its ability to grab higher market share in kitchen materials. It currently has a 20 per cent share of an estimated £11bn market in the UK, through its 788 depots. Management plans to add another 30 new UK depots, as well as 25 in France and five in Ireland, which will be clustered around major cities. Capex estimates for the year have risen by £20mn to £130mn.

Chief executive Andrew Livingston said Howdens is on track and has “good momentum” going into the peak trading in the second half of the year, but is “watchful of market conditions and consumer sentiment”. Nevertheless, Numis estimates that the shares are pricing in a 30 per cent pre-tax profit decline in 2023, which the broker said was a “particularly negative scenario not least given Howdens track record of outperformance”. The shares are now just 5 per cent in advance of our November 2019 buy call, after peaking at 961p in September 2021. Full-year figures will be up against a tough comparator, but we view the valuation as undemanding on a forward price/earnings ratio of 11.7. Despite the spectre of further inflationary pressures, we remain buyers. Buy.

HOWDEN JOINERY (HWDN)  
ORD PRICE:653pMARKET VALUE:£3.7bn
TOUCH:652-653p12-MONTH HIGH:986pLOW: 618p
DIVIDEND YIELD:3%PE RATIO:12
NET ASSET VALUE: 157pNET DEBT:42%
Half-year to 11 JunTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
202178511916.44.30
202291314519.64.70
% change+16+22+20+9
Ex-div:13 Oct   
Payment:18 Nov   

Last IC View: Buy, 750p, 24 Feb 2022.