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Halfords gears up for electric mobility

Halfords gears up for electric mobility
June 17, 2021
Halfords gears up for electric mobility

An accelerated digital transformation is generating endless speculation on how urban spaces are evolving because of e-commerce and remote working. This speculation also extends to how people will get around built-up areas. While it is probably safe to assume that mass transit will still be with us for the foreseeable future, it is also true that both commuters and recreationalists are increasingly opting for individual electrified modes of transportation.

You get some idea of this in Halfords’ (HFD) full-year figures, which detail a 94 per cent hike in ‘e-mobility’ sales (i.e., e-bikes, e-scooters and associated accessories). The group revealed that by April next year, more than 2,000 of its store and garage employees will be trained to service electric vehicles, bikes and scooters.

It’s still early days, yet management is intent on positioning the group as the market leader in electric mobility services, in response to what it describes as “a societal need to tackle climate change”. No surprise then that the retail cycling segment posted sales growth of 54 per cent, with e-bikes registering a 76 per cent annual increase. In addition, cycling gross margins increased by 680-basis points, as the group rationalised its product range and reduced discounted sales through the period.

All of this was achieved against supply, freight and logistics disruptions, but the pandemic also triggered surging demand for mechanical bikes as people sought lockdown-compliant ways to burn off the calories.

Though we are unlikely to witness a repeat of the volume surge in the early part of 2020, the direction of travel is clear enough, evidenced by the 42 per cent increase in retail cycling sales in the first nine weeks of FY2022. To paraphrase Norman Tebbit, people are most assuredly getting on their bikes.

Halfords’ metrics are even more impressive when you consider the wider disruption to the economy, but we shouldn’t forget that the group is transitioning to become a multi-channel operation. Consider that its autocentres business has continued to build market share even though vehicle traffic volumes have been down by a quarter on pre-pandemic levels.

The economy can’t tread water indefinitely, and analysis from Matthew McEachran of N+1 Singer suggests that “all eyes should be on the rebound/growth in high margin Motoring, Autocentres & ‘services’ expansion groupwide”. The broker has increased its adjusted pre-tax profit forecast for FY2022 to £74.9m on the back of “normalising traffic, a vibrant used car market and staycation trends”.

Shareholders will certainly be pleased by the restoration of the dividend, aided by free cashflow rising from £55m to £145m. The group had negligible borrowings at the year-end, with lease liabilities of £344m being the principal component of debt. However, that figure was down 17 per cent on the prior year, and it is not unreasonable to imagine that it will contract further as the proportion of online sales (44 per cent of the group total) continues to increase.

The ‘shelter-at-place’ diktats underpinned a one-off surge in volumes, but Halfords is positioning itself to exploit the changes in urban travel modes. Electric scooter sales are cranking up, but they are not legal to ride anywhere and everywhere while Whitehall continues trials to ascertain how they can be used safely. Clarity in this policy area could certainly enhance Halfords’ investment case, but it is already clear that management is ahead of the curve in this regard.

HALFORDS (HFD)    
ORD PRICE:408pMARKET VALUE:£ 812m
TOUCH:407-408p12-MONTH HIGH:410pLOW: 130p
DIVIDEND YIELD:1.2%PE RATIO:15
NET ASSET VALUE:210p*NET DEBT:66%
Year to 02 AprTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20171.1071.428.717.5
20181.1467.127.818.0
20191.1451.021.218.6
20201.1619.48.906.18
20211.2964.527.15.00
% change+11+232+204-19
Ex-div:tba   
Payment:tba   
*Includes intangible assets of £398m, or 200p a share