Howden Joinery’s (HWDN) strategy of flexibility and expansion is having mixed results. On the one hand, it grew the top line by 7.7 per cent in 2018, but on the other, margins continued to fall and trade receivables are still creeping up.
Management gives staff at its depots leeway to adjust margins to suit the local business conditions. While this allows them to be more adaptable, it also contributed to a 160 basis point decline in gross margins over the year. This drop, combined with increased investments in the business – including moving to a new distribution centre and expanding the depot network – another 5 per cent to 694 outlets – weighed on operating profits, which grew just 2.4 per cent to £240.1m. Preparation for a no-deal Brexit also led to a £15m spike in inventory.
Our recent coverage of Howden highlighted a worrying increase in receivables, which may signal increased risk if the group struggles to collect money it is owed. Trade receivables were up £48m to £186m in the year, but management attributed this to the timing of its busy “period 11” when trading activity peaks. The period ended in early November, meaning payments for goods bought on credit came due after the financial year ended.
Broker Numis is forecasting adjusted EPS of 33.6p in 2019, up from 31.2p in 2018.
| HOWDEN JOINERY (HWDN) | ||||
| ORD PRICE: | 489p | MARKET VALUE: | £2.97bn | |
| TOUCH: | 488.2-489p | 12-MONTH HIGH: | 542p | LOW: 412p |
| DIVIDEND YIELD: | 2.4% | PE RATIO: | 16 | |
| NET ASSET VALUE: | 93p | NET CASH: | £231.3m | |
| Year to 29 Dec* | Turnover (£bn) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 1.09 | 189 | 23.2 | 8.4 |
| 2015 | 1.22 | 220 | 27.3 | 9.9 |
| 2016 | 1.31 | 237 | 29.5 | 10.7 |
| 2017 | 1.40 | 232 | 29.9 | 11.1 |
| 2018 | 1.51 | 239 | 31.3 | 11.6 |
| % change | +8 | +3 | +5 | +5 |
| Ex-div: | 23 May | |||
| Payment: | 21 Jun | |||
| *Year-end 30 Dec 2017, 24 Dec 2016, 26 Dec 2015 and 27 Dec 2014 | ||||
