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Howden Joinery accelerates roll-out

The kitchen specialist continues to expand across the UK, but can earnings keep pace?
March 5, 2018

Howden Joinery (HWDN) had to contend with escalating cost pressures through 2017, so a 90 basis point decline in the gross margin represents a reasonable outcome. Ultimately, earnings were held in check by increased depreciation and pension charges, together with costs linked to a new distribution centre in Northamptonshire and the introduction of 26 new kitchen ranges. The group expects an additional £20m in operating costs this year due to the distribution switch and further digital upgrades.

IC TIP: Sell at 485p

Performance essentially mirrored wider trends in the construction and building markets, with first-half weakness in the London area offset by stronger contributions in the regions. Second-half sales did improve nationwide, although year-on-year contrasts aren’t particularly illuminating due to poor comparators in 2016.

Net operating cash flow pulled back to £177m (from £207m in 2016) following a £41.4m contribution to fund the pension deficit. Around £116m was returned to shareholders through the year, including £48m through the share repurchase programme, with another £60m earmarked for buybacks during the next two years. Meanwhile, Howden plans to open around 30 depots in the UK across 2018, having opened 19 in 2017.

The buy/sell recommendations are broadly split among the analysts covering Howden Joinery, with adjusted EPS for 2018 standing at 31.3p, rising to 34.1p in 2019.

HOWDEN JOINERY (HWDN)  
ORD PRICE:485pMARKET VALUE:£3.01bn
TOUCH:485-487p12-MONTH HIGH:486p398p
DIVIDEND YIELD:2.3%PE RATIO:16
NET ASSET VALUE:73pNET CASH:£186m †
Year to 30 DecTurnover (£bn)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
20130.9613515.95.5
20141.0918923.28.4
20151.2222027.39.9
20161.3123729.510.7
2017*1.4023229.911.1
% change+7-2+1+4
Ex-div:24 May   
Payment:22 Jun   
*53-week period. †Excludes £55m in investments