We pulled our buy recommendation on Headlam Group (HEAD) back in March, on concerns over geographic concentration, specifically that the group’s “UK focus could work against it”. And what sales growth there was at the half-year mark was primarily attributable to the residential floorcovering market in continental Europe. UK sales, which account for 85 per cent of the group total, were down 5.2 per cent on a like-for-like basis.
But a softening domestic market shouldn’t detract from ongoing efforts to bring down the breakeven point of the business. That isn’t achievable overnight, but incremental improvements to the warehousing and distribution channels helped to deliver a 113 basis point increase in the gross margin. It’s also likely that changes to the way that inventory is managed – following a trial phase – will help to reinforce margins and cash flows.
Management is seeking to “widen the scope of acquisitions” and the two deals brokered through the half year – Dersimo BV and CECO (Flooring) – and the post period-end capture of Ashmount Flooring Supplies have not only built Headlam’s presence in the commercial specification market, but have also proved to be margin-enhancing.
Panmure Gordon is guiding for adjusted profits of £43.5m and EPS of 42.8p for the full year, rising to £45.2m and 44.9p in 2019.
| HEADLAM (HEAD) | ||||
| ORD PRICE: | 425p | MARKET VALUE: | £360m | |
| TOUCH: | 425-430p | 12-MONTH HIGH: | 635p | LOW: 409p |
| DIVIDEND YIELD: | 5.8% | PE RATIO: | 11 | |
| NET ASSET VALUE: | 251p* | NET CASH: | £16m | |
| Half-year to 30 Jun | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2017 (restated) | 334 | 16.8 | 16.2 | 7.55 |
| 2018 | 337 | 17.6 | 15.9 | 7.55 |
| % change | +1 | +5 | -2 | - |
| Ex-div: | 29 Nov | |||
| Payment: | 02 Jan | |||
| *Includes intangible assets of £50.1m, or 59p a share | ||||
