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Headlam moves further into commercial market

The group has continued to grow, but margins have begun to slip
Headlam moves further into commercial market

Flooring distributor Headlam (HEAD) has been warning of weakness in its markets, particularly the UK residential sector. So it should hardly come as a surprise that the group’s full-year results revealed revenues up just 1.5 per cent to £719m, or 0.7 per cent in like-for-like terms. 

IC TIP: Hold at 504p

Management has been increasingly focused on the commercial market – eschewing its traditional preference for residential – to allay the challenges. It means that the percentage of revenue derived from residential sales fell by 90 basis points to 63.7 per cent, although the shift in favour of the lower-margin market shaved 40 basis points off the gross margin.

Despite the difficulties, management is planning to use its operational improvement programme to shore up margins, as well as improving the customer service offering. The wide-ranging programme includes everything from a new regional distribution centre in Ipswich – expected to be earnings enhancing during 2021 – to a group procurement approach and improved customer service. Moves are afoot to improve inventory management, while a trial of the delivery fleet efficiency programme in South Wales drove up average orders delivered per vehicle by 21.6 per cent.

Broker Panmure Gordon expects adjusted pre-tax profits of £40.1m, giving adjusted EPS of 38.4p in 2020, up from £39.5m and 37.8p in 2019.

HEADLAM (HEAD)    
ORD PRICE:504pMARKET VALUE:£428m
TOUCH:480-504p12-MONTH HIGH:560pLOW: 403p
DIVIDEND YIELD:3.5%PE RATIO:15
NET ASSET VALUE:289p*NET DEBT**:7%
Year to 31 DecTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201565435.633.820.7
201669438.236.822.6
201769340.739.124.8
201870840.440.017.5
201971935.234.017.5
% change+2-13-15-
Ex-div:4 Jun   
Payment:1 Jul   
*Includes intangible assets of £48.5m, or 57p a share **Includes lease liabilities of £44.7m