Join our community of smart investors

Halfords inching forward

Pre-tax profits are still expected to be broadly in line with the prior year, after higher costs and investment
November 9, 2018

Halfords (HFD) knows it needs to invest to survive the current malaise blighting the British high street. So, as chief executive Graham Stapleton gets to work implementing this new strategy, a flat set of half-year numbers is actually good news. Like-for-like revenues grew by 2.5 per cent over the first-half, reflecting strong sales of e-bikes, dash cams and motoring services, while cycling sales – a retail sub-segment – rose 1 per cent, thanks to improved trading over a hot summer.

IC TIP: Buy at 301p

Meanwhile, the gross margin picked up slightly from 48.6 per cent to 49.4 per cent in an encouraging (although slight) reversal of a recent trend towards decline here. This stemmed from a 0.9 percentage point widening in the retail gross margin, buoyed by better sales growth and limited stock loss.

Pre-tax profits suffered after an 8 per cent rise in operating costs. But more than half of these costs derived from one-off or planned investments that aren’t expected to recur in the second half. Management also reiterated full-year guidance for flat pre-tax profits year on year.

Elsewhere, free cash flow climbed 10 per cent year on year to £34.2m – and in good news for our income tip, bosses bumped up the half-year dividend. But cover will be lower in the medium term as the group "invest[s] for sustainable long-term growth".

Broker Peel Hunt forecasts adjusted pre-tax profit of £69m and EPS of 28.2p for the year to March 2019 (from £71.6m and 29.8p in FY2018).

HALFORDS (HFD)   
ORD PRICE:301pMARKET VALUE:£598m
TOUCH:300-300.6p12-MONTH HIGH:391pLOW: 291p
DIVIDEND YIELD:6.0%PE RATIO:12
NET ASSET VALUE:214p*NET DEBT:18%
Half-year to 28 SepTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201758936.614.76.0
201860028.211.46.2
% change+2-23-22+3
Ex-div:13 Dec   
Payment:18 Jan   
*Includes intangible assets of £392m, or 197p a share