Howden Joinery share price: Analysts believe the stock is set for recovery
By Rob Griffin
Updated
Shares in UK-listed Howden Joinery (HWDN) have plummeted this year but analysts believe the building materials company could bounce back over the coming months.
The trade-only firm’s stock price has sunk almost 33% per cent from £9.34 at the start of January to £6.30 during early trading today in London.
But it’s hoped better-than-expected half-year results will re-ignite optimism for the business, which has more than 800 depots across the UK and Europe.
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Howden Joinery (HWDN) share price chart
Tougher environment
The Howden stock price has significantly de-rated this year, in line with others in the building material universe, amid fears over the strength of the cycle.
The sector had boomed in the wake of Covid-19 as people had more time and money to invest in improving their properties.
However, the combination of coronavirus restrictions coming to an end and the increasing threat posed by the cost of living crisis had dampened expectations.
Strong trading update
The group reported first-half 2022 revenue of £913.1m – 16.3% up on last year’s £784.9m and almost 40% higher than the same period in 2019.
This resulted in a pre-tax profit of £145m, 21.6% ahead of the £119.2m figure achieved during the first half of 2021.
According to Andrew Livingston, Howden’s chief executive, the company has good momentum going into the second half of the year, which includes its peak trading period.
“We are confident in our resilient business model while recognising that we will be trading against record revenue comparatives,” he said.
Further developments
The results also highlighted the opening of 10 new depots in the UK, along with the revamping of 34, as well as seven new depots in France and one in the Republic of Ireland.
Howden’s capital expenditure guidance for the current year increased by £20m to £130m, including the previously announced £10m of one-off costs relating to the purchase of additional land.
The statement also outlined plans to continue managing inflationary pressures according to market conditions to achieve the right balance between pricing and volume.
Sense of trepidation
The news was music to the ears of investors, who were worried that enthusiasm for home improvement was petering out, according to Russ Mould, investment director at AJ Bell.
“After two years of people thinking more about their personal living spaces and splashing the cash on a range of home improvement projects, there was a sense of trepidation ahead of companies in the space reporting their results,” he said.
However, he believes Howden’s results suggest there’s further to go. “Its trading continues to be very strong and the company remains as upbeat as ever,” he said.
Focused on negativity
Clyde Lewis, an analyst at Peel Hunt, believes people have become unfairly fixated on the potential negatives and overlooking the upside potential.
“Investors have been focused on downside risks for Howdens during 2022 with concerns about a big slowing in consumer renovation spend,” he said. “To date, this has been limited, while the revised market size highlights more growth opportunity for the business.”
Lewis currently has a ‘buy’ recommendation on the stock and a target price of £10.95, which would represent a 74% premium over the £6.30 level, as of mid-morning on 26 July, 2022.
Prudent view
Charlie Campbell, an analyst at Liberum, also has a ‘buy’ recommendation in place, although a more modest target price of £7.90, down from £8.80.
This decline in expectations is based on a combination of his “more prudent view” of short-term trading, as well as a step up in capital expenditure.
“The investment case for Howden is based on the strength of its franchise, which enables it to grow share and maintain margins by passing through cost increases,” he said.
International boost
Campbell believes the company is well placed to “continue gaining share” and has excellent product availability, as well as accelerating depot rollouts in the UK and Europe.
International expansion, he pointed out, is starting to play a part in the group’s profit progression.
“These strengths are reflected in very attractive financials: its margins and returns are high and sustainable and it has a very strong balance sheet,” he added.
Consensus view
The company is rated a ‘moderate buy’, based on the views of six analysts, compiled by MarketBeat. Their consensus is that the stock will rise 49% to £9.41 over the coming year.
While the most optimistic analysts have pencilled in a 69% hike to £10.65 over this period, even the most pessimistic expect a 16% uplift to £7.30.
Meanwhile, the algorithmic five-year forecast of Wallet Investor put the stock price at £11.67 by July 2027, representing a premium of 85% over the £6.30 level.
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