Howden Joinery remains cautious about underlying market conditions

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Howden Joinery PLC (LON:HWDN) saw sales recover in the second half of 2020 but remains cautious about underlying market conditions.

The company said it had made a solid start to 2021, although it has seen some greater caution from end consumers who are reluctant to allow tradespeople into their homes under the current lockdown.

Revenue for the whole year fell 2.3% to £1,547.5mln from £1,583.6mln in 2019, with Howden Joinery UK depot off by 2.6% (-4.5% on a like-for-like basis) to £1,509.6mln.

Sales in the second half of 2020 were up 16% year-on-year as pent-up demand was released as lockdown restrictions were eased.

Profit before tax tumbled to £185.3mln in 2020 from £260.7mln.

The kitchen designer ended the year with net cash of £430.7mln, up from £267.4mln a year earlier.

The group has proposed a final dividend of 9.1p and a special dividend of 9.1p, making up for the cancelled final dividend in respect of 2019.

“Howdens performed well during 2020. We adapted to COVID trading conditions and progressed our strategic plans for the business. Our performance demonstrates the strength of our trade-only business model and our ability to evolve the business,” said Andrew Livingston, the chief executive officer of Howdens.

“The year ended strongly with profit and cash flow ahead of expectations and we were able to repay the Government furlough and other support taken earlier in the year. We are also pleased to be resuming dividend payments.

“Given the COVID-related and other economic uncertainties, we remain cautious about underlying market conditions; however, we are encouraged by the progress made in 2020 and remain confident in our business model for the future,” Livingston said.

Liberum Capital Markets said Howden’s profit before tax of £185.3mln was just a shade above the consensus forecast of £185.0mln.

“The tone of the statement is subdued but the year has started well, with UK l-f-l [like-for-like] up 6.5% in the first eight weeks. Prices have been increased to try to restore lost gross margin,” Liberum said.

“There is an unexpected 9.1p special dividend, but no more buy-backs. Interestingly, the group is aiming to add 11 branches in France this year, the biggest addition in a decade, which suggests that management is starting to consider national roll-out,” Liberum speculated.

The broker thinks that on a trailing price/earnings ratio of 21, the shares are expensive “but given the start and comments on gross margin has a good chance of getting back to 2019 levels this year”.

The broker rates the shares as a ‘buy’ with a target price of 800p.

The shares currently trade at 727.2p, down 1.9% on the day.

— adds broker comment and updates share price reaction —

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