It has been a really good last year to be a Headlam (HEAD) shareholder but here a couple of months ago I felt there was more to come, and I was pleased to read these thoughts from Tom and Steve observing their appreciation hopes too. So is there any reason to change tack after the company’s first half numbers out a few days ago? Well, of course, it is positive to read that the market leader distributing floor coverings (+6x nearest peer) company saw not only saw a first half performance ‘remarkably unaffected by COVID-19’ but there was a ‘strong return to H1 19 levels after extensive 2020 closures’ and ‘FY 21 market expectations significantly upgraded in July 21’.
That means that after underlying pre-tax profitability of £16.7 million, it is not unreasonable to hope for a near £40 million figure for either the whole of this year or next year. So with a just over £400 million EV, it is far from worrying to see a x10 EV:EBIT and my guess for the full year dividend yield will be 3%+. As a combination not too shabby.
A year ago I was hoping for a 500p share price, but Tom and Steve are correct in their recent update that Headlam shares should return again to the c. 600p level, levels last seen in 2007 and 2017. Of course there are challenges out there, with Headlam being probably the thousandth company this year to warn about the impact of ‘industry-wide issues of HGV driver shortages and product supply’ as well as ‘price increases...ranging from 3% to 14%’ but at least it talks about directly passing it through too. And - as I have talked about before in my last couple of updates - its Ipswich business evolution is extremely helpful. It always helps to consolidate six businesses into one and hence with its continued nationwide evolution on a similar front, it is not surprising to read that it is ‘on-track to achieve its ambition of 7.5% UK operating margin run-rate during 2023’. Hello the potential scope to push the profitability up a bit further.
We can also talk about technological (‘web-sales rising to 17%, and launch of new app in Sept 21’) and ESG angles, but that is not different from many other companies out there. Headlam - as you would expect of an intrinsically low profile/slightly dull company - is still undervalued and has a range of under-appreciated business evolution potential angles. And it is certainly good to read that when it publishes its full year numbers in about six month’s time, it will also be able to achieve the resumption of the full dividend too. There was a touch of weakness after the results but the stock remains a BUY for me. I'm looking forward to a 20%+ share price rise scope and an enhanced dividend over the next year.
Filed under: Headlam, Powerhouse Energy, Chill Brands, Tissue Regenix, Angelsey Mining, Halfords
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