But reviewing CLLN I notice that HFD enjoys the same KPMG auditor, Peter Meehan, who may or may not be able to spot a problem you should know about.
Did HFD borrow about £10M last year to balance cash and cover an acquisition in order to pay an increased dividend on declining earnings? Or is headline profit covers dividends by 1.7 all we need to know. Recent trading news was positive I think so maybe any cash flow problem was transient?
Net assets of about £407M on HFD's books but about £394M of that is intangible, which is worthless as a security if the business fails to perform. Borrowing of about £102M suggests the business is geared up to the max of its real assets.
Shorted 2.39% by Blackrock and GLG which is hardly a red alert but not everyone thinks HFD has a bright future.
At least there is no pension scheme deficit to worry about.
340p feels like all its value even if there is a fair year ahead, I would not be buying at that price myself, not that I am considering it. Just saying.
Hard comparisons to January last year; that was a whopper.
Back to slow and steady growth now, with the only bright LfL spots being cycling and Autocentres. As said, the new Autocentres are quite an attractive modern alternative to some of the old oily garages.
Personally, i'm not awestruck with this update, but holding on the basis of its cashflow and nice yield.
"It's traditional at this time of year for investors to look closely at how well British retailers have traded over the festive season. The High Street is home to some large and very popular stockmarket names - and their December trading can say a ..."
Well that was a pretty dramatic down/up, and on very good volume - for Halfords. Apparently, the reason (really?) was Deutsche Bank raising its recommendation to Hold from Sell, but leaving its target at 295p, while the sp shot up to 334 ish.
Quite a reaction to a mediocre brokers note, I'd say. If anyone's going to strike, now's the time to do it while Mac's busy readying herself for sorting kn ickers at Marks, and before whatshisname gets his feet under the table - not that i want to lose this high-yielder.
Very close to a 5 year low here, it's certainly a better business now a days than 5 years ago.
Down on this at mo but did trade a bit previously so overall with divi about even.
I didn't think the results were that bad as full year is expected to be as forecast and profit will improve next year, I thought motor servicing and repairs will do well not many places to take your car now a days and new car sales are down.
Don't quite know what to make of the appointment, really.
He's been knocking around Dixons for long enough, but he's only just been made CEO of HoneyBee, but then JMcD wasn't long with Macs - wasn'tt she?
He's known as being entrepreneurial, so the Chairman's going to have his work cut out keeping a tight rein on him, I'd guess. In the meantime, it's steady as she goes until January, and Stapleton has indicated that, in the short to medium term, he's going to continue the present path - "I really look forward to working with my new colleagues to continue to implement the service-led strategy and, over time, identify further growth potential."
Got a sell rec on this, today, with a target of 295p.
Now I've no doubt that DB have researched HFD, but just why do they value it at 295p. At that price, they're assuming that the divi is safe, because if it weren't, the sp would be much, much lower. So are they saying that a 5.5% ish yield is not attractive enough to carry HFD through any downturn? In any case, seems to me that HFD do reasonably well in a downturn - cars get repaired rather than replaced and some folk take to bikes.
Liberum Capital says Hold with target of 340p, and N+1 Singer says Buy with target of 400p.
Add them all together and divide by 3 and we've got a target of 345p. That'll be ok then.
They say you can judge how good a company is by how it responds to a problem.
Having booked my car in with Halfords for its MOT, as I have for the past few years, I turned up on Thursday to be told they couldnt do it because some piece of equipment needed repaired. I was told I would be contacted as soon as it was and I would be a priority as my MOT expired next day.
I was then contacted on Saturday to be offered an appointment the next Friday. It turns out that despite the equipment breakdown and the resulting backlog there is no MOT tester at work on a Saturday and no arrangements whatsoever had been made to deal with the situation such as getting staff to work overtime, arranging to use someone elses equipment, booking customers into an alternative tester etc. Instead I was told I can get a refund if waiting another week was no good for me.
Well in fact it isnt any good for me, and clearly Halfords has no interest in good customer service.
"Stockmarket volatility has dropped to historically low levels recently. While political events in the UK and US caused brief spasms in prices last year, the general trend has been calm. Against this backdrop equity prices have been rising nicely, ..."
Betting Against U.K. Retailers Hits 2-Year High Amid Brexit Jitters
Dow Jones News
Marks & Spencer (LSE:MKS)
Intraday Stock Chart
Today : Friday 7 April 2017
By Philip Waller
LONDON--Betting against U.K. retail stocks has hit a two-year high as investors fret about the potential impact on the sector of a "hard Brexit", a study released Thursday showed.
Grocers including Ocado Group PLC (OCDO.LN), Wm Morrison Supermarkets PLC (MRW.LN) and J Sainsbury PLC (SBRY.LN) hold the top three places respectively in a list of the most-heavily shorted stocks in the sector compiled by research group IHS Markit.
Marks & Spencer Group PLC (MKS.LN), Halfords Group PLC (HFD.LN), Sports Direct International PLC (SPD.LN) and Pets at Home Group PLC (PETS.LN) have also been targets of short-selling, in which investors bet on a downward movement in shares by borrowing and selling them in the hope of buying them back at a profit later.
Online grocer Ocado is also the third most-shorted stock in the FTSE350 Index as a whole, with more than 15% of its shares out on loan.
Investors keen to hedge against uncertainty caused by the U.K.'s vote to leave the EU have been shorting UK stocks with a heavy domestic revenue profile since the middle of last year, IHS Markit said.
Shorting of retailers, many of which get most or all of their earnings from the U.K. market, has surged in the last few weeks as Britain has triggered Article 50, the EU's mechanism by which an existing member leaves the bloc.
The bets now represent 3.3% of the total shares of the 43 retailers in IHS Markit's study, the highest average for the sector in more than two years.
IHS Markit analyst Simon Colvin said a growing number of disputes related to the U.K.'s EU exit, such as last week's row over the sovereignty of British overseas territory Gibraltar, risks a so-called "hard Brexit", in which the U.K. would quit the EU without a trade deal after the official two-year negotiating period.
"Such an outcome could leave retailers paying more for imported goods, owing to both tariffs and a falling pound, while potentially limiting their access to the foreign staff who play an important role in the U.K.'s service industry," Mr Colvin said.
While supermarkets have been shorted for a while due to competition from discounters, more bearish sentiment towards clothing and sport goods retailers in the last few weeks indicates the market is steeling itself for a slowdown in non-essential spending, he added.
Short interest in M&S has more than doubled in the year to date to 9% of shares outstanding, while shorting of Sports Direct and Pets at Home has climbed by more than a third since the start of the year.
Write to Philip Waller at [email protected]
(END) Dow Jones Newswires
April 06, 2017 07:30 ET (11:30 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
I'm not too impressed by PH's analysis, not because I just want to hear good news about Halford (I'd drop it in a flash if I thought that it was a poor investment), but because it leaves out positives and uses some odd arguments.
For example, "It argued that rising oil prices mean fewer miles driven and less depreciation, which is bad news for car maintenance as weFit momentum wanes."
Well prices haven't risen by much and I very much doubt that the small rise has affected miles driven at all, not that I'm an expert, it just seems illogical. On the other hand, if prices do rise significantly, it could be argued that that would lead to an increase in cycle use.
The government's aim is to double cycling activity in the UK by 2025; although I'm not convinced that their heart's in it.
Here are some statistics that indicate the opportunity for growth.
"According to a survey by the European Commission, only 4% of UK respondents cycle daily. Along with Luxembourg and Spain, this is the lowest percentage of all EU 28 countries, except for Cyprus (2%) and Malta (1%).
In contrast, the survey report says: Approximately four in ten respondents in the Netherlands (43%) cycle daily. Roughly three in ten respondents in Denmark (30%) and Finland (28%) also cycle daily.
In the UK, only about 1-3% of children cycles to school, but in the Netherlands, around 49% of primary school children cycle to and from school, 37% walk and only 14% are brought and collected by car. In secondary school, the cycling share is even higher. (Source: Ministerie van Verkeer en Waterstaat, Fietsberaad. Cycling in the Netherlands. 2009)."
I have no idea why they felt the need to come out with that note. It could be that there's more that we haven't been able to view. I'm still not convinced by the reasoning for the SD, and coupled with PH talking the sp down, I wonder if there's a bidder in the wings. May be just wishful thinking, but HFD do seem to be able to churn out the cash - always attractive.
Whenever brokers (making decisions not based on hard financial facts, but mere speculation) force a share price significantly down, that is the time to buy, Presumably when they last met the company the wine was not as vintage as usual!
"it's hard to see a reason to hold the shares." - a well covered yield of over 5% maybe?
One of the things I like about Halfords is different parts of the business do well when others do badly.
"rising oil prices mean fewer miles driven and less depreciation, which is bad news for car maintenance as weFit momentum wanes" - If money gets tight for motorists some will switch to bikes, some will keep their cars longer, therefore spending more on replacement parts etc. and will try to fix things themselves rather than taking them to mainline dealers. All good for car maintenance and weFit. In that instance the broker is taking a factor and seeing its consequences as bad for Halfords. I take the same factor and see it as potentially good for the same areas of the business. There will probably be an element of both.
There are some good points - imported goods which Halfords sell will be getting more expensive; and the challenge of getting the store presentation right is real' but the review sounds like someone who went to a store and could not find what he wanted or had to queue too long to pay (and maybe this was because the store was busy) so panned the company.
Not disagreeing with Hardboy, but here it is from ADVFN:
"Halfords slumped on Thursday as Peel Hunt downgraded its stance on the stock to 'sell' from 'hold' and cut the price target to 325p from was 350p.
"Fundamental headwinds are increasing and the new store format doesn't move the dial," the brokerage said.
Peel said it doubts current consensus forecasts reflect that and it's hard to see a reason to hold the shares.
It argued that rising oil prices mean fewer miles driven and less depreciation, which is bad news for car maintenance as weFit momentum wanes.
Meanwhile, in bikes, the replacement cycle is lengthening and price inflation may have a big impact on volumes.
"We are nervous about the cycle market's growth in the next few years and Halfords' performance alongside that. Our view is that the replacement cycle for bikes is getting longer: there was a move towards premiumisation about ten years back and since then, whilst miles cycled have increased in general, the volume of bike sales has flattened off."
Peel said "more inspiration" is required across the group, adding that it was underwhelmed by its visit to Derby's 'store of the future'.
"The cash attractions here are clear, but gross margins and cost ratios are under pressure as well as like-for-likes, so forecasts are falling."
"The market wasn't expecting much from car parts and bike retailer LSE:HFD:Halfords this week, but with third-quarter sales beating forecasts and a special dividend lining investors' pockets, its shares are one of the FTSE 350's top performers. ..."
"HFDs have got this 'orrible theory that debt isn't high enough; so more special payouts on the horizon?... Wonder if SMWH will go down the same path; up to now they seem to be happy with an ungeared balance sheet - I think it's called. Bill will put me right."
Lupo et al - not surprised at the special for HFD; debt isn't high at all (I have 0.4x ND/EBITDA, most recent historic?) and they have shown consistently strong FCF generation. But I agree with the others on here who think the timing is curious. Maybe they've had a few of their big shareholders in their ear on this?
No idea about SMWH, not one I have followed closely for a while... but on a cursory glance, wouldn't be surprised. Management have done a really good job there, although opinions do differ across the market on what makes an "efficient" balance sheet structure... FWIW, the consensus probably comes down to ND/EBITDA somewhere between 1x and 2x.
"... if you want to try to make yourself bid proof, you get the sp up as high as possible, which is the obvious bit... Back to the special, HFDs will have removed £20m or so from the value of the company; so that's £20m a buyer wouldn't be able to trouser for themselves."
Absolutely right, ultimately - but getting the SP up is usually easier said than done! There could be some counter-bid thinking here... suddenly throwing a big special into the mix is a common enough tactic, though you usually see it as part of a 'live' defence situation, after a bid is public - maybe they're trying to be clever with a pre-emptive strike??
And it's a bit of a popgun tactic - can't think of a bid-defence situation where it has actually worked? Perhaps, as one element of a wider array of measures... sure they remove £20m from the value, but it's also £20m less that a bidder would have to pay. As long it is a cash bid, investors are hardly likely to be that impressed by a bit of cash upfront versus 100% cash a few weeks down the line.
Good points Lupo, but I think if there were a predator they would be fairly minor considerations. (Also minor) I would think a share buy back may be a better tactic against a predator, specially if the shares were not cancelled. But as a shareholder I prefer the special dividend to a share buy back.
As for the timing - it is strange - as you say it would normally be announced at finals or interims stage, or at the point of something specific like selling a subsidiary; but, like you, I'm not complaining.
What interests me now is are the profit growth figures YTD as good as the sales growth? It's a long time to wait till 25th May. We may get a pre close trading update in mid April as they have done before, but even that is some way off too.
Tks, Hardboy, saved me checking. Looks as if the Japs sneaked away some years back - I thought so.
Re the special, I couldn't understand why they're so confident of the outcome for the full year after the 3rd quarter. Why not await the outcome for the full year? To my way of thinking, if you want to try to make yourself bid proof, you get the sp up as high as possible, which is the obvious bit that I'm sure you'll agree with. Back to the special, HFDs will have removed £20m or so from the value of the company; so that's £20m a buyer wouldn't be able to trouser for themselves.
What I'm struggling with is the special divi; whilst I'm very grateful, I do wonder why they're announcing it now. Do they believe that they're vulnerable to a chancy bid? It's certainly the sort of action that you'd expect under such circumstances. Has that Japanese outfit still got a stake? Must check. But it needn't be them, there's plenty of others looking at HFD's cashflow and the possibility of floating off the Autocentres.
Hardboy, the problem is that most analysts are lazy. They know that Halfords import a lot of goods and that because of the weakness of sterling, such imports will cost more. But they cannot be asked to do any research to find out what the company might do to mitigate the potential increase in cost. For example, in anticipation of Brexit causing sterling to collapse, they could have bought currency forward. Now, we don't know what the company did, but they have stated that they have plans that will fully mitigate the effect over time.
Neither do analysts think a lot. When interest rates suddenly go up they issue a general note saying that they expect the share price of all their companies will fall, forgetting that companies with substantial cash balances will benefit.
If you are involved in buying or selling shares you should carry out your own research and not rely on analysts.
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