- Flooring specialist warns of lower profits in the year to June 2026
- Company elects to swallow input costs to gain market share in UK
- Petrochemicals and energy costs are a particular challenge
- Net cash pile should support the dividend growth streak
- Shares trade near 14-year lows but could draw support from the dividend yield
“Events in the Middle East continue to complicate matters for flooring specialist James Halstead, thanks to higher costs for key inputs such as petrochemicals and energy, and the second-half recovery is not going to come through as hoped for the year to June 2026,” says AJ Bell investment director Russ Mould.
“The Bury-based company now expects sales to dip slightly and profits to dip by some 10% to 15% compared to the twelve months to 2025, although a net cash balance sheet and strong long-term competitive position in its chosen marketplace should still help James Halstead to maintain a growth streak in its annual dividend that stretches back to 1974 when management publishes the full-year results later this year.
Source: Company accounts, Marketscreener, consensus analysts' forecasts. Financial year to June.
“March’s results had already revealed a 2% drop in sales and a 13% slide in operating profit in the first half of the latest financial year, and events in the Middle East have since taken a hand, knocking customer confidence and driving up costs.
“Before the trading update, analysts had been looking for flat sales at around £263 million and a 3% drop in operating profit to £51.5 million, but the alert means they started to cut those numbers. Consensus is now settling on a 3% drop in sales and a 13% decline in operating profit to £255 million and £46 million, respectively.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts. Financial year to June.
“Management has elected to swallow the worst of the input cost increases, rather than hike prices to defend margins, and used inventory on its balance sheet to supply customers and take market share in the core UK market.
Source: Company accounts. Financial year to June.
“Analysts still think the company’s operating margin will be healthy, at just over 18% in the year just ended.
“Such margins should support cash flow and therefore add to the liquidity which already buttresses the company balance sheet, which shows £71 million of cash and no debt, lease obligations of just £5.7 million and a pension surplus.
“These robust finances should see James Halstead through any economic squall and feast upon any weakness among its rivals, while also giving management the opportunity to reward patient shareholders for their support.
“Analysts believe that management will add to the full-year dividend growth streak, despite the decline in profits. A 3.6% increase in the first-half payment sets the scene and analysts expect a 3.3% hike for the year as a whole to 9.11p.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to June.
“Steady increases in the dividend over time should, in the end, support the share price, but that theory is being put to the test. Wider concerns about the macroeconomic backdrop, and now input cost inflation and supply chains, leave the shares at their lowest mark since early 2012.
Source: LSEG Refinitiv data
“The annual dividend in the year to June 2012 was 4.0p, a long way below the 9.11p that analysts expect for the twelve months to June 2026.
“The grinding share price decline in the 2020s leaves James Halstead’s shares on around 14 times forward earnings, with a forecast 7.6% dividend yield that is well backed by both cash flow and a net cash pile.
Source: Company accounts. Financial year to June.
“It will be interesting to see if such metrics start to catch the eye of value hunters who may also warm to how their interests will be aligned with those of executive chair Mark Halstead and the founding family, whose stake in the business will mean that the company continues to plan carefully for the long term and not take any undue risks in the near term.
“Equally, sceptics may be looking at earnings and free cash flow cover for the dividend, neither of which come close to the two-times level that offers real comfort in the event of an unexpected and marked deterioration in trading, although, again, the net cash balance sheet offers a welcome buffer there.
Source: Company accounts
