- Flooring specialist adds to dividend growth streak that extends to 49 years
- Margins benefit from investment and operational efficiencies
- Bury-based firm remains cash generative and has a net cash balance sheet
“Weakness in Europe and Australasia more than offset strength in the USA and prompted a 5% drop in sales for the year to June at James Halstead, but ongoing investment in its business, in terms of energy efficiency, cost control and product helped the flooring specialist to increase profit margins to their highest mark since 2016,” says AJ Bell Investment Director, Russ Mould. “The latest round of operational improvements is also helping James Halstead to remain highly cash generative and that, in turn, means the AIM-quoted company is able to report its forty-ninth consecutive increase in its annual dividend.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to June.
“James Halstead is having to work hard as it copes with input cost inflation, economic uncertainties and more besides. But profit margins rose even as sales fell, to top 20% for the first time since 2016 as ongoing investment in its manufacturing facilities and its product range, where Polyflor, Camaro, Palettone and Polysafe are among the flag-bearers, continues to pay off, as shown by contract wins in countries ranging from Italy to Dubai and France to Poland.
Source: Company accounts. Financial year to June.
“That profit margin helps to support the dividend but again the company is not able to rest upon its impressive dividend streak laurels. Net working capital soaked up £9.9 million in cash, even as James Halstead continued to whittle down inventory. During lockdowns and a period of fractured supply chains at the turn of the decade, the £623 million cap company took on extra stock to reassure customers and ensure they were not disappointed when they placed orders.
“Management continues to carefully run down some of that stock. The full-year results showed a third consecutive decrease, down to £80.4 million, from £82.3 at the end of the last fiscal year and below the peak of £112 million seen in June 2022. Even so, inventory days rose thanks to the dip in sales, so management will have to be careful in the coming financial year.
Source: Company accounts. Financial year to June.
“That increase in working capital did crimp cash flow a little and even meant that free cash flow cover for the dividend dipped below one times. This has happened before in the past decade, though, and careful working capital management and the strong profit margins should help to keep the dividend growth streak going, especially if the top line starts to grow again.
Source: Company accounts. Financial year to June.
“The dividend can also draw support from the balance sheet, which shows £68 million of cash and no debt, lease obligations of just £4.7 million, and no pension deficit.
Source: Company accounts. Financial year to June.
“Such robust finances should see James Halstead through any economic squall and feast upon any weakness among its rivals.”
Source: Company accounts. Financial year to June.
