- First-half sales and profits sag but flooring specialist adds to dividend growth streak that extends to 1974
- Net cash pile on the balance sheet continues to grow
- Macro environment weighs on shares, which trade at lowest level since 2012
“A 2% drop in sales and a 13% drop in operating profit in the first half of its latest financial year shows that life is far from easy for James Halstead. But the flooring specialist still feels able to nudge up its interim dividend, to leave the Bury-based firm on track to add to a growth streak in its annual shareholder distribution that goes all the way back to 1974,” says AJ Bell investment director Russ Mould.
“A net cash balance sheet provides strong support to the payment and management is seeing some uptick in business levels at the start of its second half, although events in the Middle East could yet take a hand, especially when it comes to input cost inflation.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to June.
“The 3.6% increase in the first-half dividend makes analysts’ forecasts of a 3.3% advance in the full-year payment to 9.09p look about right, especially as it implies a 3.1% hike in the final dividend. It also speaks loudly of management’s confidence in James Halstead’s future prospects and the robust nature of its finances.
“This is despite another difficult first half, where distributors ran down stock rather than make substantial fresh purchases, while management took no chances as it carefully monitored how much credit and slack were extended to buyers. Trade receivables fell by £16 million during the first half of the financial year and management managed to shave inventory down by £2.3 million to release further cash from the balance sheet.
Source: Company accounts. Financial year to June.
“Sales in the UK, James Halstead’s largest single market, came in flat during the first half and central Europe was similarly subdued, while sales to Northern Europe declined. America, Canada, and Africa generated strong growth, and the company has seen a better start to the second half here in Britain as customers try to catch up on backlogs of repair and maintenance work.
“Investment in more efficient manufacturing processes at the Radcliffe and Teesside factories should leave James Halstead primed to benefit once this business lands. A focus on energy efficiency at both sides could hardly be better timed, given the potential for the war in the Middle East to increase the cost of power, and should help to support profit margins, where the first half’s dip owes much to reduced sales volumes.
Source: Company accounts. Financial year to June.
“The operating return on sales is still 18.6% and such margins can lead to healthy cash flow and therefore add to the liquidity that 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.
“Such 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.
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 9.09p that analysts expect for the 12 months to June 2026.
“The grinding share price decline in the 2020s leaves James Halstead’s shares on around 12 times forward earnings, with a forecast 7.5% dividend yield, which is well backed by 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
