- Flooring specialist draws on net cash pile to maintain dividend growth streak
- Company elects to swallow input costs to gain market share in UK
- Profit margins dip but working capital management boosts cash
- Shares trade near fourteen-year lows
- Dividend yield is plump at more than 7%
“Competition, obsolescence, regulation, customer disaffection and global events can all blow a company off course, or even demolish its business model altogether, but the strength of James Halstead’s position in its chosen marketplace and its carefully managed balance sheet mean the flooring specialist is able to unveil a fiftieth consecutive increase in its annual dividend,” says AJ Bell investment director Russ Mould.
“The share price does not seem overwhelmingly interested, as it stands no higher than it did in 2012, but the 7% dividend yield on offer may provide some support and at least means investors are being paid to wait for the upturn in the Bury-based company’s end markets.
“Events in the Middle East have complicated matters for James Halstead, thanks to higher costs for key inputs such as petrochemicals and energy, and July’s profit warning had already acknowledged that the second half of the company’s financial year to June had not delivered the hoped-for upturn in sales.
“Nevertheless, a net cash balance sheet and strong long-term competitive position in its chosen marketplace mean the company is still able to add to a growth streak in its annual dividend that dates back to the 1970s.
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.
“For the full year, sales fell by 1% and operating profit by 12%, to £260 million and £46.4 million, respectively. Analysts had begun the year looking for outturns of £263 million and £51.5 million and the cautious outlook statement may mean that analysts trim forecasts for the financial year to June 2027.
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.
“Even so, a 17.8% operating margin during a difficult year is still an achievement and this lofty return on sales supports cash flow and therefore adds to the liquidity which already buttresses the company’s finances. Reductions in inventory released further cash so James Halstead’s balance sheet now shows, £75.7 million of cash and no debt, lease obligations of just £5.8 million and a pension surplus.
“These robust finances should see James Halstead through any economic squall and enable it to capitalise on 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. The shares are no higher now than they were in April 2012.
Source: LSEG Refinitiv data
“The annual dividend in the year to June 2012 was 4.0p a share, a long way below the 8.95p declared for the twelve months to June 2026.
“The grinding share price decline in the 2020s leaves James Halstead’s shares on around 15 times earnings, with a 7% dividend yield, based on the figures achieved in the year to June 2026. The yield is well backed by both cash flow and the 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
