James Halstead does it again as flawed Deliveroo is floored

Russ Mould
31 March 2021

“While Deliveroo looks like it could prove to be a high-profile turkey, flooring specialist James Halstead continues to quietly go about its business, to remind investors of what really makes  a good, long-term portfolio pick,” says AJ Bell Investment Director Russ Mould. “Even the pandemic has failed to knock this well-run, cash-generative and well-financed company off its stride. James Halstead has carefully matched last year’s interim dividend, to lay the groundwork for another increase in the full-year payment and the extension of a growth streak that dates back to 1977.

Source: Company accounts. Financial year to June.

“The AIM-quoted company paid out two interim dividends of 2.125p a share last year and it has matched those with a 4.25p interim payment this time around. Patient portfolio builders will now wait to see whether the Manchester-headquartered company can exceed last year’s final distribution of 10p.

“The track record of dividend growth is a testament to Halstead’s solid finances. The balance sheet shows £74.4 million of cash and no debt, with lease obligations of £8 million and a pension liability of £13.2 million, for a net cash position of £53 million. 

“In addition, the company remains very profitable. 

“First-half sales came in broadly flat and operating profit rose 4%, to give an operating return on sales of 20%. Cash conversion was good, too, as James Halstead turned £26.2 million of operating profit into post-tax free cash flow of £37.2 million, helped by some welcome inflows from net working capital.

“That nearly covers £1.5 million in lease payments and the £25 million final dividend from last year, even after tax and capital expenditure, with room to spare. However, the working capital inflow may not prove sustainable and the economic outlook remains uncertain, leading to the cancellation of major exhibition events and disruption of manufacturing sites as staff self-isolate or take safeguarding measures.

“This is presumably why James Halstead is still treading carefully when it comes to the dividend, as profits and cash flow could still come under pressure this year if the global economy recovers slowly or dips again. 

“Last year’s 14.25p-a-share dividend equates to an annual, historic yield of 2.8%. That might not leap off the page at income hunters, but the secret to the investment case for James Halstead has been dividend growth.

“The share price was 0.29p when the dividend growth streak began in 1977, so a 14.25p payment on that in price looks unbelievable now. A consistently rising dividend will tend to drag a share price higher over time and provide the combination of income and capital growth.”

Russ Mould
Investment Director

Russ Mould’s long experience of the capital markets began in 1991 when he became a Fund Manager at a leading provider of life insurance, pensions and asset management services. In 1993 he joined a prestigious investment bank, working as an Equity Analyst covering the technology sector for 12 years. Russ eventually joined Shares magazine in November 2005 as Technology Correspondent and became Editor of the magazine in July 2008. Following the acquisition of Shares' parent company, MSM Media, by AJ Bell Group, he was appointed as AJ Bell’s Investment Director in summer 2013.

Contact details

Mobile: 07710 356 331
Email: russ.mould@ajbell.co.uk

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