Liberum, the boutique investment bank, has upgraded its recommendation on car parts and cycle retailer Halfords Group PLC (LSE:HFD) to 'hold' from 'sell' and raised its price target to 210p a share from 120p.
At a capital markets day, Halfords' management outlined ambitious targets, including doubling its pre-tax profit to £90-£110mln within three to four years, Liberum said.
Approximately 25% of the profit increase will come from cost-cutting and synergy initiatives. In comparison, 50% will rely on self-help measures to drive market share gains, and the remaining 25% will depend on underlying market recovery.
Despite a challenging outlook for the current year and only around 20% of the incremental profit expected to translate into free cash flow (FCF) in the mid-term, Halfords' shares have shown a positive reaction, Liberum pointed out.
It cited a 9% free cash flow yield based on its conservative forecasts for its greater positivity but said will require evidence of less clearly achievable drivers' delivery before becoming more positive on the stock.
In early trade, the stock was up 1.6% at 210.6p. Of the six banks or brokerages following Halfords, half are positive. The other two are neutral, while only one is negative. That said, the consensus price target is 201p, which is around 3% below the current share price.