Howden Joinery Group's (LSE:HWDN) £390 million acquisition of DIY Kitchens surprised the market, but early analyst reaction was positive.
Jefferies described the deal as "strategically and financially savvy", arguing that it gives Howdens access to a new customer base while allowing it to "internalise what is currently one of the fastest-growing competitors".
That point cropped up repeatedly in broker commentary, with DIY Kitchens' direct-to-consumer model is a corner of the market that Howdens has largely ignored, haviung so far only serving trade customers.
The consensus view is that the acquisition broadens Howdens' reach without undermining the core business's trade-only model.
"We do not see this as impacting Howdens' core trade customer base," Jefferies said, noting that the two businesses are expected to retain "very distinct customers".
The financial attraction is equally important, with DIY having generated £37 million of operating profit from £136 million of revenue last year, at a 27% margin.
"We expect the group to deliver some manufacturing and purchasing savings across the combined group, but it has not given any figures on that front," said Peel Hunt, predicting it to be "modestly" earnings-enhancing pre-synergies
Jefferies estimates the acquisition could deliver around 10% earnings accretion, while Stifel forecasts a more conservative 4% uplift before synergies.
Both brokers highlighted the 8.5 times EBITDA acquisition multiple as reasonable given the target's growth profile.
Peel Hunt believes the deal will "reinforce the group's market position", while Stifel said it strengthens the case for Howdens as a "long-term quality compounder".
The US broker said there could also be "medium-term recovery potential too" as Howden's volumes are down around 10% compared to 2021 and its margin 360 basis points below pre-Covid highs, meaning that restoring both could add around 40% to 2025 profit levels.
Even after funding the acquisition and maintaining its £100 million buyback programme, Jefferies estimates Howdens could still be generating more than £250 million of cash annually from 2027, leaving scope for further shareholder returns.
