UBS has upgraded its rating for Halfords Group PLC (LON:HFD) to ‘neutral’ as it considers the risk/reward to be” more balanced” ahead of a new chief executive officer joining the bikes to car parts retailer.
The FTSE 250-listed firm announced at the start of May that its current CEO, Jill McDonald, had resigned from the business to take up the position of managing director of Clothing, Home & Beauty at Marks & Spencer PLC (LON:MKS).
McDonald will remain as Halfords’s CEO until the end of her notice period in October 2017 and the group said it has commenced the process to appoint her successor.
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In a note to clients, UBS’s analysts said the base case is that a new boss re-iterates a similar strategy to the last two Halfords CEOs, with a focus on the cycling and motoring categories, increased staff training to improve in-store service levels, an increase in the proportion of income from fitting and repair services, and investment in store refits.
But they added: “We believe there is an outside chance that a new CEO takes the opportunity to fundamentally reshape the group.”
The analysts said: “In our view this may involve playing on the strong brand awareness and reputation of the brand and attempting to offer its motoring customers a complete service and protection package via a subscription based model.”
Acceleration of service-related revenues key to Halfords’ long term future
They added that this would involve regular vehicle servicing, MOT and roadside assistance for an annual fee which would give certainty on the cost of running a car other than insurance and fuel.
The analysts said: “The assurance element would involve gaining sufficient scale to diversify the risks and ensure sufficient utilisation of the Halfords Autocentre garages.”
They concluded: “In our view the acceleration of the service related revenues is key to its long term future.”
UBS has upgraded its rating to ‘neutral’ from ‘sell‘, with an increased target price of 315p, up from 300p.
In late morning trading, Halfords’ shares were up 0.6%, or 2p at 336p.