Numis Securities has returned its rating for Halfords PLC (LON:HFD) to ‘hold’ from ‘add’, having only made the reverse upgrade in November as a trading opportunity.
In a note to clients, Numis’s analysts said that Halfords third quarter trading update on Thursday showed solid retail like-for-like sales growth but with relative underperformances from car maintenance and from cycling parts, accessories and clothing (PACs).
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They said: “While management noted in the statement that sales for the quarter were ‘slightly ahead of expectations’, it also pointedly recognised that growth was led by the lower margin Cycling category.
“Indeed, Car Maintenance demand was impacted by a warmer October and early November, while Cycling saw higher margin PACs outperformed by lower margin bike sales. Overall, the group suffered a meaningful negative mix impact, which it expects to continue into Q4.”
As a result, the analysts said, Halfords’ full year 2018 pretax profits are now anticipated to be ‘broadly’ in line with market expectations, and they have lowered their forecast by around 3% to £71.7mln from £74.1mln.
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They said they upgraded Halfords in November to recognise the opportunity for a trade in the wake of the post-second quarter sell-off.
However, the analyst added, the shares have since recovered by 13% and, following the small downgrade today, trade on nearly 12 times 2018 estimates.
They concluded: “Halfords remains a mature retailer with limited growth opportunities and, with the trade now over, we move our recommendation back from Add to Hold.”