Despite Howden Joinery Group PLC (LON:HWDN) posting impressive interims, Numis Securities has downgraded the kitchen specialist to 'hold'.
The target price remains unchanged at 512p but as that was less than tuppence below last night's closing price of 513.6p, the broker deemed it the right time to shift to a neutral position.
READ: Howden Joinery sees profit-taking after margin wobble
Following the results, the shares were down 26.5p to 487.1p, suggesting a swift return to its previous 'add' position could be on the cards, as Numis seems impressed with Howden as a company.
“We marginally trim our estimates to account for FX headwinds, but believe the investment thesis remains very positive; ongoing investment will enable out-performance at revenue and profit level driven by the Howden business model,” Numis said.
Numis cut its profit before tax forecasts for this year and next by £3mln.
The broker said first-half sales trends were driven by strong volumes, which wholly accounted for the 10.7% uplift in like-for-like (LFL) sales in the first half in Numis's view, but acknowledged that the comparatives from a year ago were weak; the second half will see that situation reverse.
“Total UK sales +5.3% to mid-July is an impressive figure and again volume driven in our view, but does illustrate this comparator impact. UK price increases took place in April and could provide c2-3% LFL growth in H2, while expansion from new depots and maturity should add 1-2% in what we continue to regard as a flat kitchen market backdrop,” Numis said.
Andrew Livingston will be the focus at analysts' meeting
Liberum Capital Markets, meanwhile, stuck with its 'buy' rating but then it has a higher target price – 557p.
“The second half has started well with a UK l-f-l of around 4%, which together with space growth of around 1%, drove revenue growth of around 5%,” Liberum noted.
Liberum predicted the main focus of today’s analysts’ meeting would be on Andrew Livingston’s first thoughts as new chief executive.
“He joins from Screwfix, so we would expect some thoughts on how Howden can step up the rate of branch opening, expand the range of products sold and improve the digital proposition,” Liberum suggested.
“We are convinced that Howden is a long term growth story that has further to run. Density analysis shows scope to add 20% more to the depot network. Investment has been made to protect its leading market position and gross margins are being well managed,” Liberum said.
“The new CEO has an opportunity to look afresh at the business model. We see over 20% TSR [total shareholder return] upside, including capital returns. The group is undervalued as the market remains nervous on the consumer and forgets the continued momentum in a long established growth story,” the broker concluded.