Headlam Group PLC (LON:HEAD) saw the rug pulled out from under its shares on Friday as Peel Hunt downgraded its stance for the stock to ‘hold’ from ‘buy’ and cut its target price to 460p from 640p after reducing their estimates for the year ahead.
In a note to clients, analysts at the City broker said they expect the floor coverings firm’s numbers for the current year to be broadly in line with expectations.
READ: Headlam Group slides as it downgrades full-year expectations following drop in first half sales
However, they added, next year looks more challenging with a slowing economy and the chaos of Brexit affecting sentiment.
As a result, the analysts said, they are reducing their forecasts for Headlam by 9% to reflect the heightened risk of a tougher market, with the commercial sector in particular under pressure.
They added that they are now assuming that Headlam’s like-for-like volumes in 2019 are -2% vs flat previously.
The analyst noted that shares have held up reasonably well in the recent sell-off and are now trading on around 11x their 2019 estimates.
They said: “That seems a fair rating given the background market.”
The analysts also pointed out that they expect the company to maintain dividends in this environment, which would result in cover reducing from 1.7x to 1.6x.
In mid-morning trading, Headlam shares were 2.8% lower at 423p.