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Halfords remains a strong ‘buy’ for some City brokers but other analysts see profit risk

The retailer flagged low margins in the cycling division, which has seen high sales during the crisis

Halfords Group PLC - Halfords remains a strong ‘buy’ for some City brokers but other analysts see profit risk

Halfords Group PLC (LON:HFD) is a strong ‘buy’ for both Liberum and Peel Hunt although Tuesday’s preliminary results sent shares down 9%.

According to the brokers, the new normal coming during the crisis is beneficial for the bike and car parts seller, as more people choose to cycle or drive during their commute to avoid public transport amid fears of getting infected.

READ: Halfords expects improvement in motoring business as cycling continues to pedal higher

Independent analyst Nick Bubb reckons the market is uneasy about low margins at the booming cycling segment, alongside a prediction of little profits over the year even if sales continue at the pace seen in the previous quarter.

The FTSE 250-listed firm posted a 6.5% dip in sales for the 13 weeks to July 3, as the motoring division still has to start picking up.

Halfords modelled three scenarios: the first will see an underlying loss before tax of £0-10mln, the second and third profits of £0-10mln and £10-20mln respectively, based revenue down 9.5%, 7.5% and 5% respectively.

“Stores are operating at lower capacity, which acts as a drag on performance, as does the fact that customers are holding off on big ticket items for their cars,” pointed out Sophie Lund-Yates, analyst at Hargreaves Lansdown.

“While a chunk of Halfords’ revenue is defensive, the remainder is made up of customers’ discretionary spending. With the economic outlook looking very challenging the group’s braced for the fact that getting consumers to part with their cash on non-essential gadgets and gizmos is simply not going to happen on the scale they would like.”

But Peel Hunt noted that Halfords took full advantage of its status as an essential retailer, while the plan to close 10% of the store estate will help with extra expenses.

According to Liberum, the retailer’s resilience during this crisis has proven the strength of the brand, the agility in responding to changing customer behaviour and its ability to harness growth opportunities.

“The market has probably been cautious on the performance of motoring and particularly autocentres… The reintroduction of compulsory MOTs from August will provide further sales boost,” analysts commented.

Shares slipped 9% to 160.29p on Tuesday afternoon.

Quick facts: Halfords Group PLC

Price: 161.2 GBX

LSE:HFD
Market: LSE
Market Cap: £320.98 m
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