The broker said the current share price implies a long-term sales decline of 8% per annum, “which does not make sense”, and reiterated its target price of 250p.
Last week’s 22% tumble was likely due to management’s cautious profit scenarios, analysts said, though the car parts and bike seller is making financial, operating and strategic progress paving the way for a more service-led, higher margin, better returns business.
Shareholders may soon see the dividend reinstated, supported by strong cash flow also allowing for a step-up in capital expenditure.
Liberum expects a £68mln adjusted loss before tax in the year to next March with a 10% fall in like-for-like revenue, margin dilution from higher sales in the cycling division and a £20mln COVID-19 charge.
However, this is forecast to swing to a £40mln profit in the year to March 2022, supported by sales just 2% below pre-pandemic levels at £1.1bn.
In last week’s results, 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 on revenue down 9.5%, 7.5% and 5% respectively.
Shares jumped 4% to 144p on Monday late morning.