There was a Trading Update from flooring distributor Headlam (HEAD) last week, that resulted in a positive move northwards for the share price. Leading up to that news and the accompanying capital markets day, the shares had been weak, which saw my taking the the opportunity to add a few more where at the current price of £4.81p sees me presently overall 16% in the blue.
The release was positive enough from a personal perspective given that HEAD was hit by the pandemic, particularly last year and sales pleasingly are now similar to the level of 2019.
Importantly, more recent trading momentum appears to have been building month on month with a particularly strong performance from the residential sector.
The area of commercial sales which not surprisingly had been more adversely affected does remain depressed, but the trends showed improvement in June, which perhaps bodes well, particularly given the ongoing move towards the removal of most restrictions.
HEAD - as I stated in my previous coverage here from March - is a well funded asset rich business that remains Europe’s number one flooring distributor, despite generating the bulk of its sales from within the UK.
A recent decision to exit Switzerland with the sale of that business along with other ongoing initiatives should now see HEAD well positioned for both the near and medium term, where as a result, I’m happy to build my position and hold.
As an added attraction, dividends look set to be resumed with Broker Peel Hunt anticipating a 10p total payment for the full year 2021, increasing to 14p in 2022.
The current earnings forecasts from the same broker are for 2021 revenue of £642m with adjusted pre-tax profits of £28m giving EPS of 26.8p.
However, it seems quite feasible that those numbers may prove to be on the conservative side and EPS could quite well come out closer to 30p, which at the current price of £4.80p would see the shares trading on a PER of 16.
Looking ahead to next year, the same broker has pencilled in revenue of £662.9m where the adj pretax profit is forecast to move to £32.5m, which in turn would deliver EPS at 30.9p.
Again, the numbers look beatable if trading continues to improve as covid vaccines enable a considerable return to normality, along with potential progress in supplying some of the larger end retail market players.
In my conversation with management in March it was clear that the strategy was to cement deals with some of the larger and majors and that is already playing out with early wins achieved with B&Q and Homebase.
There are many others of notable size to further target both here in the UK and overseas which would complement the existing historic customers.
The company has also been heavily focused on implementing a cost-reduction programme which should now lead to a concentration on growing the top line.
Additionally, an increasing focus on digital marketing and the user activity is now also delivering positive results and that should further assist with growing awareness and sales.
I plan to catch up again with management for an in-depth chat at the time of the next update which comes at the end of this month, this being the pre-close, ahead of the Interim results.