Halfords Group PLC

Halfords Group PLC (LON: HFD) is a FTSE All-Share listed Company, which is engaged in the retailing of cycling, motoring, and leisure products. The Company operates through two business segments – Retail and Autocentres.

On 10 November 2021, HFD expects to announce its H1 FY22 results.

Investment Rationale – SPECULATIVE BUY at GBX 340.00

• For FY22, profit before tax (post-IFRS 16 adjustments) is anticipated to be over £75 million.
• The motoring division (represents 65% of total revenue) reported strong growth with enhanced scale of autocentres business. The Group appeared positive on prospects for FY22 and beyond.
• HFD is targeting strong growth in Services and B2B businesses along with an improved Retail Motoring performance and continued investment initiatives.
• From a technical standpoint, 14-day RSI (~27.46) is in the oversold territory, while the stock price has gone below the lower standard deviation of the Bollinger Bands.
• On a forward 12-month basis – key valuation multiples (EV/Sales, EV/EBITDA, Price/ Cash Flow and Price/Earnings) are undervalued against the Specialty Retail sector.

Risk Assessments

• The new car registration fell 22% year-on-year in August 2021, reflecting that the sector is still battling with Covid-19 related supply difficulties. Moreover, the change in consumer behaviour can also impact the growth trajectory of the business.
• The operating environment is challenging given the raw material inflation, factory production constraints, freight disruption, supply and recruitment challenges.

Trading Update (for 20-week period to 20 August 2021, as on 8 September 2021)

 (Source: Company Website)

• Halford has given a strong start to FY22 despite a challenging operating environment. Over the last two years, sales grew 18.7%, underpinned by increased scale of Autocentres business, growth in retail motoring, and solid growth in growth in retail cycling.
• The Company witnessed a strong growth in Motoring across retail stores, garages, and vans.
• The balance sheet also remained robust with good cash generation in the period.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22) (Illustrative) 

Conclusion

During the first 20 weeks of FY22, Halford demonstrated robust trading performance despite operating challenges. The ongoing demand for Halfords Mobile Expert Vans is solid, albeit the Cycling division is currently impacted by a disruption in the global supply chain. Notwithstanding, the Company seems confident in the long-term outlook for the cycling market. HFD is the UK's largest cycling retailer, and it is well-placed to navigate the prevailing challenges. The stock made a 52-week high and low of GBX 441.80 and GBX 171.83, respectively.

Based on the strong revenue growth, expected profitability, investment initiatives, improved market conditions, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Halfords Group PLC at the current market price of GBX 340.00 (as on 8 September 2021, at 8:25 AM GMT), with lower double-digit upside potential based on 14.49x Price/NTM Earnings (approx.) on FY22E Earnings Per Share (approx.).

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peers/ Industry information have been taken from Refinitiv.

*Dividend Yield may vary as per the stock price movement.

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