Halfords Group PLC

Halfords Group PLC (LON: HFD) is an FTSE All-Share listed company. It is a retailer of driving and cycling items & services in the United Kingdom.

The Company had paid an interim dividend of 3.00 pence per share on 21 January 2022, while the ex-dividend date was 09 December 2021.

Investment Rationale – Speculative Buy at GBX 249.00

• UK Retail Sales: According to the latest figures from the Office for National Statistics, the UK retail industry improved at the start of 2022 following a poor December caused by the Omicron variant of Covid-19. After a 4.0% monthly drop in December 2021, retail sales in the United Kingdom increased by 1.9% in January 2022.
• Solid Fundamentals: The Company’s top-line revenue witnessed a year-on-year growth of around 8.7%, and profit before tax (“PBT”) showed a year-on-year increase of approximately 16.1% during H1 FY22.
• Upgraded Guidance: With the announcement of H1 FY22 interim results, HFD had upgraded its FY22 full-year underlying PBT guidance from earlier £75 million to current £80 million - £90 million.
• Technical Indicator: From a technical standpoint, the 14-days RSI of ~28.43 indicates an upside potential in the stock price. Moreover, the stock is hovering around the lower Bollinger band, reflecting a bullish price momentum.

Risk Assessments

• Product Boycotts: The product boycotts might lead to a drop in sales; many retailers still fear them.
• Ukraine Tension: The mounting concern over the Russian invasion in Ukraine can continue to weigh on the equity market.

Q3 FY22 Trading Update (for the 13 weeks period to 31 December 2021, as on 13 January 2022)

(Source: Company Filings)

• Mobile Business Achievements: The firm's Mobile Servicing business performed well, increasing 72% like for like, and according to the Company’s research, it was the first business to receive an average of 4.8 stars from over 200,000 Trustpilot evaluations.
• Top-Line Business: The strong Autocentres, Services and B2B performance led to decent revenue growth of around 13.9% during Q3 FY22 when compared with Q3 FY20 levels.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY22E)

Conclusion

The recent acquisition of Axle Group Holdings Ltd is being integrated into Halfords' Autocentres division according to plan. Looking ahead, HFD remained confident that the ongoing strategic investment would continue to build resilience and underpin future growth. The stock made a 52 week High and Low of GBX 441.80 and GBX 247.40, respectively.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Based on the decent revenue growth during Q3 FY22, solid H1 FY21 financial performance, and support from the valuation provided above, we have given a “Speculative Buy” recommendation on Halfords Group PLC at the closing market price of GBX 249.00 (as on 03 March 2022).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios. 

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavorable movement in the stock prices.

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