Tag: Howden Joinery
I've given the blog a bit of a refresh after a friend accused it of being a bit 'stodgy'. It should also look a bit better on mobiles and tablets now - which apparently make up 25% of my readers! Direction-wise, I will hopefully be back on the small-cap equity bandwagon soon enough - pending some final job-related stuff. The markets are looking decidedly wobbly at the moment, but there's always value to be found if you overturn enough stones.
I continue my love affair with Howdens, for instance, which is more or less flat year-to-date even after continuing and relentless improvement in their figures. I sold out far too soon, and am now left with the slightly more difficult decision as to whether to buy back in. I think the group will make £140m in net profit this year, which puts them at not-cheap P/E of nearly 16. Countervailing that, you're buying a quality business with great returns on capital. The real lever you have to pull to shift Howdens from being a decent investment to a great one is how much of that (effective) capital - they lease their stores, so outlay is fairly minimal, and they have basically no traditional debt obligations - is actually able to be deployed. One of the things that caught me out was management's growing confidence that they're able to open more and more stores in the UK without cannibalising existing sales. They seem pretty bullish on this trend continuing, hence my optimism for the group generally, but I would like to hear management's plans on France. They have a small depot toehold over there that they're clung on to, but things are beginning to move: (more…)
Buys, sells and questions
The place I must start, obviously, is with H&T Group. I posted quite bullishly on them last Friday, and today they're down 19% on their half yearly figures. One of the perils of being a stockpicker, I guess, is that you're bound to be shown up like that sometimes! I'm actually quite surprised at the scale of the fall given the results. Profits are down, as expected, mostly on the decline in the fortunes of gold. The dividend cut must've been expected by anyone anyone giving the business any serious thought - if one of their major profit streams is drying up and profits are heading back to a more normal level, expecting the dividend to stay as it was before is naive. I think the fall is overdone, and I might go as far as to say that I prefer the stock now. There are a few things that bother me with the update, though.
For instance - management says they think 'consolidation or rationalisation' may be likely in the 'medium-term'. They're fairly ambiguous terms, in my view, but the first means - to me - mergers or takeovers; fewer operators, basically - and the second means store closures. That they're still opening any stores and haven't rule out any further seems a little strange. Perhaps that's being overly nit-picky; stores take a while to set up, so there's a lag between deciding to open no more and no more actually opening. But the overall tone of the statement is also rather negative when they produced what, to me, looked like pretty credible operating figures in their quieter half of the year. Finance costs are down considerably with a refinancing (the group is financially strong), something that'll continue to help in the full year, and the group has cut operating costs on a larger store base.
There's more to be said, but there's also more I need to do on my end, so I'm holding off on buying/selling for now. I'll pen a more complete write-up later in the week, hopefully, or next week if not - but it's at the top of my list given the price! (more…)
Getting some credit
Howden have been one of the strongest performers in my portfolio and are one of its formative members, but I mustn't let nostalgia and the fact I like the company get in the way of making an informed judgement. Eliminating our biases is easier said than done, particularly as Howden is a company that feels like it follows my journey as an investor. My buying reasoning back in mid-2011, as I was just getting to grips with investing and different techniques, was basic and a little quirky. I'd identified that I liked the company, but couldn't particularly articulate why, beyond it being stable and reasonably cheap. Unlike some of my early choices, though, Howden never struck me as an amateur mistake - an oversight of something, or a fundamental misunderstanding. The opposite, in fact - the more companies I looked at and had to compare them to, the more I liked Howden's way of doing things. For a far better explanation of Howden's business model than I've ever been able to put on paper, look here.
The price is up about 110% in the time I've held it, though, and that should give anyone pause for thought about the continuing value. It is essentially the same business, too, with everything basically identical except for a few more depots (and the improved revenue and profits that come with that). Such a large price appreciation with a relatively small change in profits and (though this is a subjective metric) prospective profitability means the market has dramatically changed its opinion on Howden. What was a definitively 'value' company, selling at a small multiple of profits even with obvious growth prospects, is now priced more like the maturing, yet still growing established business that it is. (more…)
The week's results
3 sets of figures out this week for companies in the portfolio - Howden Joinery, Tullett Prebon and Trinity Mirror. My most recent discussions of the three companies can be found at the following link, and searching in the top right will find older material:
Howden have appreciated further versus a pretty flat market since my last post, having added about 10%. They dropped about 6 of those percentage points since the results, which came on Thursday morning, though in reality it's just a blip in what has been a rather smooth upward trajectory since the start of the year. Given the evident quality of the business, though this is very easy to say in hindsight, I think this was certainly one of my safer shares.
The results were wholly uninteresting, though seem to indicate some slowing momentum - revenue is up 4.3% for the year so far, though only 2.2% in the second half. The remaining two 4-week periods account for about 10% of their remaining revenues, and so we can fairly easily see how that figure for the year will pan out, but a slowdown in growth makes another unexciting year likely. Not that any fireworks were particularly expected. On the physical growth front, the company reckons it'll finish the year with 20 more depots than it started with - 4% more - which is a positive given the minimal up front cost (they lease the depots and estimate the fit-out cost at £170,000 - seems extremely cheap to me!) and good returns on capital. The company says they break even at, usually, about 2-3 years, though maturation is much longer given the lack of advertising and the organic way they grow. There's plenty of scope for continuing locational growth - they think room for about 150-200 more - and there's a good deal of free growth built in to the way these depots do take time to mature. (more…)
The first setFollowing my deciding to refresh my opinion on the stocks in my portfolio - I take a rather laissez faire approach to letting my decisions run wild - I'm starting with the biggest four constituents, solely because they showed up first. A good bit of logic there, I think!
I notice Stockopedia had a piece on Barratt today, along with a number of other listed housebuilders. The piece included a brief recap of the fundamentals behind the sector, which chime pretty well with why I bought them in the first place, and some discussion of the momentum the stocks have picked up. At the moment, that issue of momentum is my main uncertainty around Barratt. I don't think Barratt is a fantastic business - I just definitely liked it at 0.3 PTBV or whatever it was trading at in the lows of last year. That figure now stands at 0.83, a figure which includes a sizable chunk (~£200m) of those interest free loans Barratt was granting to keep sales going. This strikes me as basically deadweight and (at best) unproductive, but doesn't particularly concern me. It's probably getting close to the point I'd want to sell, then, but for that matter of momentum. This question ties me in knots. The momentum effect is known to exist - rising stocks outperform those which have recently fallen - but how applicable is it in practice? The most common piece of advice that's given is that private investors hold losers too long and cut winners short. But the market doesn't know when I bought, and doesn't care - and hence the only logical conclusion to placing a lot of emphasis on that train of thought is that I should start actively looking for momentum investments. I'm not sure I'm comfortable with that.
Verdict: Close to hitting where I want to sell (more…)