3rd Nov 2023 11:44
(Alliance News) - Following Thursday's trading update from Howden Joinery Group PLC, Shore Capital said it still recommended investors take advantage, despite downgrading its forecast for the kitchen and joinery supplier's annual revenue and profit.
On Thursday, London-based Howden said it expects full-year profit to be at the lower end of market expectations, in the face of continuing macro-economic headwinds.
It said there was a 2.0% annual decline in reported sales for the period ended October 28, with like-for-like sales down 3.3%, labelling this a "robust performance ... in the face of continuing macro-economic headwinds."
Meanwhile, sales in the international depots during the period were 5.7% ahead of the prior year despite challenging market conditions. These sales make up about 3% of group revenue.
"Despite this, we think Howden is performing well versus its peers in difficult macro conditions," said Shore analyst Graeme Kyle.
Shore noted that its UK year-to-date volumes are down 6% compared to a wider UK fitted kitchen market contraction of around 12%, indicating market outperformance.
"We think around two-thirds of this is attributable to market share gains as recently opened depots mature over a seven-year period. The remainder is attributable to outright gains from weaker competitors," said Kyle.
Shore added that it previously estimated the UK fitted kitchen market would decline by around 8% in volume terms in 2023. Having revised this to 12%, Shore noted that this was the "sole reason" for downgrading its Howden forecasts.
Shore expects Howden's full-year revenue to tick down to around GBP2.31 billion from GBP2.32 billion a year earlier, a 3% downgrade from its previous guidance, alongside reducing its pretax profit guidance by 7%. It now expects adjusted pretax profit to fall to GBP337.6 million from GBP406.0 million a year earlier.
On Thursday, Howden maintained its full-year expectations for 2023, but said it expects it to be towards the lower end of analysts' consensus forecasts. It said this was because of an "uncertain" macroeconomic outlook.
2023 full-year pretax profit consensus published on the company's website is a range of GBP330 million to GBP365 million. In 2022, Howden reported pretax profit of GBP405.8 million.
Shore's Kyle commented: "The current cyclical downturn follows a period of strong demand during and immediately after the pandemic. Demand has also been curbed by sharply rising interest rates; however, the consensus now appears to be that the UK is near the top of the interest rate cycle.
"A further positive for Howden going into 2024 is that UK unemployment, a key driver of fitted kitchen demand according to management, appears to be relatively stable."
As a result, Shore maintains its 'buy' rating for Howden, citing a forecasted financial 2023 price-to-earnings ratio of 13.4 times, falling to 11.4 times a year later.
Shares in Howden were up 0.7% to 629.80 pence each in London on Friday late morning.
By Greg Rosenvinge, Alliance News senior reporter
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