Sales are tracking ahead of market expectations with no adverse impact from its price hike
Companies: Headlam Group
Headlam (LSE: HEAD), the floor coverings distributor, has put out a positive trading update this morning ahead of its full year results, expected in March.
"the Company expects to report preliminary results before non-recurring items* ahead of current consensus market expectations"
The type of business model Headlam employs means that during this trading period leading up to Christmas, revenues are driven by "a high volume of small residential orders". Therefore they should be less lumpy and more easily forecast. So far in this period Management report that the trading is "continuing well".
Another encouraging update in the announcement is the lack of an adverse impact from the price increase announced in August. To counter the weakening sterling, Headlam upped prices on flooring imported from Europe by c.3.5%. Pleasingly, after around 4 months of trading, the Group are seeing "no adverse impact on residential sector revenue", as well as "no discernible impact on trading following the EU referendum".
The UK is by far the largest market for Headlam, accounting for c.88% of sales over the last 10 months. AMA Research published a report on the floorcoverings market forecasting growth of 3.2% in 2016 in the UK. Headlam has been tracking at 4.8% growth, of which 0.8% is down to the price increase.
Zeus Capital put out an upbeat report this morning on the results highlighting their forecast upgrades and the current valuation the market is placing on the shares:
"The shares have recovered from the recent lows but remain c.10% down 12-month high of 522p. At last night’s close the shares trade on 13.3x earnings post today’s earnings upgrade. The prospective yield remains attractive at 4.6% with the potential for special dividends, as happened in FY15."
Overall, it looks like Headlam is in good health. Based on consensus expectations for 2016, it's currently trading on a PE Ratio of 14.5x. The forecast dividend yield is 4.7% based on a 23.4p. Using the Interim Results announced back in August as a yardstick, it looks like the Group is trading on a 2016 EV/EBITDA of around 11x.
Shares have rallied 5.5% in early trading this morning as the market has welcomed the positive update.