Juglans : Howden Joinery Group (WKN: 884600)
Is this a once-in-a-lifetime opportunity to buy these bargain basement stocks?
Half year results for kitchen manufacturer Howdens Joinery (LSE: HWDN) released in July saw year-on-year revenue rise 9.5% and pre-tax profits jump a whopping 26%. Positive forward guidance from management also set the basis for a fifth straight year of earnings and dividend growth. Surely this means shares are rocketing.
But, with fears mounting over the health of the housing market shares are instead down a full 31% since January. This means shares now trade at a positively bargain-basement forward price/earnings ratio of 12.7 with the added bonus of a healthy 2.9% yielding dividend. This is the cheapest shares have been since 2012, so is it a great time for investors to begin or enlarge an existing position?
Considerable room for growth
I think it may. One large reason is that Howdens is far and away the market leader in supplying kitchens for new homes. The company has no retail outlets and instead works solely with builders from 629 depots across the UK. And while the housing market may have shown some signs of slowing since the EU Referendum, demand for new homes still far exceeds supply. This is clear in the Exchequer's promise in his Autumn Statement to continue supporting home buying through tax breaks and a promised £3.7bn for new home construction. This will undoubtedly be a huge boon to Howdens in the coming years.
And, even without government support, Howdens still sees considerable room for growth in the UK. The company believes it has space to bring total depots to 800 in the coming years. Combined with expansion into France and surrounding Western European countries, there is significant growth potential for Howdens.
With net cash of £182m at the end of June, solid growth prospects and high margins, Howdens is looking like a steal to me at 12 times forward earnings.