Berenberg ups target price on Howden Joinery, reiterates 'hold'

Analysts at Berenberg upped their target price on kitchen outfitter Howden Joinery from 490p to 520p on Wednesday following the firm's "good" first-half results published during the preceding week.

Berenberg praised Howden's first-half results, although like-for-like growth of 3.4% and gross margins of 60 basis points were broadly in line with expectations, stating the "most positive surprise" came from the group's operating cost base.

"Although we expect gross margin expansion to slow in H2 as volumes recover, we now expect a better performance at the operating level, driving the changes in our numbers," said Berenberg.

Prices had been raised earlier than in 2018, resulting in a 6% jump in prices even as volumes declined by 1.0%.

However, the German broker noted that with Howden's peak trading "period 11" - when 48.0% of its earnings before interest and taxes were typically made - taking place in the run-up to the current Brexit deadline, there still remained "a lot of uncertainty" for the group moving forward.

The group's balance sheet was described as "strong", given management's guidance for year-end net cash of £220.0m even after factoring in between £70-80.0m of capital expenditures, versus £60.0m beforehand and higher levels of inventory in anticipation of a no-deal Brexit.

Nonetheless, while Berenberg, which reiterated its 'hold' rating on the group, highlighted that Boris Johnson could potentially cut stamp duty later in the year, so too uncertainty was to remain elevated across the UK, possibly pushing spending decisions "to the right".