Canaccord reiterates 'hold' rating on Howden Joinery

Analysts at Canaccord Genuity slightly lowered their target price on joinery products supplier Howden Joinery from 525.0p to 523.0p on Tuesday, stating that growth and capital returns remained "on pause".

Canaccord cut its estimates to reflect recent sector news-flow and relevant industry trends and now expects profits to "fall sharply" in 2020 before rebounding strongly in 2021.

In the current year, Canaccord expects to see a sharp fall in profits, no dividends and a suspension or cancellation of the group's share buyback programme, as well as a curtailment of growth investment.

"Clearly the key issues now are how quickly profits can recover, when capital returns resume and investment in growth returns. With a focus on cash, new depot openings have been suspended for now and capex cut," said the analysts.

The Canadian broker stated that while it was "relatively cautious: on the outlook for underlying demand into 2021, given the big-ticket nature of a kitchen renovation, it does expect it to recover broadly in line with repair, maintenance and improvement trends.

As revenue recovers in 2021, the analysts also expect "a strong bounce in profit" - with dividends and growth investment resuming in 2021.

"The medium-term investment case should still be a positive one for the group given its strong market position and target of 850 depots over the medium term," said Canaccord. "The recent investment in the external IT offering should also structurally strengthen the business."

However, even on its revised numbers, Canaccord said Howden's valuation continued to look "relatively full" and opted to reiterate its 'hold' rating on the group.