Halfords skids on Peel Hunt downgrade

Halfords slumped on Thursday as Peel Hunt downgraded its stance on the stock to ‘sell’ from ‘hold’ and cut the price target to 325p from was 350p.

“Fundamental headwinds are increasing and the new store format doesn’t move the dial,” the brokerage said.

Peel said it doubts current consensus forecasts reflect that and it’s hard to see a reason to hold the shares.

It argued that rising oil prices mean fewer miles driven and less depreciation, which is bad news for car maintenance as weFit momentum wanes.

Meanwhile, in bikes, the replacement cycle is lengthening and price inflation may have a big impact on volumes.

“We are nervous about the cycle market’s growth in the next few years and Halfords’ performance alongside that. Our view is that the replacement cycle for bikes is getting longer: there was a move towards premiumisation about ten years back and since then, whilst miles cycled have increased in general, the volume of bike sales has flattened off.”

Peel said “more inspiration” is required across the group, adding that it was underwhelmed by its visit to Derby’s ‘store of the future’.

“The cash attractions here are clear, but gross margins and cost ratios are under pressure as well as like-for-likes, so forecasts are falling.”

At 0950 GMT, the shares were down 4,2% to 341.90p.