N+1 Singer upgrades Howden Joinery to buy from hold

Howden Joinery managed to skirt the troubles seen elsewhere in the sector since summer and October trading was "outstanding", so the shares have scope to recover after the battering they took on the heels of Travis Perkins´ warning last month, N+1 Singer told clients.

Strong trading in July and another anecdotes had already hinted at the company´s ability to avoid the negative weather effects seen elsewhere, according to the broker.

"Performance in H2, including the key October trading period, has been outstanding at +10% LFL particularly once positive gross margins are also factored in," N+1 Singer said.

Thursday´s 10% like-for-like sales figures from the company imply a two-year growth rate of about 22% and represent a substantial market outperformance, the analysts said.

Furthermore, the manufacturer and supplier of fitted kitchens, appliances and joinery products should continue to avoid the deterioration in business seen by some companies in the sector "even if housing activity softens slightly given the tenuous link there vs consumer confidence and replacement cycles (still recovering)".

The impact of the Living Wage should also be immaterial given Howden´s bonus/salary structures.

After Travis Perkins´s warning, shares in Howden Joinery fell back to a price-to-earnings multiple of 16.6 versus the 20 seen at the June peak, N+1 Singer pointed out.

"The Free-cash-flow yield is 5% (or 6% ex deficit injections). We have edged our target price up 2% to 510p, so with >13% total shareholder return we upgrade to 'Buy' from 'Hold'."