Berenberg cuts target price on Howden Joinery

Berenberg noted that overall, management had maintained its expectations for the 2023 trading year. However, given recent macro weakness, it believes that pre-tax profits will be at the lower end of its £330.0m-365.0m target range, with the mid-point at £347.0m.

"As such, we update our model and reduce our numbers by 5-7% across the forecast period. More broadly, our view is that FY23 will be tough for all participants in the UK repair, maintenance and improvement and new-build markets, but that Howden is very well positioned on a multiyear view, can take share and can grow its business meaningfully from current levels," said Berenberg.

The German bank noted that there were no expectations for a strong volume recovery in these end markets in the 2024 trading year given the prevailing headwinds from higher interest rates, affordability, and consumer confidence. As a result, it believes that the UK kitchen market could be down a further 5% next year, with Howden volumes remaining broadly flat year-on-year.

In Berenberg's updated numbers, it sees UK like-for-like revenues for FY24 being 1.5% higher, driven entirely by price, and margins broadly flat year-on-year, as efficiency savings continue to offset investment in new depots, distribution, and growth.

"Howden currently trades at 12.9x FY24 P/E, 9.9x EBITDA and 10.8x EBIT. We believe that this is a relatively attractive valuation looking through the cycle towards a potential UK domestic recovery."

Reporting by Iain Gilbert at Sharecast.com