Canaccord ups target price on Howden Joinery following Q1 update

Canaccord noted that Howden had experienced "good" sales growth throughout the first quarter of its trading year, helped in part by positive trends in pricing and some competitors dealing with more disruption to their business models, with underlying demand trends remaining good as the market continues to see "a sound recovery".

While Canaccord acknowledged that cost inflation was "a growing issue", it appeared to the analysts that Howden was "incrementally more positive" around gross margins as pricing was "promising".

"It appears to be on track to deliver a very good first-half performance but, as ever, the more important second-half trading period will be key to the outcome for the full year," said Canaccord.

"So far, the trends heading into the second half look promising with the possibility of profit for the full year matching 2019. Cash balances are also likely to build and share buybacks or additional capital returns look likely if visibility over the second half improves."

In the medium term, the Canadian bank expects Howden to drive growth through new depot openings and a better performance from older refurbished depots, leading it to increase profit estimates for the firm in 2021 as its confidence around gross margins and sales improves.

"While our forecast is modestly below the 2019 profit outcome, we do see a good possibility of this being reached if the second half holds up well. As trading continues to hold up well with a good medium-term outlook, the question around the investment case becomes increasingly one of valuation," concluded Canaccord, which also reiterated its 'hold' rating on the stock.