MIDAS SHARE TIPS: Carpet and flooring giant Headlam

Last year was one of the toughest in living memories for companies, and many have suffered as a result.

But the UK’s entrepreneurship has also stood the test of time as companies have adapted to and made the most of the constraints caused by coronavirus.

Many are now starting to surprise investors with better than expected numbers for the end of last year and the beginning of it.

Headlam, based in Birmingham, is one such deal and shares should rise at £ 3.90.

Convenient: Property owners looking to upgrade their homes could increase carpet and floor sales in Headlam

The company is the UK’s largest distributor of carpets and other floor coverings, from luxury vinyl to wood-based panels and basic lino.

With more than 70,000 customers in the UK and parts of Europe, the company sells to large chains such as B & Q and ScS, as well as independent flooring and furniture stores, contractors, interior designers and architects.

Headlam was founded in the wake of the recession in the 1990s and has grown steadily over the years. The focus is on reliable service, an extensive range and reasonable prices.

Chief Executive Officer Steve Wilson was with us from the start, joining as Finance Director in 1991 and rising to the top in 2016, nearly 25 years later.

Wilson knows the business well, but his first job when he was a student was in a bakery.

The work taught him many useful lessons on how to distribute goods – be it breads or laminates – from warehouses where they are stored to stores where they are sold.

These lessons are becoming increasingly evident at Headlam, especially since Wilson took over the helm.

The business is focused not only on having the products customers want, but also on making sure the transportation network works efficiently so that the trucks are properly loaded so that travel is worthwhile.

A hub-and-spoke strategy was developed with four national distribution centers and 13 regional locations across the country.

The model has evolved over the past few years, and efforts have been accelerated by the pandemic, which was designed to cut costs and improve customer service. The group is also working hard to improve their online service, which should increase sales significantly in the future.

Last month, Wilson said that while trading had been incredibly tough during the initial lockdown, demand had slowed as restrictions eased, so sales in 2020 fell less than expected and profits were at the high end of brokerage forecasts .

After the dividend payout was suspended last summer, the group also said payouts will be restored when the final results are announced next month.

The numbers for 2020 are still not going to be nice. Revenue is expected to be 15 percent lower at £ 609m, while profit is likely to more than halve to £ 15.5m and a nominal dividend of 2p for the year.

However, a rapid recovery is expected this year, with sales of £ 685m, profits of £ 29m and a dividend of around 13.9p which will rise to 18.9p in 2022.

About two-thirds of Headlam’s floors end up in people’s homes, and demand has been strong, increasing nearly 9 percent in the second half of last year.

Further growth is expected in the coming months as stuck home consumers cheer themselves up with new carpets or modern hardwood floors.

Commercial customers make up the remainder of Headlam’s sales, including hospitals, schools, and local government.

Many of them cut anything but essential last year. However, business should pick up as the UK gradually returns to normal. Health centers in particular may try to replace floors as the pandemic wears off.

Mida’s verdict: Headlam was hit hard when the pandemic broke out in March last year, but the group crouched down, adapted to new ways of working, and used the time to invest in future growth. Those efforts should pay off this year and beyond. At £ 3.90 the shares are a buy. An attractive dividend result is also expected in the long term.

Some of the links in this article may be affiliate links. If you click on it, we may receive a small commission. This helps us fund This Is Money and use it for free. We don’t write articles to promote products. We do not allow any business relationship that would compromise our editorial independence.

Comments are closed.