Research: Consumer
Headlam Group has laid out an ambitious long-term revenue target of between £900m and £1bn, as it seeks to grow its share of the UK floor coverings distributor market. Despite a challenging backdrop due to the low level of residential housing transactions, management is seeking to expand each of its sales channels: Trade Counters, Larger Customers, Regional Distribution and Europe & Other. The FY23 results reflected the more challenging environment and the group trades at a discount to its long-term average EV/sales multiple for FY24.
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Headlam Group |
Strategy for growth in tougher market
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Distributors |
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23 April 2024 |
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Headlam Group has laid out an ambitious long-term revenue target of between £900m and £1bn, as it seeks to grow its share of the UK floor coverings distributor market. Despite a challenging backdrop due to the low level of residential housing transactions, management is seeking to expand each of its sales channels: Trade Counters, Larger Customers, Regional Distribution and Europe & Other. The FY23 results reflected the more challenging environment and the group trades at a discount to its long-term average EV/sales multiple for FY24.
Capturing growth opportunities
Headlam is focused on growing its share of the £3bn UK floor coverings distributors market, tapping into segments where it is currently underrepresented, such as Trade Counters and Larger Customers. With a current Trade Counter portfolio of 67, management aims to grow the number of sites to 100 by end-FY25, targeting revenue of £200m in the medium term from £97m in FY23. For Larger Customers, Headlam is adopting a land-and-expand strategy, through winning initial stock-keeping units and subsequently expanding the offering (eg the signing of its first national housebuilder in 2023). Management believes Larger Customers revenue could reach £200m in the medium term, from £83m in FY23. The remaining £500–600m to reach the revenue target would come from growth in Regional Distribution and Europe & Other businesses. With the lowest transactions levels since the global financial crisis, there is significant opportunity for volume recovery.
FY23 results reflect weaker market
The FY23 results, published at the beginning of March, reflected the weaker volumes in the residential home improvement sector that have been echoed by others in the sector. Group revenue fell 1.1% to £657m (FY22: £664m), although the strategic focus on Larger Customers and Trade Counters within the sales mix resulted in revenue growth of 25.6% and 8.5%, respectively. Underlying operating profit fell to £16.1m (FY22: £39.2m), reflecting the weaker volumes and revenue, although this was offset by £10.3m of mitigating actions including price increases and cost efficiencies. The strong balance sheet and confidence in the expected recovery led management to declare a dividend of 10p (FY22: 17.4p), reflecting 1.1x cover.
Valuation: Discount to historical multiples
The share price has had a tough start to 2024, falling 18.1% year-to-date. It is unsurprising, given the weaker volume backdrop, that Headlam’s FY24 EV/sales multiple of 0.3x is at a 35% discount to its long-term average EV/sales.
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Consensus estimates
Source: LSEG |
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