Credit Suisse initiates coverage of Howden Joinery at ‘outperform’

Credit Suisse initiated coverage of Howden Joinery at ‘outperform’ on Monday, with a 900p target price, as it said the group should benefit from an increasingly positive kitchen market in the near term.
“Longer term, we expect the group to continue to take share, supported by its simple and differentiated business model,” CS said.

The bank also said that consensus estimates for 2021 are particularly conservative. “While we see upside to earnings estimates across our repair, maintenance and improvement (RMI) exposed coverage, we find Howden particularly attractive,” it said.

“We expect the current strength of the housing market to drive strong demand for the balance of 2021, where we believe consensus is likely to prove overly conservative. In combination with price inflation, we expect this to mean that H2 2021 revenue is flat year-on-year, despite last year’s relative strength, with margin mix also normalising.”

Credit Suisse noted that while the UK kitchen market has seen minimal long-term volume growth, Howden has more than doubled its market share since the early 2000s.

“While we are conscious that it is close to reaching its self-imposed 850 depot cap, we expect continued UK revenue growth beyond our forecast period, driven by newer branches maturing and like-for-like gains, which should in turn drive operating leverage.

“In combination with a reversal of recent gross margin pressure, we see scope for meaningful medium-term margin expansion.”

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