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Bike and auto giant, Halfords, saw its share price jump 28 per cent this week, despite suspending its dividend to save cash.
The chain, which has 446 stores and 369 garages, has been deemed ‘essential services’ by the Government and it is entitled to remain open throughout the current pandemic. While that is good news, Halfords revealed it still expects sales to decline by as much as 25 per cent in the coming months as shopping slows down.
So, what does this mean for the cycling and motor giant – can it pedal through the current crisis?
Its share price is currently standing at 88.35p despite a public backlash about its decision to keep its stores open through the UK’s lockdown. Chief Executive Officer, Graham Stapleton, defended the decision saying it was ‘providing vital support to emergency workers, fleet operations, key workers and the general population as they travel for essential supplies and, where required, attend places of work.”
Along with the postponement of its dividend, the chain has announced a range of other measures to preserve cash, including negotiating with its landlords about rent relief and postponing capital commitments.
The dividend suspension should save the retailer around £24m and it has been heralded as a savvy move by some analysts. Liberium also praised its general liquidity and cost-cutting measures saying: “Decisive steps are being taken to cut cash outflows and with banking facilities, we think, at first glance, the group has liquidity of over £225mln.”
“The nature of the group’s operations means that it has ‘essential’ trading status and access to government support and negotiations with landlords suggest a more positive outlook than the 63% share price decline YTD.”
Aside from its general retail arm, Halfords is also responsible for maintaining some key business fleets, including the Ministry of Defence and the British Transport Police, which should guarantee some resilient revenue streams.
The retailer had been working on a transformation plan of late, which included upskilling its workforce and boosting services and it was showing some signs of success. Its service-related sales were growing faster than its total sales and it has a relatively healthy balance sheet with its net debt standing at less than a year’s cash profits.
Hargreaves Lansdowne were relatively optimistic about the prognosis for the retailer saying: “Overall, Halfords faces some real challenges in the coming months, but it’s on a slightly better footing than peers. What will be important is making sure the group gets the balance right between providing enough of a stripped back, essential service and not firing on too many cylinders while customer traffic is a lot slower than usual.”
Others have pointed out that the business has remained profitable over the past few years and the dividend per share has increased almost 20 per cent over the past five. With the shares still at a relatively low price, many think Halfords could deliver long-term yields for those prepared to wait out the current pandemic.
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