“Very few things can be relied upon in an uncertain world but a higher dividend from flooring specialist James Halstead is one of them,” says AJ Bell investment director Russ Mould. “The AIM-quoted company is on track to deliver again for the financial year that ends in June, after an 11% increase in the first-half payment, and the Lancastrian firm looks primed to add to a 46-year growth streak in the ordinary dividend, no doubt much to the delight of patient shareholders.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to June.
“James Halstead left its first-half payment unchanged a year ago as management wrestled with supply chain issues, higher raw material costs and fluctuating energy costs and operating margin came under pressure as a result. However, energy costs are easing, shipping availability and rates are improving, and operational efficiencies are now helping, too, so the operating profit (and the margin) are up year-on-year in the first six months of the year, despite a drop in sales.
“That weakness in the top line reflects lower sales in Europe, Australasia and the UK, even as business in the Middle East and Latin America is developing nicely. But an easing of supply chain bottlenecks means that James Halstead can run production more smoothly and effectively, again to the benefit of return on sales, despite the uncertain economic outlook.
Source: Company accounts.
“The balance sheet is a further source of support for the increased dividend, on two counts.
“First, management continues to whittle down inventory and release cash. During lockdowns and a period of fractured supply chains and tight shipping availability, the £850 million cap company took on extra stock to reassure customers and ensure they were not disappointed when they placed on order.
“Now supply chains are easing, management can run down some of that stock and release cash. The first half results showed a further drop down to £83 million from £87.4 million at the end of December and well below the peak of £112 million seen in June 2022.
Source: Company accounts. Financial year to June.
“Second, James Halstead remains very well resourced.
“The balance sheet shows £62 million of cash and no debt, lease obligations of just £6.9 million, and a modest pension liability of £2.2 million. Such robust finances should see James Halstead through any economic squall and able to feast upon any weakness among its rivals. That in turn should boost its ability to set, and get, the prices it wants to receive rather than be forced to accept the prices its customers are willing to pay.
“Pricing power underpins the company’s mid-to-high-teens operating margin and therefore the cash flow that funds the impressive dividend growth streak.”
Source: Company accounts, Marketscreener, consensus analysts’ forecasts. Financial year to June.
