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UK DIY News

Howden - Value in the rubble

Howden Joinery has been our top pick among the mid-cap retailers for two consecutive years. It's still taking market share and is a genuine growth story, with scope to improve earnings as it opens new depots and existing outlets mature. We started 2010 with a full year pre-tax profit forecast of £62.6m and are now looking for £100m.
Its pipeline of work going into 2011 also remains healthy, and there's no reason why it can't get a long way towards its target of over 600 depots in the UK, from around 480 today. Our price target is 150p.

But it's harder for mature retailers like Carpetright to do that. They're already so dominant that new openings are likely to cannibalise existing sales – in fact, we think it already has too many stores and many of them are in expensive A1 retail parks, which means higher rents and resultant profit volitility. Carpetright will recover as the market improves, but a return to peak profitability is unlikely, and its shares are too expensive on 25.5 times 2011 earnings, compared with Howden on just under 10 times.

Topps Tiles sits somewhere in between. It's a quality business, disciplined and well run with good longer-term recovery potential, and on 12.7 times 2011 earnings is much cheaper than Carpetright. But it is more mature than Howden, so lacks the exciting growth potential. It's also a very lean business already, so it will be difficult for it to take more cost out should things take another turn for the worse. Howden has more levers it can pull with its profit and loss account, and is always cautious with its guidance.

Source : Sanjay Vidyarthl - Investors Chronicle

01 February 2011
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Max Crosby Browne - CEO, Home Decor
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