These high-quality businesses are on their way to reclaiming all the ground lost since the March crash.
Howden shares surged 7% or 48.4p to 690.6p after the kitchens and joinery products supplier revealed that revenues were up 17.2% on a like-for-like basis in November, as working-from-home trends continue to feed enthusiasm for home improvement work.
It now expects profits for 2020 to be around 10% above the top end of current forecasts of between £123 million and £152 million. Numis Securities responded to the brief update by increasing its profit estimate by 24% to £168 million and said there was scope for hiking its 2021 forecast by more than today's 7% should current trends continue.
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Numis said that a price multiple of 18 times 2022 earnings was attractive for a high quality company like Howden.
Reiterating its ‘add’ recommendation and slightly higher target price of 740p, the broker said:
“We continue to believe that Howden's track record, potential growth runway and structural tailwinds mean that the group deserves to be a core long-term holding in most portfolios.”
The company serves trade customers, primarily small local builders, through more than 730 depots. Around one-third of the products it sells are manufactured in the company's own factories in Runcorn, Cheshire, and Howden, East Yorkshire.
First-half results were significantly impacted by lockdown disruption, but since then trading has improved significantly. It has already said it will repay business rates and furlough support.
Today's upgrade means shares are now trading within 30p of where they were prior to the market sell-off in February, having been one of the best performers in the UK building materials and merchants sector.
Vistry has a lot further to go in terms of recovering lost ground, although shares are moving in the right direction after the Bovis Homes owner pledged to consider a “modest” dividend in relation to 2020 trading. This decision comes only a month after revealing its hopes for a restart in November 2021 alongside next year's interim results.
The plans for a faster-than-expected resumption reflect a much improved debt position as the builder continues to see strong trading conditions and low cancellation rates. From net debt of £357.3 million in June, it is now predicting a maximum figure of £40 million by the end of December and the potential for a modest net cash position.
Analysts at Davy said today's dividend update was a “significant step for Vistry and a positive catalyst for the stock”.
They added: “We see the capacity for dividend distributions at Vistry as being close to 100p per annum in the medium term, so a faster return to dividends is a significant step for the company.”
Shares in Vistry, which was formed out of Bovis Homes, Linden Homes and the Galliford Try Partnerships arm, rose 6% or 51.5p to 914.5p. Analysts at UBS have a price target of 1,030p.
“Completions scheduled for December are at normal levels, suggesting the business has recovered to its usual trends post the lockdowns earlier in the year.”
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Other stocks doing well today included Marshall Motor Holdings (LSE:MMH), which rose 7p to 140p on AIM after upgrading its forecasts for the second time since October. It now thinks profits will be at least £19 million this year, rather than the £15 million forecast after a particularly strong September plate-change month.
The group, which has 113 franchises covering 22 brands, said its outperformance of the new retail car market in October and November was 9.8% on a like-for-like unit sales basis.
Zeus Capital said Marshall Motor had a “creditable and reliable platform” that meant it was well placed to emerge a sector winner. The broker added: “We continue to believe that Covid-19 will accelerate consolidation in the industry with fewer larger-scale players well placed to benefit.”
Shares rose 7p to 140p, but Investec Securities has a price target of 225p after upping the figure from 190p following today's end-of-year update. It said a valuation of seven times 2022 forecast earnings looked cheap and did not reflect the company's “record of outperformance, attractive market position and the strong balance sheet”.
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