Analysis of HWDN by Phil Oakley



I found this article on HWDN by well respected analyst Phil Oakley who now works for Ionic owner of ShareScope and SharePad, very interesting. It gives a good description of business as well as a good analysis.

This paragraph I have a comment on:

“One of the key sources of growth is growing the number of trade credit accounts per depots. Howdens has been good at doing this. Note the big jump in 2016. Is this a cause for concern? Does it signal that the company is having to offer more generous credit terms in order to maintain and grow sales? Or is it a genuine sign of depot managers’ ability to grow the underlying business?”

I read elsewhere: that that small building firms very much like the extended credit that HWDN gives as it enables them to complete job and get paid by client before it has to pay for kitchen etc. from HWDN. A real help with cash-flow for builders.

Phil comments:

“Howdens has enjoyed a strong financial performance in recent years but the future looks as if it is going to be a little tougher.”

and concludes

“However, it seems that there has been a significant slowdown in growth during the last 18 months.”

I am glad I reduced my holding by selling some in Feb 2016 at 489.2 and now happy to hold rump for long term. SP has moved up 26% since a low in early Nov last year.


““However, it seems that there has been a significant slowdown in growth during the last 18 months.””

Hardly surprising really, as the housing market looks like it is rolling over the top and transaction volumes have plummeted in the last 12 months. If new kitchens are linked to transactions, then there lies the answer.

I have a friend who is a management consultant who contracts into Howden’s and he’s seeing the business on a downtrend.

Also the credit facility isn’t unique, trade accounts are offered at all the big suppliers so I’m not sure why this is always highlighted as unique to Howdens.

This article also from Richard Beddard shows a recent purchase around today’s price :-

The argument about the 16 P/E is all well and good but the E could change very rapidly in this business.
It doesn’t look cheap to me, but you can probably discount something in my view, because I’m overly negative on the UK housing market.
Most people think interest rates will be close to zero for ever. I don’t believe they will as they were always above inflation for the last 300 years, except in the last 10 years coupled with QE.

It all seems quite false - and houses selling at close to 8.5X the average salary is pxles apart from the historic level of 3.5 to 4X.

This stock could get hammered if there is a severe downturn - then again it might not.

Games – It’s a pass on my part I think.