Investment Column: Halfords rides away from central Europe

Aberdeen Asset Management; Henry Boot
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The Independent Online

Our view: Buy

Share price: 476.6p (-7.3p)

Halfords brought forward a trading statement yesterday which said it was furiously back-pedalling out of central Europe after an ill-fated launch there in 2007 under its previous management. No company likes to admit defeat on foreign soil and the closure of seven loss-making stores in Poland and the Czech Republic will cost £2.5m.

But the retreat will benefit the cycle and car parts retailer's profit and loss account by about £2m in the next financial year. More importantly, it will also enable Halfords to focus on its core UK shops and the recent £73.2m acquisition of Nationwide Autocentres. While the car servicing company made only a four-week contribution to Halfords' figures, the robust performance of both businesses enabled it to predict full-year pre-tax profits of between £114m and £116m, ahead of City forecasts. The main driver of growth was the car maintenance operation, which was boosted by the cold snap earlier in the year and helped the company to increase its same-store sales by 0.8 per cent in the 11 weeks to 19 March. That, however, was marginally lower than the cumulative 1.3 per cent growth for the full year.

Most analysts support Halfords under its chief executive David Wild, and the shares have rallied strongly above the FTSE All Share index since May last year. Despite this, Halfords offers fair value on a multiple of 12.3 times forecast earnings for 2010, which is in line with the retail sector average.

There are a few potential spanners in the works, of course. Over the last trading period, sales growth in the leisure category, including bicycles, came in below internal expectations and sales of satellite navigation equipment declined sharply. Furthermore, most retailers expect a slowdown in consumer spending after the election. But Halfords looks a safe long-term bet for investors and its prospects can only be enhanced by the end of its journey into central Europe, so buy.

Aberdeen Asset Management

Our view: Buy

Share price: 126.7p (-2.3p)

Events have proven that our advice to sell Aberdeen's shares when they were trading at 135p back in July was the right call. However, after hitting a nadir of just below 115p last month, the stock has been recovering. Yesterday's trading statement suggests there could be more to come.

Assets under management at the end of February had risen to £161.4bn from £146.2bn after some corporate wheeling and dealing saw Aberdeen buying RBS Asset Management (primarily a fund of funds business which offers good margins) while selling parts of it on to Premier Asset Management.

It was the type of transaction that Aberdeen does quite well: buying distressed or unloved assets at a bargain price (the target is less than 1 per cent of funds under management). One of those deals – the fixed-income assets bought from Deutsche Bank – has been going less well. It is a bond business that suffered badly during the credit crunch and has been seeing a marked outflow of funds. However, that is now slowing. In the last three months of 2009, £2.6bn of funds left Aberdeen; in the first two months of this year, the figure was down to £1bn.

This has been partially offset by winning business in higher margin equity and property fund management. With the focus now on organic growth and good cost control, we think it is time to revise our recommendation. The shares looked expensive in July but Numis now has them on 11 times this year's forecast earnings against 13 for the sector. That looks good value to us so we think its time to move back into Aberdeen's shares. Buy.

Henry Boot

Our view: Buy

Share price: 92.5p (-3.5p)

On the face of it, there is little to recommend about the construction and property company Henry Boot. It announced full-year results yesterday, saying it had slumped to a pre-tax loss of £11.9m after recording a profit of £19.3m 2008. The loss came thanks to the group taking a £22.4m hit on the value of its land. It also suffered a 40 per cent drop in revenues.

So, why should you buy the shares? Well, despite the ugly-looking numbers, Henry Boot is actually doing rather well. It is still paying a dividend, offering a yield of nearly 3 per cent, and the stock is up by more than 50 per cent in the past 12 months. Unlike the bigger property companies, the Sheffield-based Henry Boot has not asked its shareholders to part with any of their cash through a rights issue, and its debt has been brought under control largely through its own efforts.

Investors also should consider that Henry Boot's shares have a net asset value of 135p, a figure which has stayed remarkably stable – it is just 4p less than the net asset value recorded at the end of 2007, at the height of the property boom. The market seems to like what Henry Boot is doing and so do we. Buy.

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