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On Friday, UBS analyst Marcus Cole initiated coverage on Howden Joinery Group PLC (HWDN:LN), issuing a Buy rating with a price target of GBP8.80. Cole highlighted Howden's robust track record of organic growth, which includes an 8% organic and 6% like-for-like sales compound annual growth rate from 2010 to the estimated 2024. The company's ability to continue gaining market share was attributed to its customer convenience, strong logistics, a clear trade-only business model, and a well-capitalized balance sheet.
The analyst acknowledged the balanced risk/reward scenario for Howden, considering the subdued market prospects anticipated for 2025. Cole pointed out the full valuation of the company at 18 times the estimated 2025 earnings per share, compared to the long-term average of approximately 15.5 times. Despite the recognition of Howden's impressive growth, there was a note of caution regarding the potential change in the growth algorithm, as the UK depot roll-out program nears maturity, which has been a significant driver of growth thus far.
Cole suggested that investor focus may shift towards strategies aimed at increasing revenue per branch, such as expanding product ranges and categories, as well as pursuing international growth. According to UBS's calculations, the current share price reflects a 16% long-term EBIT margin, compared to a 15% average from 2007 to 2023.
The future of Howden's end markets is expected to be a key determinant of the stock's performance, likely influenced by interest rates, given the company's 90% exposure to the residential sector. The direction of these markets will be crucial for Howden's outlook, as the company navigates a shifting landscape with a mature UK depot roll-out and looks towards new avenues for growth.
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