Howden Joinery Showing Awesome Growth, Is Immune to the Internet

The UK-based manufacturer has high profit margins, growing sales

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Howden Joinery Group PLC (HWDJF, Financial) is a U.K.-based manufacturer of cabinets, doors and appliances. The company is very profitable and seems to be insulated from Amazon (AMZN) and other internet competitors. The stock was mentioned last weekend in Barron’s Midyear Roundtable.

There are 629.4 million shares, the stock trades for 4.45 pounds ($5.67) and the market cap is 2.8 billion pounds ($3.557 billion). It takes $1.27 to buy one pound. The earnings per share are 29.45 pence and the price-earnings (P/E) ratio is 15.1. The dividend is 10.7 pence and the dividend yield is 2.4%. Seems like a pretty reasonable valuation.

Sales grew from 1.091 billion pounds in 2014 to 1.307 billion pounds in 2016. That is fantastic growth! The balance sheet shows 227 million pounds in cash, 101 million pounds in receivables, 214 million pounds in payables and no debt. That is right, no debt! Free cash flow was 143 million pounds and the free chas flow yield is 5.1%. That’s a nice free cash flow yield for a growing company.

According to Morningstar, operating margins are 18%. The net income profit margin is 14%. Amazing! The company bought back 12.5 million shares last year.

Howden manufactures doors, flooring, appliances and other items for homes. The way it works is the carpenter will go to one of Howden’s depots where the inventory is held. Each year, Howden manufacturers around 4.1 million cabinets, 2.1 million kitchen frontals and 900,000 worktops and breakfast bars at its two facilities in the U.K. There are 630 depots.

Its doors are manufactured in Italy and there is also an appliance division named Lamona. Howden started Lamona from scratch in 2009. Lamona is number one in Britain in Dishwashers and ovens.

I found Howden by reading Barron’s Midyear Roundtable. Meryl Whitmer is a shareholder. She noted the company is testing the model in Germany and France. Whitmer estimates the company will earn 38 pence a share by 2019. At a P/E of 14 to 15, that is a target price of 6 pounds. It was also mentioned in GuruFocus that Oakmark Small Cap International bought shares, too. Recently, U.K. homebuilders and Howden sold off when elections did not go the Conservatives way in London. I do not see a lot of good information on Google News on Howden, so you will have to do some digging if you are interested.

Howden is no doubt an interesting company. It seems to face less competition from the internet as the builders need custom cabinets fitted to an individual home. You cannot do this on Amazon (as far as I know). If you can, you will be ordering from a manufacturer like Howden.

My concern is the people in the U.K. have high personal debt like the U.S. How do folks fund home upgrades? Oftentimes by borrowing money. As baby boomers are now in their 70s, many will not want to tap into their nest egg or borrow more money. Of course, if this credit cycle bursts, remodelers will take it on the chin. That is not to say Howden is a bad company. It’s not. As a matter of fact, it’s an awesome company. Howden is another company, barely followed in the U.S., that you should put on your radar.

Disclosure: We do not own shares.