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Interesting research note on Headlam, always good to see insider buying - https://thecollective.finance/2020/10/series-part-headlam-plc-head-l-the-leading-carpet-distributor-in-the-uk-a-dividend-grower-and-insider-buying-100-upside/
last two lifestyle flooring carpets ordered no problem trade still busy at moment, 10% price increases on my underlay from different company.was using one of headlams underlays but quality dropped in my humble opinion which was a shame.
hi londoner i get my goods via wholesalers that order from headlam ordered four vinyls two from halls which i think is headlam small 2m no problem 3 days, larger 3m no stock 3 weeks hopefully sts 2 days and abingdons 3/5 days .Might just be they are selling more because they are the biggest but who knows.Not selling many coloured carpets other than grey grey oh and more grey but don't pay more for red etc think they're glad to get rid of a piece.
see L&G have sold some stock here but they are selling stock all over the place at the moment so not too concerned about this. dyor.
captaincarpet, I’d be interested to know to what extent you use Headlam’s distribution network and to what extent Headlam’s distribution is subject to the lack of stock you’re experiencing?
In their H1 presentation Headlam discussed factors around stocking, key being the variable demand across say, the colour range – a stronger demand for beige rather than red. They broke these down into Gold, Silver and Bronze product. Gold flew off the shelf, Silver less so, and the Bronze stock hung around much longer. Although not stated, my take is that one solution is to ensure that all distribution hubs had a good level of Gold product, but Bronze product was held by fewer hubs. For you as the customer (B2B model) looking for a red carpet for your client the impact would be a slightly longer delay in supply due to longer transportation and/or an extra cost.
I’d be interested to know if you are charged more by Headlam for say red rather than beige, give the same product type, i.e. is the impact on margins of the G/S/B strategy taken by Head or transferred to you and your client?
lack of stock is starting to become evident at present i think orders were cancelled pre reopening and its caught most flooring suppliers out. the trade still ticking over well as far as i see it, any job losses are bad and sad from a bigger picture perspective as we all rely on each others wealth to maintain our own standard of living nobody wishes for less tax paying potential customers.
good for you i'm sure i heard people working at Beds Flooring ( part of the headlam group i think) won't share your optimism after being told they are redundant after Jan 4th but can have a job at the new Ipswich factory 100 miles away , how many more of their distributors will go?
Well done you.
I've just come off the call, which I found very informative and positive. Like many companies impacted by Covid I draw a line under H1 with my focus on the future. Much to digest, but in brief:
A V-shaped recovery in very much in evidence. I had anticipated 'normality' in terms of revenue and margins would return later in 2021, but revenue in July and Aug has already bounced back strongly as evidence in the presentation slides and in commentary "Sept has started well", but the biggest surprise for me was that they had maintained gross margins even through H1. Bodes well for H2.
I was struck by the operational improvements available, some of which were learnt in dealing with Covid. Although it made we wonder 'where has management been for the last decade', and it was explained that they operate in an 'old fashioned industry', it suggested to me that Headlam should come out of Covid stronger than they went in - although many of the key incentives had been started last year. These initiatives will take time to rollout across the group.
Clearly looking to get back to a progressive dividend policy with those special dividends that were a feature a few years back. I'm unclear when. I thought strong hints for H2 as a possibility, but then felt some pullback, so maybe its a wait till 2021 for a resumption of dividends.
Prep for any 2nd Covid wave this winter and a following recession next year as a consequence, but that's a factor across the board. Interesting to hear the very clear lessons they had learnt from their handling of the initial shutdown, which they confess wasn't ideal.
As if we didn't know, housing transactions will be key to future growth.
All in all, I'm happy with my investment here.
Interesting to see what I take to be day traders adding some life to the share price and volume. I suspect that activity will pass soon and we'll return to what is an illiquid stock with the resulting volatility, but for me it will be the cash returns that matter, next year and beyond.
hi london fidelity- franklin wow i am reading the rns and still didnt see the names were different blindsided by the names but makes little difference imo secret in the next update is how are they doing in the commercial side of the business but as you noted there has been a lot of activity and large purchases recently although not ones that have to be declared so as you say it is like reading tea leaves.
i bought in at 1.61 and then added at 1.71 which i am obviously happy with at the moment but thinking of adding again when we get more clarity of current trading position .
steve305, I referred to Fidelity reducing their holding, but I got then mixed up with Franklin. Fidelity has maintained their holding throughout the year at 5.44% (2nd largest holder in Headlam). Franklin were the largest holder with c12% last year but has been reducing, with that significant drop to 3.99% in June, which I think was a factor in the drop below 300p.
But to be honest, when it comes to these stock changes i struggle to 'read the tea leaves'. The reasons are not always clear, but I think much of these transfers occur off market. As noted by the previous poster, volumes have been high for Headlam over recent days. Again, I find it hard to interpret but I take it as a positive and it seems to be more retail. Let's face it, Headlam isn't a well known name within the retail investor community. Let's hope they have maintained their previous policy of regular and special returns to shareholders. When business is good they throw off heaps of cash. That might get them noticed.
I don't know if Headlam separate their segment margins, but all segments matter to the bottom line. I suspect there will be some pent up residential demand to replace flooring, but I think a more lasting factor is an increase in housing turnover. For several reasons I'm optimistic on this front.
A key commercial period is the schools holiday. I'd expect comment on this in their interim report due this Thursday, alongside the comment of current trading generally versus 2019. I'm holding off a closer look till after the report.
looking at the recent sp movement and trades etc i am thinking that the overhang may have now been swallowed up. opinions welcome.
also have been watching the general market for indications of the flooring market
and it seems that although the commercial market seems to be slow the household market seems to be booming have a friend who owns a flooring business and he confirms this .
surely the profit on household flooring is more profitable than a lot of commercial carpets etc.
interested to hear any others opinion.
890 000 volume highest for over a year can't see any large trades listed may turn up tomorrow but hopefully bodes well.In the trade for 27 years and its been really busy since end of lockdown which surprised me.
Following a recent period of uncertainty perhaps due to Fidelity reducing their holding, I sense a recovery in mood. A positive trading update yesterday and a non -exec buy this morning.
There can be many reasons for an insider to sell: tax, child needs a house deposit, relocating the mistress, etc., but generally there's only one reason to buy. The size fits a 20K ISA purchase and Keith has his finger in a few plc pies so good to see he's chosen to invest in Headlam. His first purchase since he joined the board Oct 2018.
Mixed news in this morning’s update.
Key is current trading with July trading to date ahead of July 2019. From a mid-June standing start that is much better than I expected. There may be an element of catch up, hence Headlam caution on providing guidance, but even so I like it.
I don’t think the stock gets much coverage by the analysts, so I’m not surprised by the erratic share price response. Some recent analyst numbers have come in extremely low. One has 2020 revenues at £490m, which is 32% down on 2019. Today Headlam said that H1 revenues are down by 34% on 2019 H1. With current revenues at or above 2019 H2 comparatives, I think that analyst will be scrambling to revise their 2020 full year number.
A c£50m swing in the cash position – I had no idea what to expect – suggests Headlam could finish the year with relatively little debt, albeit from a £27m starting cash position. That would be a great outcome for this year going into 2021, if next year comes even close to 2019 trading numbers.
Then we come to Domus. Over two years ago I posted my exit from Headlam, in part based on the Domus acquisition. Sadly, it was an early action by the new management. I felt it was completely at odds with the established Headlam business model of high-volume low-price transactions. This ‘error’ became apparent long before Covid entered the scene. I hope the management team has learnt a lesson – don’t mess with what works – but an expensive lesson at £35m acquisition cost. It ends with a £20m goodwill write-down and a review of Domus. I suspect it will be sold back to the management team for a small fraction of the £35m they were paid.
Headlam are taking the opportunity to restructure other parts of the business, which will result in ‘exceptional’ cash charges. I’m okay with that if they enter 2021 with relatively low debt, i.e. low interest charges.
thankyou for replying to me some very interesting points you made some of which i was not aware of that were very interesting especially likewise if as you say they have put a team together that have inside knowledge of headlam they will feel that with the financial backing they could take market share away from headlam although it is very hard to take on market leaders in any market and the recent events will have hurt them more than headlam. as you say they will most likely have to go back to the market for further funding.
i had noticed that fidelity had lowered there holding by 5.87% and that there is no evidence that any one has picked this stake up so you are probably right some of it or all of it is with a broker to drip back into the market as the ii will probably not be interested in taking this stock until there is positive news from the company which means we could be waiting for sometime to see an increase in the sp. the other thing i hate is the retail investor communication is as you say.
i thankyou for your posts and thoughts .
i presume you are again bullish on enq i did take a small stake in enq at 18p and sold at 28p so did very well at the time but that is the only oil stock i have ever held as i just do not have enough knowledge of the sector and struggle with the tech to be quite honest.
i really mus learn more about that sector as i hate guessing and that is why i like to converse with other level headed people and not just rampers and dreamers many thanks again steve.
A correction to my comment
"Poor liquidity - As you point out, there are large institutional shareholdings. The top ten account for >80% of shares."
My reference (Barclay) had a bogus number for Fidelity. Using FT data the latest number is 50% held by the top 10 institutional holders. There can still be many more institutions with holdings below the 3% reporting threshold.
I note that Fidelity reduced their holding by 5.87% on 19th June. This coincides with the recent slide - price closed at 304p on the 18th June. That is a lot of shares to hit an illiquid stock like Headlam.
I'm not an expert in this area but my understanding is that a broker will have taken delivery and would then offload the shares into the market and perhaps off market to other institutions.
I can't gauge how far into the sale process we are, but I 'd guess there are informed people in the market that do know. Time will tell.
There is competition in every market. It’s healthy. The question is the degree to which it impacts the incumbent market leader, in this case Headlam.
Will the new player be say, a Fevertree eating into Schwepppes market in tonic water?
I wouldn’t be surprised if Tony Brewer had Fevertree in mind as he set out to topple Headlam’s dominance of floor covering distribution.
Pack your team with ex-Headlam players – I’d image there are few in the industry that hasn’t worked for Headlam, think Shell or BP in the oil industry. Point to Headlam’s juicy returns on capital and sell your package to the city. No doubt the sales presentation includes a reference or even a slide in homage to Fevertree – investors lap up that sort of stuff.
Result!
£15m of equity raised and a market cap of £52m (33p share price) by Sept 2019. Tony even sold his story to the industry. In May 2019, Jonny and Paul of H&V Carpets, sold their c£6m revenue business to Likewise for 1 Euro and 1m warrants in Likewise shares at 30p each.
So far so good. I’m sure Headlam were looking over their shoulder. But let’s get real. Likewise are building up from a small position.
Compare:
• At the last Likewise numbers admin costs at £3.5m were 33% of revenues (Headlam 7%)
• Likewise non-current tangible assets were £5m (Headlam £114m)
• Likewise current assets were £7m (Headlam £102m)
• At the last results (interims June 2019) Likewise made an operating cash loss of £1m (at the same stage Headlam £16m cash gain)
But look again at Headlam’s non-current asset number, £114m. When a business has been running for 28 years a lot of capital investment has been depreciated. It goes a long way to making Headlam’s ROC (tangible) look so good, c20%. Headlam is about to add its 24th distribution hub (Ipswich) at a cost of £26m.
I have great respect for people willing to challenge established ideas and markets, but it is tough and even in the good times, few succeed.
I say again, 24th hub at a cost of £26m. Likewise last reported PPE was £5m for their entire business. To be fair, it will be higher today, but we are waiting delayed final numbers for Dec 2019. The 2019 numbers will be there, but the auditors must sign off the accounts as a going concern – that is the hurdle and undoubtedly the cause of the delay, because Likewise say so.
26/06/2020 news item
https://www.tisegroup.com/market/companies/7055
I hope Likewise come through. Tony is likely to have invested personal capital, and Jonny and Paul have 1m Likewise warrants priced at 30p – last trade price was 15-17p. If not, the assets will still be there, so too the ex-Headlam team, but new capital will be required. Will the enthusiasm be the same?
Sadly, Covid will be the cause of many similar stories.
I think Headlam’s share of the floor coverings market is secure for the moment, at least from Likewise.
steve305, thanks for your comments.
Interesting point on oil. At the start of the CV lockdown oil producers were clearly a bad place to be, with considerable uncertainty. I was targeting my investments in other sectors. But four months on I now see the oil sector having greater certainty and the impact of a lockdown period that far exceeded my expectations casting a shadow over many of my earlier assessments on non-oil sectors.
To Headlam. In no order and not a complete list, here are what I see as bull and bear points:
Bull
• Long established (28 years) and financially secure business (negligible debt pre-Covid)
• Market leader
• No impact from disruptive technologies – at least none I see
• Should largely recover to pre Covid numbers by 2022, barring any impact from the bear points.
• Good dividend payer
Bear
• Impact on commercial market of working from home. Fewer offices?
• Competition - Likewise
• Share price – broker forecast is for PE 11.5 in 2021. Not cheap. The bull points above come at a cost.
• Poor liquidity
• Retail investor communications
A brief comment on the bear points:
Commercial Market – working from home. This market represents c35% of Headlam revenues, and I believe it is this threat, which is causing current negativity towards Headlam, and while the negative view may hold until say, a vaccine is available, everything has a price. Have we reached it? Work practices will change but I’m not ready to write off offices yet. The city has a roll. It’s where business interact, and young people like to be and be seen. Zoom doesn’t match it.
Likewise – I first looked at Likewise last year and felt that any challenge they offered was several years away. I’ve more to say on Likewise so I’ll put together a follow-up post.
Retail Investor communication – it stinks. Results calls are not open to retail investors. I’ll be contacting IR. I thought I’d done this previously, but as I write this, I now remember it was another company I contacted.
Poor liquidity - As you point out, there are large institutional shareholdings. The top ten account for >80% of shares. The tenth holds 5% so I wouldn’t be surprised if retail accounts for <<10%. Two obvious impacts, first, an institution offloading will be tough to absorb – typically institutions exchange holdings off market because of this illiquidity, second, relatively low volume retail trading can have a significant impact on the share price. Either could be behind the recent sustained slide in the share price.
Share price – when I opened my position at c300p in May I felt the price wasn’t cheap but that the low was in and I felt there might be a boost when shops opened – I was wrong on both of the latter points. But I haven’t added since. I’ve learnt that when the market disagrees with my assessment it’s best to be cautious. I’ll look to buy any rebound. While my conviction has tempered from two months ago, it still largely holds.
have read a lot of your posts on enq which i am not in at the moment. i was in until cv but oil is too risky for me at the moment.
but i do respect your opinion on stocks as you do seem to have what i call level headed thinking.
i like this stock but BOD dont seem to give a lot of info on future expectations.
maybe that is because the stock is mainly held in Institutional funds.
sp is still dropping but already seems very good value to me.
please do give your view as always interested in solid unbiased opinions.
i didn't mean i'd tip Mercado ( sorry for the mislead) i meant on likewise management team is made up of Headlam and Mercado/alvin morris whichever you want to call them i meant i would tip the likewise ( headlam old team) team to make it.
cadellin, I assume from your post that you used Mercado distribution centers, which you are recommending.
Do you know that Mercado is one of the trading names for the Headlam Group?
I'd be interested to know why you tip Mercado?
and Mercado i personally would tip them having myself worked in the flooring business for 30 years this month ;-)
I agree, a top heavy board. Likewise were flagged a year or two back. I recently took another look at their metrics and came to the view that going into the CV pandemic they were relatively small if potentially fast growing, with higher relative debt. I wondered if the business can support that many executives. They'll need significant investment backing to challenge Headlam's market dominance. Perhaps they'll get it.
But yes one to watch. As I recall traded on a secondary market.
Likewise plc has a board of twelve. Ten are ex-HEAD. This could be interesting (in a not nice way!)
Headland is a distributor not a manufacturer, so less exposed to cost pressures at either end - as market leader it has more control than most over its pricing. But it needs activity, typically 6m transactions per year at an average price of £120.
There had been an expectation that retail outlets would open 1st June. I think the decision to delay openings to 15th June pushed this below 300p, but with the usual trading liquidity issues around Headlam, every bit helps in building a position. The stock is tightly held by institutions with little retail activity.
The last update pointed to good cash liquidity, but I’d expect Headlam to emerge from the current crisis with some level of debt. This will be revealed in the interims, allowing a better valuation , but I believe the downside has been tested.
Lockdown householders, having spruced up the garden and redecorated the walls, may now be looking at the carpet, stained by red wine and worn out by Joe Wick workouts, and thinking, time for something fresh.
A return to 2018 levels of business may take a year or two, but a recovery looks more certain here than with many stocks I'm watching. I like the risk / reward profile.