Halfords stock looks like good value

By Graeme Dickson
Updated: 07:18 EDT, 16 June 2011

Climbing a wall of worry seemed to be apt in describing last week's two per cent rise in the FTSE 100 starting from 5870 last Wednesday to yesterday's close of 5990.

Relatively poor economic figures and a gradual realisation that something will have to be done to tackle the Greek debt crisis, was almost a reverse catalyst to get the market moving higher.

This has been characteristic of the market over the last two years, with the market factoring in bad news on a fairly consistent basis.

Last Thursday the FTSE added 11 points to 5881 despite the influential US markets absorbing a number of negative economic factors such as a higher than expected increase in claims for jobless benefits, a first quarter GDP figure at an annualised 1.8 per cent, below the original expectation of 2.2 per cent and concerns that the cost of insuring US public debt is now more expensive than some emerging economies.

On Friday there was more rationale to the market after a survey of consumer confidence, carried out by GfK NOP, showed that the UK consumer mood was more buoyant than expected for the month of May.

Additionally the US Dollar was weak against other leading currencies, leading to higher commodity prices, which in turn led to higher stock prices for the mining sector. The FTSE managed to rise 57 points to 5938.

Yesterday the blue chip index added 52 points to 5990 on talk that Germany is no longer calling for a reschedule of repayments for the Greek bonds it holds.

Last week's break below 5850 proved to be fairly benign given the index's sharp snap back towards the 6000 level - so we still seem to be in a sideways trading channel of, broadly speaking, 5850-6100.

Again if we do see a day or two underneath 5850, then 5600 looks like the obvious level to retest. Otherwise continue to expect resistance on the upside at circa 6000-6100.

Keep an eye on…

Car parts and bike and leisure retailer Halfords (HFD) is scheduled to release its preliminary results on Thursday 9 June.

The company downgraded its own forecasts back in April saying that following a challenging year, its pretax profits will be in between £124-£127 million.

Since then the company announced it plans to open 30 new Autocentres in fiscal 2012, which will cost £1 million to start up.

It currently has 240 sites across the UK and that for fiscal 2011 it should contribute £7 million towards the company's group profits.

The shares trade on a price to earnings ratio of 9.5 and earnings per share for next week are expected to come in at 42.78p.

The year after the company is expecting a fall in earnings to 39.72p a share followed by a return to 42.78p a share in 2013. It also pays a five percent yield.

As long as the company does not guide lower again, then the stock looks good value down here.

Another profits warning for the first half of fiscal 2012 could send the shares retesting 340p again compared to yesterday's close of 400.7p. Not one for the risk averse.

Highlights from the FTSE 350 over the last week include:

 - Newspaper group Daily Mail and General Trust (DMGT) fell 7.47 per cent to 448.6p last Thursday after it issued a cautious outlook, following deterioration in the UK advertising market.

- Pace (PIC) the TV set-top box manufacturer rallied 6.1 per cent to 116.3p on more rumours that the company is being eyed as a takeover target.

- On Friday Essar Energy (ESSR), the Indian oil & gas business jumped 5.3 per cent to 451.3p following a positive broker note from Deutsche Bank.

- Utility company Scottish & Southern Energy (SSE) added 1.41 per cent to 1366p on talk that Li-Ka Shing was stalking the company as well as peer group associate Centrica (CNA).

- Debenhams (DEB) added 1.85 per cent to 74.15p on chatter that Hong Kong's Dickson Poon, owner of Harvey Nichols, may be interested in making a bid.

- Despite reports of further defections of key staff and executives, Betfair (BET) added 8.19 per cent to 839p.

- Away from the FTSE 350, but with a market capitalisation to justify an inclusion, is cash shell Justice Holdings Limited (JUSH) , which has £900 million in cash, remained unchanged at 984p despite reports over the weekend that it was about to buy breakfast cereal maker Weetabix.