LONDON (ShareCast) - (ShareCast News) - Howden Joinery Group shares dropped on Tuesday as Berenberg lowered its recommendation on the stock to 'hold' from 'buy' and cut the target price to 450p from 550p.
Berenberg said the supplier of kitchens and joinery products is seemingly one of the most exposed companies in its UK mid-cap coverage to an economic slowdown in the UK.

In its kitchens business, Howden sells one-off, big-ticket items for which demand is driven by consumer confidence, disposable income and a desire to invest in housing stock.

Recent data on UK repair, maintenance and improvement (RMI) peers has been subdued and sharp foreign exchange movements have been creating headwinds on gross margins. Berenberg said these issues are raising general anxiety about Howden.

Shares have fallen 22% in the year to date in reaction to the headwinds. Berenberg said the third quarter update due at the start of November will be key.

"Our view is that Howden is a well run, high return on capital employed company with a very solid balance sheet and a strong competitive position," Berenberg said.

"However, acknowledging the near-term pressure on like-for-like growth and FX headwinds, we cut our numbers 3-11% over the 2016-18 period and downgrade our rating to 'hold'."

Berenberg believes the RMI market may remain subdued given ongoing Brexit uncertainty and rising inflation putting pressure on real disposable incomes.

While the broker expects Howden to continue to take market share, it has reduced its LFL growth forecasts to 5%/4%/3% for fiscal years 2016/17/18 respectively.

Continued sterling weakness is affecting the company as one third of its cost of goods sold are traded in euros and dollars. At the first half results on 21 July, the group reported a £20m increase in COGS but said it managed to offset some of the impact through price rises.

"Clearly, FX rates have worsened since then, leading us to cut our 2017E gross margin estimate to 62%," Berenberg said.

"Furthermore, each 0.5% gross margin hit (all else being equal) has a c3% effect on PBT, resulting in our earnings forecasts falling considerably."

Berenberg concluded that it thinks there will be a time to revisit Howden but it needs to see more visibility on the UK consumer outlook before regaining confidence.



Segro got a boost on Tuesday as Barclays lifted the stock to 'overweight' from 'equalweight' and upped the price target to 520p from 450p, saying the company was the largest and most liquid way to play the logistics investment theme.

Barclays noted that the structural challenges facing retail landlords have been well documented for many years now, adding that the advent of e-tailing has changed consumption habits and will continue to do so.

"Despite the challenges facing retail there are equal opportunities for logistics landlords. Adjusting supply chains to service not just stores but also customers directly will require considerable changes to the real estate infrastructure of the sector, moving it away from its historically low barrier/low growth reputation. Logistics portfolios that are well positioned to service the new demand should deliver strong growth for many years to come, in our opinion."

It said Segro's "good quality, well located portfolio is well positioned to benefit".

With around 40% of the portfolio located in greater London - including Heathrow and Park Royal campuses - Barclays reckons the group is well placed to serve the growing need for urban logistics.

In addition, it said that having recently replenished the land bank through several purchases, Segro is well positioned to deliver "excellent development returns" as it helps supply the required real estate solutions to these changing supply chains.

Barclays said that as illustrated by the recent equity raise, Segro has good access to capital and will be well placed to grow along with the sector.

"With private developers still struggling to get debt finance, we believe Segro is in a strong position."



Countrywide was under the cosh on Tuesday as Jefferies downgraded the stock to 'hold' from 'buy' and slashed the price target to 180p from 300p.

The bank cut its calendar year 2016 earnings per share estimate by 24% and its estimate for 2017 by 31% on the back of weak housing transaction data from the Land Registry, weak mortgage approval data and its view that Countrywide will scale back its expansion for as long as stamp duty levels and Brexit uncertainties temper activity in the UK housing market.

The Land Registry published data for June last week that showed transactions in England were down 32% year-on-year and 54% in inner London. In the year to 30 June, housing transactions were down 5% in England and 16% in inner London.

Jefferies argued that the last two stamp duty changes have disrupted the UK housing market, slowing the upper end and causing to unusual behaviour in the buy-to-let market.

"What should have been a period of short-term pain, while price expectations adjust, is still slowly playing out. We also believe that the creation of a two-tier stamp duty market acts as a brake on transaction levels. When we add 'Brexit uncertainty' into the mix, potential homebuyers have more reason to play a waiting game with respect to house purchases, and falling transaction levels are a key driver of our estimate cuts today.

"While the group has a deliberate and broad diversification of business units, it is exposed in many forms to the underlying UK housing market; weakness/strength in house prices, transactions or the private rented sector may lead to changes in our estimates."

Email this article to a friend

or share it with one of these popular networks:

• DIGG
• FACEBOOK
• STUMBLEUPON
• MIXX
• YAHOO BUZZ
• DELICIOUS
• REDDIT
• NEWSVINE