Broker snap: Buy Halfords on the dips

27th Jul 2010 13:15

Charles Stanley is leaving its full year earnings estimates for Halfords unchanged, despite the sluggish start to the new financial year made by the bike and car parts retailer."Halfords' Q1 [first quarter] trading update was slightly weaker than expected at the sales level, but full year PBT [profit before tax] guidance has been maintained," notes Charles Stanley analyst Sam Hart.Based on the broker's projection of earnings per share (EPS) for the current year of 47p, the shares trade on a price/earnings ratio of 11. "The valuation represents a premium to the General Retail sector (2011 PE 10.3x), but is justified by the relatively defensive profile and superior forecast earnings growth," Hart maintains."Halfords is market leader in each of categories in which it operates and is present in a number of structural growth markets. The service proposition provides differentiation from the highly fragmented competition. Exposure to the 'needs-drive' car maintenance market means it is amongst the most defensive UK general retailers," Hart expanded."We expect trading to hold up relatively well whatever shape the economic recovery takes. The recent Nationwide Autocentres acquisition fits well with the Halfords brand and offers a significant additional growth channel. Given our expectation that Halfords will deliver at least low double-digit EPS growth in each of the next three years, we consider the valuation undemanding," the broker said.It is sticking with its "accumulate" recommendation "and would add to holdings on any weakness."