Broker snap: Halfords moves up a gear

23rd Mar 2010 13:05

Car parts and cycle retailer Halfords raised profits guidance for the current year when it made its pre-close trading update on Tuesday morning, though the decision to close down its fledgling Central European operations was a less welcome surprise.The group will close down the seven stores it has in the Czech Republic and Poland this summer, taking a £7.9m charge for doing so, of which £4.5m will be non-cash. Singer Capital Markets said the move 'will allow management to fully focus on the core UK retail business as well as developing the recently acquired Autocentres business,' a view echoed by Sam Hart at Charles Stanley.'Clearly, it wishes to focus on integration and expansion of the AutoCentres business in the medium term and does not want to run the risk of becoming overextended,' Hart said.Halfords' management has indicated the profit before tax in the current year is expected to be in the range of £114-116m, slightly ahead of the market consensus of £113m.Both Singer and Charles Stanley highlight the stock's defensive properties. 'With its defensive, needs-driven offer and market-leading positions the core Halfords retail business looks well positioned, as highlighted by this statement, while the new autocentres offer the group a significant new growth angle in the UK. The dividend yield is also attractive at 4.6% and debt levels are set to reduce rapidly paving the way for further strategic acquisitions,' Singer believes. The broker rates the shares a 'buy' and has a target price of 510p.Charles Stanley is a little more circumspect after the share's recent strong run, and advises its clients to 'accumulate' the shares, taking advantage of any market weakness.