Broker snap: Too soon to take profits on Halfords

11th Jun 2010 13:07

Singer Capital Markets has nudged up its price target for Halfords after the car parts and cycles retailer delivered what it called a strong set of results, and is advising clients to resist the temptation to take profits on the stock.Based on Singer's projected earnings for fiscal 2011 Halfords trades on a price/earnings ratio of 11.3, which represents around a 4% premium to the sector. "We do not believe this fairly reflects the quality of the group's earnings profile which is driven by a defensive, needs-driven, offer and market-leading positions," the broker states.Singer notes that the recent acquisition of Nationwide Autocentres has increased the proportion of Halford's gross profit that is derived from non-discretionary and reliable revenue streams."The dividend yield is also attractive at 4.4% to March 11 and debt levels are set to reduce rapidly, paving the way for further strategic acquisitions," the broker adds.The price target has been bumped up to 585p from 550p whole the "buy" recommendation has been reiterated. "The shares have had a great run since the start of the year (+33%) and although it may be tempting for holders to take some profits off the table, we continue to believe that Halfords should rerate further and there is justification for a premium rating given the earnings quality and toughening consumer backdrop," Singer said.