Halfords (HFD) is shaping up as a sustainable turnaround. We believe the price has fallen too far and see recent positive movement as a step towards a much larger recovery.
Halfords in our opinion had fallen too far following lower bike sales due to the last wet summer. However, this was a temporary factor in the overall positive outlook for cycling and the group’s car parts retail and servicing operations offer solid steady growth.
Two decent trading updates covering Halfords’ second half to 1 April have affirmed this scenario as bike sales recovered.
A dilemma has been capital growth prospects reducing such that the stock de-rated in order to attract a new constituency of income-seekers. Like most trends, this fall got over-extended in the second half of 2015, but we feel the attractive yield implies upside to the previous year high of over 550 which is over 30% potential profit if we get in at the current price. With a Gross Dividend Yield of 4.3% this is a stock we like and are happy to see it in both growth and income portfolios.