I’ve been rummaging through the FTSE 250 for deals lately. Unsurprisingly, given the recent poor performance of this mid-cap index, I found numerous high-quality enterprises trading at dirt cheap valuations.
However, one stock stood out more than any other. In fact, I’m going to add it straight to my SIPP as soon as The Motley Fool‘s trading rules allow me to now that I’ve written about it.
A trusted supplier
The stock in question is Howden Joinery Group (LSE:HWDN). For those unfamiliar with it, the company manufactures and sells kitchens, joinery and hardware products to trade customers, usually local builders. It does so from 885 depots across the UK and Europe.
What’s quite unique here is that managers are trusted to run their depots in the way that works best for their local customers. That’s why each depot is different and not merely a cookie-cutter replica.
This decentralised model even extends to the discounts that the firm is known for. The more business builders bring, the greater the discounts they can receive. And the materials are incredibly reliable. This forges trust and repeat business with its 430,000 small business customers.
Resilience
With its in-stock model, supported by its own manufacturing capability, Howdens performed strongly during the pandemic when people improved their home/work surroundings.
However, with the cost-of-living crisis and a shaky housing market, it’s no surprise to find the share price 24% lower than two years ago. After all, new kitchens are typically financed with home improvement loans and those are much more expensive nowadays. This headwind won’t recede overnight and is an ongoing risk.
Yet sales still exceeded £2.3bn in 2022. And in H1, UK revenue of £927m was a 1.6% increase over last year. Noticeably, this figure was 42% ahead of 2019 (pre-Covid) levels.
The firm did report a 23% fall in pre-tax profit to £112m as higher costs and investments took their toll. Yet inflation is easing, which is encouraging.
What’s more, continued expansion in Ireland, Belgium and France is going well. International revenue surged 33.6% in the first half, with management highlighting particularly strong growth across the Channel in France.
Careful stewardship
Can I see the company expanding into more untapped international markets in future? Most certainly. But I like that expansion is done gradually, with only a further 10 international depots opening this year. This lets management learn what works (or not) in these local markets over time.
I think this patient approach comes from the company’s culture. Matthew Ingle founded the home improvements firm in 1995 after losing his job at Magnet Kitchens. He was in charge until he retired in 2018 and was succeeded by current CEO Andrew Livingston.
In this age of revolving chief executives, I think this continuity represents a competitive advantage. Management can plan and invest for long-term growth without worrying about short-term setbacks.
If I’m going to invest in a company for years — and ideally decades — this type of stability and thoughtful stewardship matters to me.
Also important is the P/E ratio of 11, which is very low by the stock’s historical average. Plus, there’s a well-covered dividend yielding 2.8%.
All in all then, I see this as a top FTSE 250 stock to buy and hold for years.
