1 cheap stock I’d buy to beat the next lockdown

Zaven Boyrazian analyses a key supplier for the home building and refurbishment industry, perfectly placed to beat the next lockdown.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Because of the country’s rising population, the UK government has been pushing for the further construction of new housing. The Covid-19 pandemic has certainly been impeding progress in this area, particularly during the March lockdown. However, analysts at the research firm Statista are still estimating the completion of 200,000 new homes this year, with a further 405,000 by 2022. By comparison, 2019 saw the completion of only 185,000 homes.

There were also approximately 29m homes in the UK at the end of 2019. A more interesting figure is that around 19.7m of these were built before 1972. In other words, almost 68% of homes in the UK are over 50 years old.

The continued need for new housing along with the vast majority of homes needing maintenance or refurbishment, has created a favourable market condition for this stock to thrive.

The lockdown opportunity

Howdens Joinery Group (LSE:HWDN) is the UK’s largest kitchen supplier. Using its network of over 700 depots around the country, the company sells both kitchens and kitchen appliances – under the Lamona brand – directly to local businesses.

The firm has built up strong relationships with suppliers, granting it access to premium materials at competitive prices. From there, the rest of operations are vertically integrated. That means Howdens completely controls the production, manufacturing, and distribution of its products to a customer’s local depot.

The depot network has become so vast that approximately 85% of customers are within 5 miles of one.

The business has become sticky with its customers (that is, created customer loyalty) by providing outstanding service. Beyond merely selling products, workers at the depots engage with customers, offering design and planning services, or just general advice about their projects to help them succeed.

Maintaining such high quality across a vast network is a difficult feat. However, by incentivising depot managers with a percentage of profits they generate, Howdens has managed to both sustain and expand its reputation and value.

The financials

2020 has been a tough year. Covid-19 has significantly impacted revenue due to temporary depot closures and customers staying home during lockdown periods.

Looking at the half-year results, there was a significant decrease of 29% in topline revenue, with similar declines in profits. However, this lower performance stems entirely from the second quarter, when businesses were temporarily shut down. The first quarter of 2020 actually saw an increase in revenue, albeit just 1%. More recently, third-quarter revenues rose 12% compared to the previous year.

Revenue is growing even faster over in Europe, with Belgian operations seeing a 33% increase in revenue during the third quarter as well.

The bottom line

The large disruptions from Covid-19 on Howdens seem to have passed. England is now going into a second lockdown, however, there are far fewer restrictions on the construction industry than before.

With a vast array of competitive advantages – including its scale and reputation for quality and service – I think Howdens is perfectly capable of surviving this lockdown.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Zaven Boyrazian does not own shares in Howdens Joinery Group. The Motley Fool UK has recommended Howden Joinery Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Young female business analyst looking at a graph chart while working from home
Investing Articles

Why I think Rolls-Royce shares will pay a dividend in 2024

Stephen Wright thinks Rolls-Royce shares are about to pay a dividend again. But he isn’t convinced this is something investors…

Read more »

Investing Articles

1 of the best UK shares to consider buying in April

Higher gold prices and a falling share price have put this FTSE 250 stock on Stephen Wright's list of UK…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

The market is wrong about this FTSE 250 stock. I’m buying it in April

Stephen Wright thinks investors should look past a 49% decline in earnings per share and consider investing in a FTSE…

Read more »

Black father and two young daughters dancing at home
Investing Articles

1 FTSE 250 stock I own, and 1 I’d love to buy

Our writer explains why she’s eyeing up this FTSE 250 growth phenomenon, and may buy more shares in this property…

Read more »

View of Tower Bridge in Autumn
Investing Articles

The FTSE 100 is closing in on 8,000 points! Here’s what I’m buying before it’s too late!

As the FTSE 100 keeps gaining momentum, this Fool is on the lookout for bargains. Here's one stock he'd willingly…

Read more »

Investing Articles

3 ideas to help investors aim for a million-pound Stocks & Shares ISA

The UK has a growing number of Stocks and Shares ISA millionaires, and this plan may be one of the…

Read more »

Illustration of flames over a black background
Investing Articles

2 red-hot UK growth stocks to consider buying in April

These two growth stocks are performing well, but can they continue to deliver for investors through 2024 and beyond?

Read more »

Charticle

Is JD Sports Fashion one of the FTSE 100’s best value stocks? Here’s what the charts say!

The JD Sports Fashion share price remains a wild ride during the first quarter. Could it be one of the…

Read more »