Listed in London, James Halstead is a century-old enterprise built on the honest trade of making floors.
It remains in family hands. Mark Halstead, the fourth generation to chair the company, presides over Polyflor, Expona, Performa, Megastrong and assorted other wonders of the flooring world. Its hallmarks are conservative but shrewd stewardship, excellent returns on operating assets, a balance sheet heavy with cash, and a dividend record stretching back far enough to earn aristocratic rank.
One of Halstead’s great assets is the people running it. There is something unusually agreeable about the unvarnished way its chairman and senior executives address their fellow owners. Twice a year they simply tell shareholders how things stand. Bad news invariably comes first — a small but telling detail.
The accounts are equally refreshing: plain, intelligible and close enough to the economics to give a proper pulse of the operation. Over the past decade, sales have advanced only modestly, from £226m to £262m. After inflation, there is no disguising the fact that Halstead has stood still, and perhaps taken a small step backwards.
Yet margins have been defended. Across that same ten-year stretch, earnings have displayed remarkable steadiness through rather unsteady circumstances. More than £350m of free cash has been produced, most of it finding its way into owners’ pockets through dividends.
So what should one pay for a simple, well-run company with dependable earnings and a 7% coupon, but precious little growth despite an enviable position in its trade?
At £1.25 a share, the answer offered by the market is about £460m for the whole enterprise: less than 12 times average earnings, a long way below the multiples once bestowed upon it — perhaps too generously — and under nine times operating earnings before the cost of investments, a.k.a EBITDA.
Recent private transactions involving specialist construction companies in Western Europe, flooring manufacturers included, suggest that this is not obviously a giveaway price. It is, however, Halstead’s lowest valuation in a decade, reached while construction across the continent remains thoroughly out of favour.
The same extremity appears in the dividend. A yield above 7% has no precedent in the company’s recent history — not even during the depths of the subprimes crsis. However, the payout is stretched close to its sensible limit. Without a return to genuine expansion, the dividend will have nowhere much to go, and its aristocratic title may begin to acquire rather more weight than lift.
Still, a 7.1% coupon has its charms. Nor is it unpleasant to be in business with the hard-nosed people of this Manchester company. And construction will not remain in the cellar forever. With the shares at a fifteen-year low, there is plenty here to tempt anyone with a few idle pounds looking for honest work.