How will Halfords shares react to strong gains in FY 2021 results?

• 2021 revenue up to £1.29bn in 2021 from £1.16 bn
• Retail and Autocentre revenue both up year-on-year
• Gross margin down from 51.1% to 50.8%
• Pre-tax FY 22 profit targets of £75m+
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What are the headline figures from Halfords’ Preliminary Full Year 2021 results?

Since the onset of the Covid-19 pandemic, Halfords shares have risen over 535% from a baseline price of 64.90p on 30 April to its 423.40p share price today (17 June). This is largely due to the positive trading results from Halfords’ latest full year of trading.

Today, the Halfords Group published its full year 2021 prelims, citing a year of ‘very strong financial and operational progress’ for the FTSE Small Cap firm.

The group’s CEO, Graham Stapleton, confirmed the move towards a service-led approach had been ‘rapidly accelerated’ in the last 12 months. In doing so, Halfords managed to achieve a ‘record revenue performance’ in its Autocentres, which Stapleton described as a ‘strategically important area’ of the business.

Halfords’ Autocentres revenue was up from £194.1m in FY 2020 to £252.m in FY 2021. This comes despite the decline in road traffic as a consequence of the multiple nationwide Covid-19 lockdowns.

Overall, its underlying pre-tax profit for FY 2021 was £96.3m – a 72.3% rise in 52-week revenue on FY 2020.

What external factors bring uncertainty to the outlook of Halfords shares?

Although its FY 2021 prelims state that Halfords Group is ‘positive’ on its ‘prospects for FY 22’, the update mentions multiple external factors that ‘add uncertainty’ to the outlook of the Halfords share price.

First and foremost, its supply chain challenges for cycling products are ‘acute’, which is a major hurdle given that strong demand for road bikes has helped offset the decline in automotive traffic in the last 12 months.

The update adds that the ‘general economic outlook remains challenging’, questioning the appetite of consumers and their potential caution to return to normal buying behaviours. The firm anticipates consumers will demand ‘greater value from their purchases’. This is one of the reasons why the Halfords Group is investing heavily in pricing within its Retail Motoring arm, which it believes could have a short-term impact on FY 22 gross margins, whilst ‘strengthening the business in the medium and long term’.

How does the Halfords balance sheet look after a turbulent 12 months?

Halfords has ended its FY 21 with a ‘strong balance sheet’, posting net cash of £58.1m. Its EBITDA ratio, on a pre-IFRS 16 basis, stands at 1.0x and 1.5x in the short-term to underpin future activity surrounding mergers and acquisitions to scale its Retail Motoring division.

Its ‘transformation plan’ as a service-led business will need up to £60m worth of capital expenditure per annum in the medium term.

Based on the strength of its balance sheet, Halfords shareholders are set to receive an FY 21 final dividend of 5p per share, with its historic final dividend of 9p per share slated to return for FY 22.

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