Halfords (HFD) 503.5p

Gain to date: 4.7%

Original entry point: Buy at 481.1p, 28 May 2015

Our bullish call on bicycles-to-car parts purveyor Halfords (HFD) - see Plays, 28 May ‘15 - proved well-timed. Better-than-expected annual results (5 Jun) showed pre-tax profits up 11.4% to £81.1 million as sales exceeded the group’s £1 billion target a year ahead of plan. Halfords enjoyed a strong fourth quarter in car maintenance and cycling, like-for-like sales in the latter category ahead despite a tough prior year comparable, as the retailer continues to make the most of the UK cycling boom.

As we outlined last month, there’s still more to come from the retailer’s ‘Getting Into Gear’ modernisation strategy as well as room for improvement in Autocentres, the car servicing and repair arm. Meanwhile, robust cash generation and falling net debt suggests near-term potential for a return of surplus capital. Investec Securities has upgraded its price target from 545p to 560p, implying more than 11% upside. For the year to next March, the broker forecasts 5% growth in pre-tax profit to £85.2 million, earnings up 7.5% to 34.6p and a near-7% dividend hike to 17.6p.

Halfords has momentum and a prospective price-to-earnings (PE) ratio of 14.6 isn’t prohibitive given the growth potential, a 3.5% yield and scope for capital returns. (JC)