With a market capitalisation of 218.9 shares x £1.62 = £355m Halfords is trading at a cyclically adjusted price earnings ratio of only 162p/27.3p = 5.9. That seems cheap. But it’s often the case that companies on very low CAPEs are high risk because they have dangerous financial structures making them vulnerable to distress.
The coming recession will test any company that has borrowed too much or that has a tendency to fall into losses in hard times. On the later point, we can note that Halfords has not made losses in any year in the last decade, not even during the depths of the Covid crisis.
And looking at the profits in the Great Recession we find that it rode through with good profits every year (after tax profits: 2007: £57m, 2008: £64m, 2009: £56m, 2010: £77m).
Having been satisfied on limited vulnerability of the operating business, this section will focus on the balance sheet, cash flow history and Piotroski factor analysis to explore if the company is vulnerable to financial structure stress.
Balance sheet data (Ignoring IFRS16 on leases)
Yearend April, £m.......
....Observations on balance sheet:
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