Another Quality AIM stock...

Click for more about James Halstead

...that you may not have heard of has reported a pre close trading update today. The stock concerned is called James Halstead (JHD) which is a commercial flooring manufacturer and distributor with a £570 million market cap. As there are lots of results today which will get lots of comment I thought I would highlight this one to provide you with something different.

I call it a quality stock because it has a high return on capital employed of 37.2% currently and this has averaged around 40% over the last five years according to Stockopedia. Their operating margin is currently around 18 to 19% and this has averaged 18.8% over the last five years. They also have around £38 million of cash on their balance sheet and have increased their dividend every year for the last 37 years and in the statement they say they expect this years dividend to be increased again - nice.

In the statement they also mentioned that after the slow first half with limited turnover growth the second half had seen a pick up leading to their confidence in raising the dividend. They did however mention currency and while they said the strength of sterling would not hit margins due primarily to offsetting raw material costs they did highlight that it will impact on translation of of profits in common with other companies with overseas activities.

The other thing I like about them apart from the Global nature of their operations is the way they invest in improving the business to the benefit of their customers, staff and shareholders alike. As a shareholder you would want them to reinvest in the business if they can given the financial metrics. From the graphic above you can see they have done this over the years and you can click on this to read more about them and their products.

So the shares themselves have done well over the years but have stalled more recently around the 300 to 340 pence level as trading became more difficult and the rating had got rather full. Consequently I sold out and do not currently have a position, but it is certainly one I'm looking to get back into at some point on a bad day, so it is on my watch list. On the chart it seems to have found support in the 240 pence to 260 pence region recently. Thus for now I would expect it to trade in a 240 to 340 pence range until they deliver further or there is another economic downturn which might curtail their growth further, especially as flooring tends to be late cycle. The current 17x or so next years earnings and forecast 3.6% yield are the low and higher end respectively of what they have been in recent years, so  I wouldn't put you off if you have done your own work on it and are prepared to pay up and take a longer term view. However, when I have bought this one in the past it has been on much lower ratings so I'm inclined to wait for a better opportunity for now.

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