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Fresh spring days encourage even the laziest to get back on their bikes. Shares in UK cycling and motoring retailer Halfords have recently enjoyed a moment in the sun following a better than expected update. Lycra-clad bankers will now be eyeing it as much for its takeover potential as for their next fancy two-wheeled toy.
Last week’s 14 per cent rally was one of Halfords’ best weekly performances since the 2020 pandemic lockdowns sent bike demand, and its stock, soaring. Since the summer of 2021 however, its share price has looked more like the downhills that follow big mountain climbs in the Tour de France, descending by two-thirds for a market capitalisation of about £400mn.
A turnaround has however been revving up the business by focusing on Halfords’ motoring unit, which accounts for about 80 per cent of sales compared with the 20 per cent from its higher profile bikes. It has launched a new “Fusion” store concept where the casual buyer of, say, wiper blades, is upsold a blade fitting and potentially other car work, all in the same store. On average it boosts sales in those locations by an impressive 50 per cent. A loyalty scheme offering free annual car servicing for its higher tier is helping build a sticky repeat customer base too.
The upside from its efforts however has so far mostly been countered by higher employer taxes. There are other potholes on the road ahead. Bike sales have not yet entirely recovered from their post pandemic trough, while a soft-to-uncertain economic outlook affects discretionary bike purchases and could also prompt customers to delay work on their cars.
An unknown too is new chief executive Henry Birch, announced last week, whose background in general retail and with gambling groups like William Hill seems a long way from the greasy mechanics of car repair.
Halfords should pop up on dealmakers’ radars for its improved business, yet depressed share price — recent bounce notwithstanding. It reportedly rebuffed an approach from van rental company Redde Northgate in late 2023 as undervaluing it. Then it was trading at about 230p or 17 times pandemic-boosted trailing earnings, versus 141p and 12 times, currently.
There are few close peers for Halfords’ mix of cycling and car garages. That said, the diverse cast of previous owners in its 133-year history include Burmah Oil, private equity firm CVC and high-street healthcare retailer Boots. So there should be someone willing to at least kick the tyres.
jennifer.hughes@ft.com