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The growth story of FTSE 100 Index headline Howden Woodworking Group (LSE: HWDN) has been admirable. It has organically increased its market share, performance and returns in previous years. This helped propel the company into the UK's main index last year.
I already own shares in the company and, on paper, I'm up 47%! As a shareholder, I was eager to see and analyse yesterday's half-year results.
I've been thinking about the direction the company will take lately, as I follow all my investments closely. I think the company is making a strategic turn at the moment and I'm curious to see what happens.
Positive business momentum
Let's start by breaking down yesterday's results for the 26-week period ending June 10, 2024. As a long-time follower of the company, I'm used to seeing regular positive updates, and yesterday was no exception.
Key takeaways for me included a 4.3% increase in revenue compared to the same period last year. In addition, pre-tax profits, net cash to boost its balance sheet and interim dividend increased.
The update mentions higher costs, especially related to inflationary pressures, which is understandable in the current economic climate. In addition, the company continues to work on efficiencies and cost reductions.
Overall, management said performance was in line with expectations for the full year.
Whats Next?
Personally, I think the industry is gearing up for market domination. Let's face it, most companies aspire to be market leaders in whatever sector they operate in. Coca Cola from the world of soft drinks, as a good example.
In exchange for increasing market share, short-term profitability has ceased to be a priority, in my opinion. Don't get me wrong, the business is still generating healthy profits and at a good clip. However, I think the business seems to be sacrificing quick wins to set itself up for long-term gains.
I think this is reflected in your recent update, in the mention of cost reduction to increase efficiency. Also, although you have an industry-leading margin level of over 60%, it is still at similar levels to last year. This is despite an increase in revenue. In addition, operating profit remained static.
Let me be clear: I don't think it's a secret what the Howden board is doing here. However, it appears to be doing so without fanfare.
Some of the measures the company appears to be taking to grow include adding new warehouses and staff. It also continues to look for new ways to achieve greater efficiency in order to be more efficient.
Final Thoughts
Kitchens and woodworking are not the most attractive products on the market, at least not to me. They may not be as attractive as artificial intelligence (ai) stocks or other technology stocks. However, there is plenty of evidence (such as the company's track record) to suggest that consistent returns and growth could be in the offing in the future.
Furthermore, the current UK property imbalance could provide Howden with an excellent way to catapult its ambitions for market dominance.
Personally, I am encouraged by what is happening and very happy with the capital growth and dividends I have received to date. I plan to hold onto my shares for a long time. If I am in a position to buy more when I can, I will do so.
