Carpets, rugs and commercial flooring distributor Headlam (HEAD) continues to capture market share in a resurgent market. Confidence buoyed by strong interims, CEO Tony Brewer guides towards full-year results 'slightly ahead' of management expectations, though shares cheapen 2p to 468p amid Monday's wider sell-off.

Headlam is Europe's leading floorcovering distributor, operating in the UK, France, Switzerland and the Netherlands. It supplies competitively-priced carpets, rugs, residential vinyl and commercial flooring to flooring contractors, independent retailers and certain multiple retailers.

Headlam point of sale units

Competitive strengths include an autonomous operating structure, with fifty six businesses trading under individual brands; this gives management scope to develop a local market presence and profitability. Strong ties to manufacturers mean the company is at the forefront of new product launches, while national and regional distribution hubs give the group comprehensive national coverage.

Click here to read half-time figures from the Birmingham-headquartered concern, showing pre-tax profits up 14.8% to £12.35 million and a 15.4% hike in the dividend to 6p. The pleasing performance was driven by 5.4% like-for-like sales growth in Headlam's core UK floorcovering market, hard-hit by downturn but now on the comeback trail; the housing sector has momentum behind it and the UK consumer is growing more confident.

Web chart - Headlam - Aug 15

Growth was balanced across the residential market, where Headlam notes a continuing trend towards grey carpeting, as well as the commercial sector, where growth was even stronger, driven by rising refurbishment spend and the opening of evermore new commercial premises. Letting the side down was Europe, where like-for-like sales fell 4.8% amid ongoing weakness in France and Switzerland. The good news is Headlam is seeing slight improvement in the Dutch market, driving like-for-like growth in The Netherlands in the half.

Encouragingly, Brewer says 'the positive trading outcome for the first half has continued during the first eight weeks of the second half.' So long as Headlam delivers a good fourth quarter, results for the year to December should weigh in 'slightly ahead of the board's internal expectations.'

Investec Securities initiates coverage with a 'buy' rating and 570p price target for Headlam, 'given an improving market outlook, consolidation opportunities and operating leverage potential'. The broker's positive stance is 'further enhanced by the strength of free cash flow generation, which has supported acquisitions and a 12% dividend compound annual growth rate over the past four years.'

Issue Date: 24 Aug 2015