2nd Stock pitch of the LUIFS industrials team

1. Industrials
Sector
Lancaster University | Ghosal Investment Fund

2. Agenda
01
02
03
04
Business Description
Competitor Description
Industry Description
Valuations
Technical Analysis05

3. Business
Description

4. The Business Model
Designs, manufactures, and
supplies kitchens
Similar to Ikea, uses depots (avg
10k sq. ft) located outside of high
street to lower costs
Strong philosophy
On average costs £450,000 to fit,
including £150k inventory, average
breakeven at Y2 at £700k sales
The Depot
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01
02
03
04
05
06
To wide range of end uses from
social housing to private rental

5. Company Timeline
1995 2006 2008 2010 2015
Matthew Ingle
establishes Howdens
as part of IMF
Furniture Group
MFI sold off loss
making retail business
for £1
MFI's original retail
business enters
administration, MFI
becomes liable for
£100m
Granted Royal
Warrant as a Supplier
of Fitted Kitchens by
appointment of her
majesty the Queen
MFI becomes Howden
Joinery Group plc, and later
in year debts from retail
business reduced by 80%

6. The Market
Your Text Here
706 depots in UK
and 25 in Europe
(as of HY Report
2019)
Operations
Sold directly to
skilled fitters (most
of which self-
employed),
DFY>DIY
Main Customer
Change in lifestyles
over last decade,
open plan kitchens
as opposed to small
congested kitchens
Driver
From sourcing,
manufacturing down to
Howdens.
Vertical
Integration

7. Stock Profile
Insert the title of your subtitle Here
Beta (5 year monthly)
0.55
Market Cap
£4.18B
The depot costs on
average 450k to fit,
with 150k inventory
and average
breakeven after Y2
Revenue
£1.5B
Current Price
£6.98
EV/EBITDA
6.98
P/E Ratio
21.76

8. Corporate Governance
Andrew Livingston
CEO
Joined in 2018 as CEO
designate. Previously worked
as chief executive at Screwfix.
Experience as commercial
director of Kitchens and
Bathrooms at B&Q. Replaced
founder Matthew Ingle.
Richard Pennycook
Non-Executive Chairman
Received the role in 2016 from
previously being non-exec
director. Richard was a
company director for over 20
years, and serves the same
role in Fenwick and The Beach
Group plc.
Mark Robson
CFO and deputy CEO
CFO since 2005 and deputy
chief exec since 2014, with no
external appointments.
Previous experience as group
finance director at Delta plc for
6 years.

9. ESG
Insert the title of your subtitle Here
Keeping them safe, offering
rewarding careers
People
Sustainable sourcing,
active monitoring of suppliers
Sustainable Supply Chain
Safe, traceable, energy efficient
and durable
Sustainable Product
Reducing waste and recycling
them
Waste Renewal
• Employs 9,600 employees, despite slight
increase in 2018 of reportable injury rate,
still performing better than UK national
average.
• Wood sourced from managed forests,
independently checked the entire supply
chain up to forest to fulfill environmental
due diligence. Part of Timber Trade
Federation.
• In 2018, all Lamona extractors adopted
LED lighting, reducing energy consumption
by 80%.
• 100% of internally-manufactured timber
products made from FSC certified materials
.
• Efficient production system saves costs an
d environment. Use of AI helped develop n
ew chipboards that minimizes cutting
waste.
• 2018, converted 12,000 tons of sawdust o
n site to energy for use.
Overall Howdens has taken advantage of
ESG to help develop its business.

10. SWOT Analysis
• Distribution and Reach: Efficient transport fl
eet and depots with coverage across UK.
• Cost Structure: Focus on cost cutting, recycl
ing of materials and reduction in energy usa
ge
• Financial Position: Consecutive profits in the
past 5 years, along with accumulated profit r
eserves that can be used to finance future c
apital expenditures.
• Automation of various stages of production
has allowed the more efficient use of resour
ces and reducing costs.
• Skilled Labor force: invested extensively in t
he training of its employees resulting in a ski
lled and motivated workforce.
• Entering new markets: Innovative teams allo
wed it to enter new markets.
• Owns a huge number of intellectual property
rights that include trademarks and
patents.
Strengths
•R&D: Despite high R&D expenditure than aver
age, still less than big players in market
•Inventory turnover higher than the industry
average, meaning that Howden Joinery Group
Plc builds up on inventory adding unnecessary
costs to the business.
•Integration: Howden's current structure and
culture have resulted in the failure of various m
ergers aimed at vertical integration.
•The decision making is highly centralized, and
decisions by teams need to be approved by cer
tain officials. Leads to less efficient decision ma
king times and less creativity.
Weaknesses
•Expand their presence online by using the inte
rnet to interact with its customers.
•E-commerce: There has been a new trend and
a growth in sales of the e-commerce industry.
The company can earn revenue by opening onl
ine stores and making sales through these.
• There has been an increase in average hou
sehold income along with an increase in con
sumer spending following the recession. Thi
s will result in growth in Howden Joinery Gr
oup Plc’s target market with new customers
that can be attracted towards the business.
Opportunities
• Technological developments by competitors;
• Suppliers: Decrease in suppliers over last few years may result in less bargaining power
• New entrants that lead to more competition and less market share
• Political uncertainties: arising from Brexit
• The rise in prices of fuel has increased in the input costs. These costs have also increased
as other industries that provide inputs for this company also have suffered from increasing f
uel prices, thereby charging more.
Threats

11. Competitor
Description

12. Competition Overview
Founded in UK.
Manufacturer and designer
of kitchens and joinery
Swedish company. Owns 4
smaller kitchen retailers in
UK but has the biggest
impact in the Nordic region
American internet
retailer. The company sells
both closeout and new mer
chandise
French furniture and home
decor firm

13. Financial Highlights
HOWDENS NOBIA AB OVERSTOCK MAISONS
DU MONDE
£1.5bln
13.2bln SEK
(£1.05bln)
$1.8bln
(£1.4bln)
€1.1bln
(£0.9bln)
31.3p
4.79 SEK
(£0.38)
-$6.83
(-£5.26)
€1.3
(£1.1)
1.7% 5.8% 0% 4.25%
21.76 14.88 -33.95 13.13
37.29 20.2 37.29 3.93
£4.18bln
12.00bln SEK
(£0.95bln)
$309mln
(£238mln)
€506mln
(£428mln)
8.96 6.75 -2.02 5.1
REVENUE
BASIC EPS
DIV. YIELD
P/E
ROE
MARKET CAP
EV/EBITDA

15. Industry
Description

16. Buildings
Industrial construction
includes refineries, process
chemical, power generation,
mills and manufacturing plants.
Industrial Facilities
Construction Industry:
A $12 Trillion Global Market

17. Sector Description
Industrial construction includes
refineries, process chemical,
power generation, mills and
manufacturing plants
Industrial Facilities
Heavy civil or heavy engineering
that includes large public works,
dams, bridges, highways,
railways and utility distribution
Infrastructure
Divided in Public and Private
buildings sector and in
residential and non residential
construction buildings
Buildings

18. Sector Sensitivity
- iShares U.S. Home Construction ETF
- S&P 500
Beta(β) = 1.1

19. UK Construction & Buildings Industry
UK Housing Market - 27 Millions
Homes
Owned Rented
10 Million Homes
17 Million Homes
Residential development accounts for
40% of the total market.
£110 Billion Market

20. UK Kitchen & Joinery Sector
Sector Revenue Drivers:
• Strong dependence on housing market and
maintenances and repairs.
• Strong importance of imports from Europe,
especially from Italy and Germany.
• Necessity to be closed to customers
Joinery products; £5bn market potential
growth at 3.4%.
Kitchens; $4.2bn market is expected to
grow at 0.5% - 1%
0%
5%
10%
15%
2016 2017 2018 2019
Intention to Install a new kitchen
over the next 12m
Intention to Install a new kitchen over the next 12m
Sector Costs Drivers:
• Raw materials exposure; especially timber and metals.
• Sterling currency movement; supply chain is located
outside UK.
• Necessity to invest in warehouse and retail footprint

21. Opportunity & Challenge

22. Macro environment & Economic Outlook

23. Valuations
1. Market Expectation
2. Absolute Valuation
3. Investment Thesis

24. Target Price
Market Expectations &
Analyst recommendations
 Buy = 2
 Hold = 9
 Sell = 0
£6.3
Revenue CAGR
5.74%
EBIT CAGR
6.58%
EPS CAGR
7.85%
Hold
Buy

25. Absolute Valuation
£6.04
Low
9.0%
2.5%
-11.5%
£10.26
High
8%
4.5%
50.3%
£7.52
Mid
8.5%
3.5%
10.1%
Fair Value
Assumptions
Cost of Capital
Perpetuity Growth
Rate
Upside
5-Year DCF Model - Gordon Growth Exit
 Revenue 5Y CAGR – 5.2%
 EBITDA 5Y CAGR – 6.6%
 5Y Average EBITDA Margin – 18.4%
 Stock Price - £6.83 (30th Jan 2020)
 Fair Value - £7.52
 Recommendation - Buy

26. Investment
Thesis
• HWDN combines a resilient business model with strong top-
quartile margins, revenues and ROCE
• Multiple growth drivers in the group; from favorable cyclical
projections to a strong loyal base of repeat customers who
adore their business model.
• Prudent control over its cash and cost by management.
(Very little debt on its balance sheet)
Why Buy?
• Howdens has cyclical vulnerability meaning spending on
kitchens can easily be deferred during an economic
downturn.
• Currency fluctuations in the market and weakening of the
pound
• Cyber security and data breaches
Risks?

27. Technical Analysis

28. 400.00
450.00
500.00
550.00
600.00
650.00
700.00
750.00
1/30/19 2/28/19 3/31/19 4/30/19 5/31/19 6/30/19 7/31/19 8/31/19 9/30/19 10/31/19 11/30/19 12/31/19
HWDN Adj Close

29. Movement
s with the
Market
0.90
1.00
1.10
1.20
1.30
1.40
1.50
HWDN & FTSE Movements
HWDN Index FTSE Index
Movements
with the
Market

30. Monte Carlo Simulation x10 Iterations