Whenever a FTSE stock announces an acquisition, I am interested to learn more. What’s the reason behind the acquisition and how will it help the company in question? Halfords (LSE:HFD) announced a major acquisition last week that I believe will boost its profile, growth, and performance in the short and long term. Should I add add the shares to my portfolio at current levels? Let’s take a look.
FTSE retail giant
Halfords is the UK’s leading retailer of cycling products as well as automotive products and services. It employs over 10,000 people and has more than 750 locations throughout the country. Halfords claims that 90% of the UK is never more than 20 minutes away from a Halfords shop or one of its auto centres.
As I write, Halfords shares are trading for 352p. A year ago, the shares were trading for 260p which is a 35% return over a 12-month period. In recent weeks, positive interim results and the acquisition deal have boosted the shares. In December to date, Halfords shares are up 10%.
Acquisition and positive performance
On 1 December, Halfords announced it signed a sale and purchase agreement to purchase Axle Group Holdings Ltd for £62m. Axle owns the National Tyres and Autocare, Viking Wholesale Tyres, and Tyre Shopper brands.
This acquisition is a great move in my opinion. Halfords already has its own auto centres where it offers MOTs and services for motorists. Upon completion, Halfords will have approximately 604 garages, 234 consumer vans, and 190 commercial vans. This number will mean it has comfortably surpassed its target of 550 garages. Halfords places a great emphasis on motoring revenue and the National Tyres and Auto Care centres will help grow its motoring revenue stream.
In November, Halfords also reported positive interim results for FY 2022. It confirmed that revenue, profit, sales growth, and cash generation had increased compared to 2021 levels. Many FTSE stocks in the retail sector have suffered due to supply chain issues. Halfords pointed towards the same problems but was able to leverage its competitive advantage and huge profile to record excellent results.
Risks of investing
Buying Halfords shares does come with risks, however. As mentioned, the current supply chain crisis has meant many businesses are unable to fulfil the demand for some of their products. Halfords has faced this issue in its burgeoning cycling department. If these issues persist, performance could be affected. Rising inflation and costs are a worry too. If these costs are passed on to customers, Halfords could lose customers and market share. This could affect performance and investor returns as well.
Overall, I believe this recent acquisition and the recent positive results will boost Halfords growth trajectory upwards. In addition, Halfords has a good track record of performance which fills me with confidence too. I understand past performance is not a guarantee of the future but I use it as a gauge when reviewing assessment viability. Halfords currently sports a price-to-earnings ratio of just 12, which I consider cheap. At current levels I would happily add Halfords shares to my portfolio.
Jabran Khan has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
