European floor coverings distributor Headlam (HEAD) continues to outperform peers and profitably consolidate its chosen markets.

Steered by chief executive Steve Wilson who is focused on driving operational efficiencies across the business, we admire Headlam for its consistent market share gains and scope for further special dividends.

Headlam’s annual general meeting update (25 May) highlighted 2.2% total sales growth to £221.2m for the four months to April.

Given this is a seasonally quiet period, the carpets-to-underlay supplier appears set fair for a strong second half, in our view.

Like-for-like sales in the core UK business grew 1.9%, encouraging given a demanding 4% year-on-year comparative figure, and with positive performances delivered in the commercial and residential sectors.

Headlam’s European business is also in growth, with ‘very strong’ residential sector growth of 9.3% offsetting a drag from its Swiss commercial business.

Able to mitigate the impact of the weak pound through price increases, Headlam’s net cash balance sheet and strong cash flows mean it is well-equipped to consolidate the market organically and through acquisitions while lavishing capital returns on shareholders.

Investec Securities has a 710p price target implying 12.7% near-term upside. For the year to December 2017, the broker forecasts pre-tax profit of £42.5m (2016: £40.1m) and a 25.6p ordinary dividend.

Headlam, which has paid out special dividends for the last two years, offers an attractive yield north of 4% on the ordinary dividend alone.

Keep buying high-flying Headlam for growth and income at 630p.

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