First of all, congratulations on this publication and on the initial thesis, both are very good.
There are a couple of risks regarding its international expansion that make me quite skeptical about investing at the moment. Their culture and business model in the UK is beyond doubt, it's extraordinary.
However, sometimes transferring that business model to other countries, no matter how well it works in your home country, might not work. Not all countries follow Howden's business model, where the builder contacts the kitchen supplier directly. In many other countries, the model is the opposite: the end customer contacts the kitchen supplier directly. Look at Copart, it has an extraordinary business model in the USA and UK, yet transferring it to Germany is taking a long time despite the benefits for all involved parties.
Another risk I find important is related to kitchen styles. What works in the UK may not be appreciated in France, Belgium... This will imply having many more kitchen models, materials, suppliers... it's complicated.
Lastly, Howden is not counter-cyclical. If a recession occurs, they might struggle due to their strong ties to the construction sector.
As I mentioned to you on Twitter before you wrote the thesis, I had been studying it for a while. If you want to read it, let me know and I'll give you free access to it.
Thanks, Galician. All fair risks to consider. Copart is an interesting parallel. Yes, it's taken them more time in the German market than they would have liked, but they're making progress, slowly but surely. The hope with Howdens is that they will similarly grind it out in France/Belgium on the back of having a superior model, much like Copart has done in Germany. Time will tell, of course.
Interesting company; look forward to learning more about it. What have you found to be the most efficient way to buy the shares--perhaps on the London exchange? There didn't appear to be much trading activity in the ADRs.
Best option would be to ask your broker if they trade on international markets. Most of them (Schwab, etc.) do, but you'll need to fill out a separate form most likely.
Nice write up, Todd. Interesting that Baillie Gifford wrote the business up as they are firmly in the growth camp whereas Howdens has traditionally been more popular with value shops (Tweedy Browne held it in the past).
In the UK value tends to mean deep value- bombed out retailers, financials, energy and the like. If I had to label Howdens I'd go for quality- moderate but consistent growth, solid margins and returns on capital and first rate management.
It's a business I like very much, I don't think the valuation is at all demanding for the quality on offer.
Hello Todd,
First of all, congratulations on this publication and on the initial thesis, both are very good.
There are a couple of risks regarding its international expansion that make me quite skeptical about investing at the moment. Their culture and business model in the UK is beyond doubt, it's extraordinary.
However, sometimes transferring that business model to other countries, no matter how well it works in your home country, might not work. Not all countries follow Howden's business model, where the builder contacts the kitchen supplier directly. In many other countries, the model is the opposite: the end customer contacts the kitchen supplier directly. Look at Copart, it has an extraordinary business model in the USA and UK, yet transferring it to Germany is taking a long time despite the benefits for all involved parties.
Another risk I find important is related to kitchen styles. What works in the UK may not be appreciated in France, Belgium... This will imply having many more kitchen models, materials, suppliers... it's complicated.
Lastly, Howden is not counter-cyclical. If a recession occurs, they might struggle due to their strong ties to the construction sector.
As I mentioned to you on Twitter before you wrote the thesis, I had been studying it for a while. If you want to read it, let me know and I'll give you free access to it.
https://galicianinvestor.substack.com/p/opportunity-in-the-uk
Thank you very much.
Thanks, Galician. All fair risks to consider. Copart is an interesting parallel. Yes, it's taken them more time in the German market than they would have liked, but they're making progress, slowly but surely. The hope with Howdens is that they will similarly grind it out in France/Belgium on the back of having a superior model, much like Copart has done in Germany. Time will tell, of course.
Interesting company; look forward to learning more about it. What have you found to be the most efficient way to buy the shares--perhaps on the London exchange? There didn't appear to be much trading activity in the ADRs.
Best option would be to ask your broker if they trade on international markets. Most of them (Schwab, etc.) do, but you'll need to fill out a separate form most likely.
Nice write up, Todd. Interesting that Baillie Gifford wrote the business up as they are firmly in the growth camp whereas Howdens has traditionally been more popular with value shops (Tweedy Browne held it in the past).
Thanks! On a multiples basis, at least, it would be a value stock in the US.
In the UK value tends to mean deep value- bombed out retailers, financials, energy and the like. If I had to label Howdens I'd go for quality- moderate but consistent growth, solid margins and returns on capital and first rate management.
It's a business I like very much, I don't think the valuation is at all demanding for the quality on offer.