Hornbach Holding KGaA: Financial performance & dividend outlook

The German DIY-store chain Hornbach Baumarkt AG specializes in selling DIY and home improvement goods, making it one of Germany’s top chains of do-it-yourself stores. The Hornbach Baumarkt Group reported sales of Euro 5.1 billion for the fiscal year 2020–2021, which ran from March 1, 2020, to February 28, 2021. Hornbach Baumarkt AG owns and operates these stores.

Currently, the Hornbach Baumarkt Group operates 171 DIY megastores with garden centres and online stores across nine European countries, with 96 of those stores located in Germany. There are also two hard flooring specialty stores (Bodenhaus) based in Germany.

The UK corporation Kingfisher plc, which also owns the Castorama and B&Q DIY chains, held a 21 percent stake in them until March 2014. As Kingfisher planned to expand into new markets where it would face direct competition from Hornbach, it sold off its interests. In the years that followed, Kingfisher established Screwfix stores in Germany and Brico Dépôt stores in Romania, where Hornbach is situated.

HBH investors are up 81% overthe past five years

Investors typically seek stocks that perform better than the market average. For instance, the share price of Hornbach Holding AG & Co. KGaA (ETR: HBH) has increased by 58% over the past five years, significantly outperforming the market return of about 2.9% (not including dividends). Recent returns, including dividends, haven’t been as strong as that, with the stock going back just 9.6% over the past year.

Hornbach Holding KGaA achieved compound annual earnings per share (EPS) growth of 7.4% percent during this period of share price appreciation. However, EPS growth lagged behind, with an annual increase of 10%. Therefore, it is reasonable to assume that the market currently views the company more favourably than it did five years ago, reflecting its history of growth.

Shareholders should review Hornbach’s CEO’s Compensation Package

Given the gloomy results recently reported by Hornbach Holding AG & Co. KGaA (ETR: HBH), shareholders are unlikely to be overly impressed. The Annual General Meeting (AGM) in early July provides shareholders with an opportunity to discuss their plans for improving performance and vote on corporate resolutions like executive compensation, which could have a big impact on the company and influence management decisions.

Based on data, Hornbach Holding AG & Co. KGaA’s market capitalisation is €1.3 billion, and as of February 2024, the company reported €1.5 million in total annual CEO compensation. Interestingly, that represents a 58% rise from the previous year. Although the analysis here focuses on total compensation, it is important to note that the salary component, valued at €480k, is less.

The reported median total compensation for CEOs was €1.5 million, which is lower than the average for businesses in the German Specialty Retail sector, with market capitalisations ranging from €934 million to €3.0 billion. This implies that the CEO of Hornbach Holding KGaA receives compensation that is generally in line with the industry average. Furthermore, Albrecht Hornbach has a significant stake in the business, owning shares worth €8.6 million in it under their own name.

Hornbach Holding AG & Co. KGaA’s earnings per share have declined by 1.6% annually during the past three years, while revenue for the last twelve months has remained essentially unchanged.

It is not good to see that the EPS has not improved. Furthermore, the flat revenue is incredibly uninspired. Given that it’s difficult to question the company’s high performance, shareholders may be cautious of the large CEO compensation.

Reasons to consider Hornbach Holding G & Co. KGaA: Upcoming dividend

It appears that during these first days of July, Hornbach Holding AG & Co. KGaA (ETR:HBH) will go ex-dividend. One day prior to the record date, the day on which stockholders must be listed on the business’s records to be eligible for a dividend, occurs on the ex-dividend date. It is crucial to be aware of the ex-dividend date because any stock purchases made on or after this date may result in a delayed settlement that is not reflected in the record date. Stated differently, investors can qualify for the dividend, which is scheduled to be paid on July 10, if they buy shares of Hornbach Holding KGaA before July 8.

The next dividend payment from the company will be €2.40 per share. The company paid out €2.40 to shareholders in total last year. Hornbach Holding KGaA’s trailing yield, based on the last 12 months’ distributions, is roughly 3.0% at the company’s current stock price of €80.70. Although it’s a plus when businesses give traders a dividend, you also need to make sure that generating valuable results won’t harm the source of those results. Therefore, you must determine whether earnings are increasing and whether dividend payments are covered.

Usually, the company’s earnings are used to pay dividends. A dividend may not be sustainable if a company pays out more in dividends than it makes in profit. With only 25% of its income after taxes are paid out, Hornbach Holding KGaA has a low and mindful payout ratio. Assessing if Hornbach Holding KGaA produced enough cash flow from operations to cover its dividend can be a helpful secondary check. The fact that the company paid out 11% of its cash flow to dividend payers last year indicates that free cash flow adequately covered dividend payments.

Thankfully, over the last five years, HORNBACH Holding KGaA’s earnings per share have increased at a rate of 19% annually. The company is retaining over half of its earnings internally, and earnings per share are increasing quickly. These two positive indicators may indicate that the company is concentrating on reinvesting in order to grow earnings even more.

Analyzing a company’s past rate of growth in dividends is another important approach to assessing its dividend prospects. During the previous eight years, Hornbach Holding KGaA has maintained an average annual dividend growth rate of 6.1%. The company’s decision to raise dividends at a time when earnings are rising is positive and suggests a commitment to rewarding shareholders.

All in all, it’s a good thing that Hornbach Holding KGaA is increasing its earnings per share while only allocating a small portion of its cash flow and earnings to dividend payments. These attributes imply that the company is reinvesting in expanding its operations, while the cautious payout ratio suggests a lower chance of future dividend cuts. Overall, this analysis indicates that Hornbach Holding KGaA appears stable and worth looking into further.

Disclaimer: This information is not considered investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced or hyperlinked in this communication.

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