City Column - Halfords can ride out the downturn better than most

While flogging carburettors and spark plugs might not sound all that exciting it will undoubtedly insulate Halfords from the worst effects of the increasingly bitter consumer downturn that is afflicting the sector.

To some extent this is reflected in its share price that has come off by only around 12 per cent over the past three months whereas many other major stores groups have declined by more than double this figure. At the current level of 284p they have comfortably moved off their 12-month low of 236p in January.

And there should be more in the tank for investors if the outgoing chief executive Ian McLeod is to be believed. Although earlier this month he delivered a less-than-expected two per cent like-for-like sales increase (for the 17 weeks since Halfords' half-year) he rubbished suggestions that this slowdown - which compares with a 4.1 per cent increase over the 43 weeks to January 25 - was an indication of a maturing market.

To prove his point, he suggested that when stripping out the heavy sales of car seats, that were bought in the comparable period last year to comply with new legislation, then like-for-like growth would have been a more credible 3.2 per cent.

Car seats continue to sell well along with in-car technology. With SAT NAV now par-for-the-course in most cars Halfords is fully benefiting as it operates both a fitting and servicing operation.

The company also seems to be taking a sensible approach to store openings unlike many other retailers that have retained their gung-ho opening programmes despite the economic background, which suggests their growth story is purely down to adding volume through square footage.

Halfords has pencilled in the addition of 20 new stores per year over the medium term, which with a current portfolio of 440 outlets represents an increase in numbers for year one of a modest 4.5 per cent, and decreasing thereafter.

Further stores will also be added to the group's overseas division that consists of 16 units in the Republic of Ireland and three in the Czech Republic, which represents an area of great potential for the group.

One area that does not seem to be living up to its potential is the standalone Bikehut stores, if its roll-out is indicative of its performance, as the website shows only four outlets up and running whereas the company stated midway through 2007 that it intended to have six open by the end of the year as it pushed towards a target of 50 throughout the country.

This is something for the new chief executive to deal with as it is of little concern to McLeod as he has announced his intention to leave the business following an offer to run the Coles supermarket chain in Australia. Despite his success at the group his departure was not regarded by the City as detrimental to Halfords health and prosperity because potential candidates are in the wings and the business is on an especially firm-footing.

With this solid platform, combined with its defensive position in the marketplace, it is surprising that Halfords stands on a PE of a mere 9.6x. This might be acceptable for such a stock during buoyant times but we in exactly the opposite of this scenario at the moment. It is this perceived discount that could provide an opportunity for investors