Interactive Investor

B&Q owner gains from lockdown, but what happens afterwards?

19th November 2020 11:33

Richard Hunter from interactive investor

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Much rests on consumers choosing home improvements over travel as the impact of Covid-19 eases.

A lack of travel and more time spent working from home during the pandemic have played into the hands of home improvement company Kingfisher (LSE:KGF), where sales continue to rocket.

As with many other companies in the current environment, a previously-announced transformation plan has been vastly accelerated through necessity.

For Kingfisher, this has resulted in a jump in e-commerce sales of 153% in its Q3 results as the company gears up its offering at pace. Such sales now represent 17% of the group total. Within this number, Click and Collect sales have spiked by 216% and now account for 77% of online sales. 

Sales overall have also increased by a healthy clip during the quarter, and the like-for-like improvement of 17.4% was driven by strong growth across the board. 

In particular there were strong showings from Kingfisher-owned B&Q (sales up 24%), Screwfix (17.4%) and Castorama of France (20%). 

In the two weeks since the end of this reporting period sales have dipped slightly given the new lockdown restrictions, but nonetheless remain up by 12.6%.

Meanwhile, the group’s financial position remains comfortable. A combination of cost savings, business rates relief, the cancellation of the dividend, lower capital expenditure and improved earnings have all contributed to access to liquidity of £3.5 billion, including £2.2 billion of cash.

The explosion of sales has brought other challenges, however, most notably to the supply chain where the increased volumes and a pandemic-related strain on logistics and delivery has been an issue. 

The situation is likely to last for a further six months, although Kingfisher remains committed to improving the situation where possible at particular pressure points.

Further out, the challenges of Covid-19 on Kingfisher remain to be seen. There is a strong potential for pent-up demand in consumers choosing to travel again, rather than funnel time and cash towards home improvements. 

At the same time, while the home working environment could be here to stay in a limited capacity, there will be some form of widespread return to the office eventually. This will also impact future prospects for the likes of Kingfisher.

Even so, the company is clearly making hay while the sun shines and has been able to capitalise on the current environment. 

The stock has had an interesting year, with demotion from the FTSE 100 in March immediately reversed as the company bounced back to the premier index in June. Since the March low, the shares have spiked by 141% and are now ahead by 38% in the year to date.

Indeed, over the last year the outperformance of the share price is significant, with a rise of 43% comparing to a decline of 13% for the wider FTSE 100. 

Quite apart from the challenges which may be yet to come, this strong performance has led to the question of whether the shares are now up with event. This was evidenced by some initial profit-taking in early trade, such that the market consensus of the shares remains at a ‘hold’.

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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