Interactive Investor

DIY royalty Kingfisher swoops in with a positive surprise

23rd May 2022 08:21

Richard Hunter from interactive investor

Impressive cash generation has financed a nice present for shareholders, but a cost of living crisis could make it tough for the DIY sector.

B&Q owner Kingfisher (LSE:KGF) is unquestionably in a better position than it was leading up to the pandemic, although it is becoming increasingly difficult to match the highs experienced during lockdowns as the DIY boom played into its hands.

The company is now making additional comparisons with a period of three years ago, representing the business as it had previously been before an enforced and accelerated transformation plan took hold due to the restraints of the pandemic. Indeed, there is much evidence that the business has progressed, with revenues for the current period ahead by 16% over the three years and with a notable shift to online sales, which have grown by 164% and which now represent 16% of group sales, around double the figure going into the various lockdowns.


At the same time the Screwfix business, long since a shining light within the group, is being further expanded not only in the UK and Ireland, but with a foray into France to come. As more enhancements to the offering are being made, such as the “Sprint” offering which has had a pleasing start, this remains one area of particular promise. For the moment though the unit is up against strong comparatives from the previous year, with a decline of 7% in sales.

Indeed, the group flagged at the full-year numbers in March that the first quarter of this year had seen a slowdown in sales, and an overall revenue decline of 5.8% is underpinned by falls of 14% and 6% for group sales in the UK and France respectively.

Nonetheless, Kingfisher is content that momentum is promising going into the second quarter, with like for like sales in the first two weeks of May declining by just 2.5% and ahead by 22% on a three-year comparison.

The company’s cash generation has also enabled a positive surprise in the form of the announcement of a new share buyback programme totalling £300 million, which is largely responsible for the share price hike in early trade. This shareholder return adds to an existing dividend yield of 5%, which is punchy against the current interest rate backdrop and which also reflects management confidence in prospects.

Over more recent times, Kingfisher has reaped the benefit of both market share gains and good customer retention. At the same time, it continues to manage the inflationary and supply chain pressures through a combination of gross margin and cost base measures, and with product availability currently close to normal levels.

However, Kingfisher cannot manage the current economic outlook and the propensity of the consumer to spend, which has inevitably weighed on the performance of the stock. Whereas the previous concern had been that pent-up holiday demand would replace the DIY share of individual spending (which has been seen to an extent), the next few months are likely to represent a demanding time if the cost of living crisis emerges as is largely expected.


The share price graph thus reads as a commentary as to the company’s fortunes over the last couple of years. Having doubled since the pandemic low, the shares have lost 34% over the last year, which compares to a gain of 5% for the wider FTSE100.

Prospects from here on in are uncertain despite the best efforts of the company to manage the factors within its control, which it has done successfully in more recent times. As such, the market consensus of the shares as a "hold" reflects the fact that some of the positive momentum which the company has enjoyed of late could be put to the test as this year unfolds.

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