Interactive Investor

ii view: why B&Q owner Kingfisher is a sun worshipper

12th June 2023 11:29

by Keith Bowman from interactive investor

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Shares in this DIY retailer fell 30% in 2022 and are only just in positive territory this year. We assess prospects.

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First-quarter trading update to 30 April

  • Total sales up 0.8% to £3.3 billion – down 2% when adjusting for currency moves
  • Like-for-like sales down 3.3%
  • Total e-commerce sales up 4.7%

Guidance:

  • Comfortable with the consensus analyst forecast of £634 million adjusted pre-tax profit for the full year ahead – down from last year’s £758 million

Chief executive Thierry Garnier said:

“As we move through our key trading season, we are pleased to see that sales in our core
and ‘big-ticket’ categories, which make up over 80% of our total sales, are showing
continued resilience. The unusually poor spring weather in the UK and France affected our
seasonal sales in the quarter, impacting demand for items such as garden and outdoor
products. We have however seen an improvement in trading since early April, and anticipate
a release of some pent-up demand as the weather continues to improve.”

ii round-up:

Kingfisher (LSE:KGF) is an international home improvement retailer which operates from more than 1,500 stores as well as online websites. 

It trades from eight European countries including the UK and Ireland, France and Poland.
Group brands include B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş. 

For a round-up of this latest trading update made on 24 May, please click here.

ii view:

Founded in 1982, Kingfisher today provides home improvement products and services to both consumers and trade professionals. The UK and Ireland account for its biggest slug of sales at just under half. That’s followed by France at just over a third, Poland at around a tenth and other European countries the balance. A constituent of the FTSE 100 index, rivals include Wickes Group (LSE:WIX), Howden Joinery Group (LSE:HWDN) and Topps Tiles (LSE:TPT).   

Group strategic priorities include growing e-commerce sales, downsizing bigger stores and opening new compact ones, increasing its trade focused sales via growth for its Screwfix and Tradepoint outlets, and extending its range of generally higher profit margin Own Exclusive Brands (OEB). 

For investors, the unpredictable weather, and its impact on sales such as garden furniture cannot be ignored, while a backdrop of rising interest rates and a cost-of-living crisis persists. Elevated trading under the pandemic has made for subsequent tough comparatives, costs generally for businesses have risen, while investment in new Screwfix stores across the UK, Ireland and France offers its own initial headwind.

More favourably, a diversity of both brand names and geographical regions are enjoyed, while costs such as those for raw material prices and freight are expected to ease during the second half. A broad management improvement programme is also ongoing, e-commerce sales are growing, while new stores aimed at trade buyers are being opened. 

Caution remains sensible, and shareholders will want further evidence that the corporate strategy is working. However, an historic and estimated dividend yield of around 5% should be sufficient to at least keep income investors happy while they wait.

Positives: 

  • Diversity of geographical locations and brand names
  • Attractive dividend yield (not guaranteed)

Negatives:

  • Uncertain economic outlook
  • The weather can impact performance

The average rating of stock market analysts:

Hold

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