Interactive Investor

Lockdown boosts Kingfisher, but it could come down with a bump

22nd March 2021 09:50

Richard Hunter from interactive investor

Return to normal life could mean less consumer spending on DIY.

Big tech stocks in the US may have grabbed the headlines as the pandemic winners, but they are not alone. For B&Q owner Kingfisher (LSE:KGF), the year has proved dramatic.

The DIY boom, which ranged from large home improvement projects to adjusting areas for working from home, could hardly have played more thoroughly into Kingfisher’s hands, according to its full-year results to 31 January.

Like-for-like sales for the year overall rose by 7.1%, including particularly strong growth at B&Q, where the number rose by 13%. The previous jewel in the crown, in the form of Screwfix, also ploughed ahead by 6.6%, while in France the Castorama unit added 6.2%.

To be able to fulfil these orders, and also as part of a transformational plan which needed to be accelerated due to the pandemic, online sales grew by 158% over the period and now account for 18% of group sales.

Within this number, click & collect sales grew by 226% and now account for 78% of online sales.

Alongside a significant decline in exceptional costs from the previous year which flattered the figures further, pre-tax profit jumped to £756 million from £103 million a year earlier.

Indeed, there were strength in the key metrics across the board, with notable improvements to earnings per share, profit margins, improved cash flow and a large reduction in net debt.

The favourable environment has led to an increased dividend payment, which implies a yield of around 3%. At the same time, the early signs for the new financial year are also encouraging, with like-for-like sales ahead by 24% so far.

Meanwhile, the company is testing new collection, delivery and store concepts to capitalise further on the current momentum.

Kingfisher has clearly made hay while the sun shines, but in some ways the hard work is only just beginning. The clear initial tailwinds from the pandemic are unlikely to be repeated, with the initial surge of demand now over.

From a structural perspective, it remains to be seen whether the likely return to the office will halt such strong growth, or whether the fact that home working will still remain to some extent provides future opportunities.

At the same time, as this year progresses, Kingfisher will find itself up against some extremely strong comparatives. The second and third quarters of the previous financial year in particular, where explosive growth was enabled during the height of restrictions, will be especially hard to replicate.

As with the business itself, the share price has seen significant benefit from the last year, rising by 135% as compared to a gain of 29% for the wider FTSE 100.

This resulted in the stock rejoining the premier index in June, having been relegated in March as the initial benefits of the pandemic became clear. With such breathless growth and a rather less visible outlook, however, there may be a feeling that the shares are currently up with events, as reflected by the market consensus of the shares as a ‘hold’.

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