Coronavirus-Driven Home Improvement Trend Pushes Demand Forward for Kingfisher; Shares Undervalued

No-moat Kingfisher’s full-year results met our expectations in a year that can be classified as a tale of two halves. Lockdowns during the first half of the financial year in core geographies of the U.K. and France spurred home improvement activities, which subsided once economies opened up, ultimately resulting in full-year revenue and retail profit growth of 10% and 17%, respectively. To reflect the contrast quantitatively, first-half revenue grew above 20%, countered by single-digit second-half declines. Nevertheless, full-year revenue remains 18% above precoronavirus levels. The declining trend has continued into the current year, with revenue down 8% for the first six weeks of the year against strong comparatives. We expect that demand will continue to face pressure due to higher prices to combat Kingfisher’s input cost inflation as well as a shift in customer expenditure away from home improvements, which may lead to greater promotional pricing and a hit to margins. Management anticipates a drop in current-year profit by roughly 19% to GBP 769 million, which is in line with our expectations. We reiterate our GBX 353 fair value estimate and view shares as undervalued.