Company Reports

No-moat Kingfisher reported a 25% decline in profit before tax and has guided for a further 8% decline at the midpoint in fiscal 2025. The company has faced a perfect storm driven by weak demand for home improvement activity, due to higher interest rates, which has required promotional activity to drive sales, with persistent labor and energy inflation adding to its challenges. We anticipate Kingfisher can overcome its short-term headwinds through further space-optimization in France and improving sales trends in Poland, which will support operating leverage. We maintain our GBP 2.80 fair value estimate and view shares as marginally undervalued.

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns.

No-moat Kingfisher reported a 4% decline in organic sales during the third quarter, notably lower than company-compiled consensus of negative 2%. Its French businesses were the main cause for the weak performance, seeing the top line fall 9%, partly explained by an unfavorable product mix, which was not geared for the unusually warmer weather during the quarter. Full-year profit-before-tax guidance was lowered to GBP 560 million from GBP 590 million, having been downgraded from GBP 630 million during the previous quarter. Its second profit warning in as many quarters highlights the weak macroeconomic environment in Europe and that demand continues to normalize, having benefited significantly during the coronavirus pandemic and thus we don't anticipate a meaningful recovery in the short term. Investor confidence in the business has declined with shares trading 6% lower. We maintain our GBP 2.90 fair value estimate and view shares as undervalued at current levels.

Kingfisher reported a 23% decline in retail profit during the first half of its fiscal year, driven by cost inflation and an increase in promotional activities to drive sales in France and Poland. The group’s reliance on clearance activities to support sales highlights its no moat rating, which we maintain. Management cut its full-year profit-before-tax guidance to GBP 590 million, a 7% reduction from previous estimates. We lower our fair value estimate to GBX 290 from GBX 310 to incorporate the group’s weak profit outlook, but keep our top-line estimates unchanged. Shares appear undervalued.

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns. While the coronavirus pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below U.S peers, who enjoy greater scale and are thus able to operate at a more efficient cost base.

No-moat Kingfisher reported a 3.3% decline in like-for-like sales during the first quarter as poor weather in the U.K. and France resulted in less demand for its seasonal outdoor and garden products. Trading has sequentially improved in May (down 1.1%) compared with April, supported by an improvement in weather conditions and thus we reiterate our GBX 310 fair value estimate, which incorporates an estimated full-year sales decline of 1%. Management has kept its full-year profit-before-tax guidance unchanged, which implies a 16% drop against last year. Shares appear undervalued.

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns. While the coronavirus pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below U.S peers, who enjoy greater scale and are thus able to operate at a more efficient cost base.

After no-moat Kingfisher emerged as a beneficiary of the coronavirus pandemic, it has still managed to deliver solid full-year 2022 results against very tough comparatives and a challenging economic environment. Organic revenue fell 2.1% during the year; however, its 15.6% top-line growth since January 2019 paints a more accurate picture of the tailwinds the group experienced from the home improvement trend during lockdowns and a low-interest rate environment. These previous tailwinds have begun to unravel, leading to pretax profit declining 20% to GBP 758 million, marginally above our estimates, with management guiding for its fiscal 2024 profit before tax to fall even further to approximately GPB 633 million. While we plan to revise our forecasts for somewhat weaker-than-anticipated guidance, we don’t expect to make a material change to our GBX 330 fair value estimate. Shares appear slightly discounted.

No-moat Kingfisher’s third-quarter trading update provided no reason to alter our GBX 330 fair value estimate. Organic sales for the group were flat year over year, which is somewhat impressive in its own right given that sales are 15% higher than third-quarter 2019, indicating that coronavirus lockdown-induced demand has not fallen off a cliff. No profit figures were provided, but additional investments required, to expand the launch of Screwfix stores in France and wage inflation, led management to slightly lower the top end of its profit-before-tax guidance by GBP 10 million. Shares appear cheap, currently trading at 9.5 times depressed 2023 company-compiled earnings estimates.

No-moat Kingfisher’s first-half results were broadly in line with our expectations. Sales declined by 4.1% during the first half of the year against a tough comparative period, which remains 16.6% above prepandemic levels. Retail profit declined 27% to GBP 555 million, falling slightly short of company-compiled consensus of GBP 563 million. With the consumer becoming increasingly stretched, management lowered its profit before tax guidance to between GBP 730 million and GBP 770 million. We reduce our fair value estimate to GBX 330 from GBX 353, as we revise our average profit before tax margin to 5.7% from 6.1%, which better resembles more normalized profitability. We anticipate that the current buildup in inventory will require further promotional activity, as consumers cut back on discretionary spending and thereby reducing profitability. Shares remain undervalued.

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns. While the coronavirus pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below U.S peers, who enjoy greater scale and are thus able to operate at a more efficient cost base.

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns. While the coronavirus pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below U.S peers, who enjoy greater scale and are thus able to operate at a more efficient cost base.

No-moat Kingfisher reported a 6% decline in revenue during the first quarter against a strong comparable base period, where demand for home improvement was driven by coronavirus-related lockdowns. Sequential revenue improvement of 14.5% compared with the previous quarter highlights the company’s strong comparatives in the prior year. Full-year guidance has been reiterated and we maintain our GBX 353 fair value estimate. We view shares as undervalued, which are currently trading at a price/earnings ratio of 9 times on company-compiled consensus estimates. Management are taking advantage of the discounted share price to repurchase a further GBP 300 million shares, having already bought back GBP 145 million in the first quarter.

Kingfisher is a leading home improvement retailer operating under the retail banners of B&Q and Screwfix in the U.K and Brico Depot and Castorama in France, while also expanding in other European markets. Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success delivering excess economic returns. While the coronavirus pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below U.S peers, who enjoy greater scale and are thus able to operate at a more efficient cost base.

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.

Demand for no-moat Kingfisher’s do-it-yourself products has been more resilient than management’s expectations despite the second sequential quarter of declining revenue, which is against an exceptionally high comparator. Management expects annual profit to fall in the higher end of its GBP 910 million to GBP 950 million guidance provided last quarter. While this will likely be marginally above our GBP 919 million estimate, our longer-term view remains unchanged. We expect consumer spending to shift away from home improvement and store expansion to moderate. We reiterate our GBX 353 fair value estimate and would require a greater margin of safety before initiating a position.

Demand for no-moat Kingfisher’s do-it-yourself products has been more resilient than initially expected during the start of second-half 2021, resulting in management raising full guidance. Second-half sales are expected to fall between 3% and 7% from the initial guidance of a decline between 5% and 15%. We slightly adjust our short-term forecasts but maintain our GBX 353 fair value estimate, which is in line with the current share price.

We slightly raise our fair value estimate for no-moat Kingfisher to GBX 353 (ADR: $9.70) per share from GBX 334 (ADR: $9.40) after incorporating a better-than-expected second-quarter trading update, which saw the company raise sales and profit guidance for the first half of the fiscal year. Following a strong first quarter, second-quarter sales have slowed at a lower-than-expected rate against a tough comparative, which sees us lift our full-year revenue forecast despite continuing to expect a slowdown in the second half of the year. We view shares as fairly valued.

Kingfisher has attempted multiple strategies to optimize its product offering and leverage its leading position in the French and British home improvement market with little success. Fiscal 2020-21 marked the first year since fiscal 2017 that Kingfisher reported an increase in like-for-like sales. While the pandemic has provided unexpected tailwinds for Kingfisher, such as increases in do-it-yourself activity and online penetration rates, operating margins remain below international peers. We believe 2020 helped pull forward future demand, which we expect to normalize in future, with Kingfisher's return on invested capital continuing to struggle to meet its cost of capital.

We raise our fair value estimate for no-moat Kingfisher to GBX 334 per share from GBX 319 after incorporating a strong first quarter, which saw spending momentum in the home improvement sector persist. First-quarter sales grew 64% year over year, which translates into an impressive 23% increase on a two-year basis, and thus eliminates the impact of weak comparables due to store closures last year. Management raised profit guidance for the full year, despite remaining cautious on trading performance in the second half of the year. Shares remain fairly valued.