Analyst Note| Matthew Donen, CFA |
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.