By Connor Campbell, Financial Analyst, Spreadex
Stock of the day: Kingfisher (LON:KGF) PLC
The B&Q and Screwfix-owner has looked as wonky as a homemade cabinet this year. A late January downgrade from BNP Paribas (PA:BNPP) helped fuel a slide that took the stock from an opening price of £3.52 to £3.22 towards the end of February. However investors got on board with the stock in the run up to its full year report, with Kingfisher surging back to £3.47 on the eve of its March 22nd results.
It’s an understatement to say investors were disappointed with what they got, sending the stock 6.6% lower in the space of 48 hours. Though total group like-for-like sales rose 2.3%, leading to a 14.7% surge in underlying pre-tax profit to £787 million, investors were concerned with the slowdown in France, where comparable sales dropped 2.7% compared to the UK and Ireland’s 5.9% increase. The company also struck a tentative note about its next financial year, highlighting the Brexit ‘uncertainty’ in the UK and its ‘cautious outlook’ for France.
The fallout from the full year update left Kingfisher trading below £3.20 for the first time in 9 months, only for the stock to undergo a rather remarkable recovery across April and May, rocketing to a 6 month high of £3.70 thanks to a ‘Buy’ rating from HSBC (LON:HSBA).
Yet, just as it did in March, Kingfisher undermined investors’ faith with its latest trading statement. Once again France was the issue – while UK and Ireland sales rose a Screwfix-boosted 3.5% in Q1, the French division (which is mainly comprised of Brico Depot and Castorama) saw a huge 5.5% fall in like-for-likes, forcing overall sales 0.6% lower to £2.86 billion. Not only that, CEO Veronique Laury stated there had been some ‘business disruption’ as the company enacts a restructuring plan intended to produce £500 million more profit a year from 2021 on.
In the week following that Q1 update Kingfisher shed nearly 12%, taking it back below £3.30. The wider retail sector concerns in the UK added to its decline, and eventually led to the stock hitting a 2 and a half year-plus low of just £2.92 in mid-July. Kingfisher PLC now sits at a current trading price of £3.05
As for next week’s Q2 report, Kingfisher really needs to show some signs of life in its French division, as well as proof that its prosperous UK arm hasn’t been hit by the wider slowdown threatened in June and July. Finally, any progress on the One Kingfisher restructuring plan will be more than welcomed by investors searching for the slightest bit of light at the end of the tunnel.
Kingfisher PLC has a consensus rating of ‘Hold’ with an average target price of £3.30.
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