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Corporate contact: what happened? We have spoken to Kingfisher, which is due to report Q3 sales pre-market on 25 November. There has been no change to full-year guidance. In line with our expectations post the H1 results (see Strong H1 but we are cautious on H2), we expect FY Jan-26 adjusted PBT consensus to rise to a level slightly above full year guidance for the top end of the range of GBP 480m to 540m, since investors believe that this guidance is potentially conservative. Key takeaways from the call . UK: UK Barclaycard DIY spending data for August and September was sequentially more negative. While the UK consumer was resilient in H1, the company reflagged that it is cautious on the second half given labour-market softness, higher food inflation and UK Budget uncertainty. It reiterated the expectation for a middle of the range - flat to low single digit growth - outcome for the UK. . France: Banque de France DIY sales data for August was weak with a slight improvement in September, albeit still negative. The company remains cautious about the French consumer in H2 and expects a middle to lower end of the range - low-mid single digit decline to flat - outcome for France. . Poland: Statistics Poland retail sales data for the ''other'' category, which captures DIY sales, has shown early signs of improvement, particularly for September where growth turned positive for the first month of 2025. The company is slightly more optimistic about the Polish consumer in H2 and expects a middle of the range - low single digit decline to low single digit growth - outcome for Poland. . Gross margin: Of the 100bps gross margin rise in H1, around 60bps came from buying/sourcing efficiencies, 10bps from Marketplace and the remainder from strong seasonal and big-ticket sales. The company reiterated its expectation for buying/sourcing efficiencies to continue into the second half of the year. We model a c.40bps benefit in H2. . Adj PBT guidance: At the H1...
Kingfisher Plc
This week we hosted investor meetings in Paris and Milan with Kingfisher''s CEO Thierry Garnier and IR Shaun Curtis. Some key topics of discussion are summarised below. Recap of H1 The robust H1 performance was driven entirely by volume, with pricing essentially flat on a year-on-year basis. Kingfisher leveraged greater pricing transparency and its scale to secure better terms from suppliers. The first half of the year was also helped by favourable FX movements, growth in the marketplace business, tighter inventory management and a more profitable banner mix (BandQ delivering higher margins). Management believes that a sizable portion of these H1 advantages will carry over into H2. Outlook for H2 FY Jan-26 adjusted PBT is forecast at the top of the GBP 480-540m range, implying a potential -11 % dip in adjusted PBT for H2. Seasonal dynamics normally weight profit toward H1 - H2 seasonal sales represent roughly 10 % of sales (versus 14% in H1). The second half will also absorb six months of higher UK National Insurance contributions and minimum-wage increases (vs. three months in H1), a step-up in marketing spend around flagship events such as Black Friday, and additional technology spend for marketplace expansion, personalisation and the roll-out of markdown software across all banners. France turnaround Management reaffirmed its medium-term goal of achieving a c.5-7 % retail-profit margin in France, noting that a modest improvement in the consumer environment will be required to hit the target. The French DIY market remains -20 % below pre-Covid volumes despite improving macro signals - higher savings rates, stronger housing-transaction activity, increased mortgage approvals and lower interest rates. Kingfisher outperformed the market in H1 and is gaining share. While the timing of a full market recovery remains uncertain, management is confident it will materialise over the medium term. France franchise opportunities To recapture customers...
Kingfisher’s better than expected H126 results reflect the success of its trade and e-commerce growth initiatives along with increased big-ticket spending in Q2. Although management has raised FY26E Adj. PBT and free cashflow guidance, there is a degree of macro-economic caution embedded into implied H226 profits. We raise Adj. EPS by 6% for FY26E and 2% for FY27E and see scope for further upgrades if sales trends continue to improve. We raise our FV from 355p to 365p, equivalent to 14x cal 2026 PER and a c.3.5% dividend yield. Although Kingfisher’s share price has regained some of its recent weakness it still trades on c.11x cal 2026 PER which we think undervalues the group’s growth potential and cash-generative appeal.
Strong H1, but caution on H2 Kingfisher reported a strong H1, beating consensus expectations, particularly on gross margin and adj. PBT. Management expects FY Jan-26 adj. PBT at the top end of its guidance of GBP480-540m, implying an -11% decline in H2 profits. Investors believe that this guidance is conservative, but management notes that Kingfisher profits are typically H1 weighted and that it expects elevated costs from marketing and technology spend in H2. Banking the H1 beat, we model FY Jan-26 adj. PBT of GBP540m (from GBP500m). Remain Underperform and raise TP to GBp240 (from GBp235). H1 results: gross margin driven beat Kingfisher reported a 13% adj. PBT beat in H1, supported by better LFL sales growth and a +100bps increase in gross margin. UK LFL sales were above expectations while France and Poland LFLs saw a sequential improvement from Q1 to Q2. The strategic initiatives, Trade and Marketplace, both reported double-digit growth. Buying and sourcing efficiencies contributed +60bps to gross margin. FY Jan-26: cautious on the second half Kingfisher now sees FY Jan-26 adj. PBT at the top of its GBP480-540m range, implying an -11% YoY drop in H2 profit. Profits usually lean toward the first half of the year, and costs for UK National Insurance Contributions, marketing and technology are also second half weighted. We model FY Jan-26 adj. PBT of GBP540m (from GBP500m) but anticipate consensus to rise higher, since investors believe that this guidance is potentially conservative. Management remains cautious about the UK and French consumers but is slightly more optimistic on Poland. Remain Underperform, target price rises to GBp240 and USD6.5 We raise our FY Jan-26 profit estimates by c.10% to reflect the H1 profit beat. Our outer year profit estimates also rise but by a smaller amount. Our DCF-based TP rises to GBp240 (from GBp235) and we remain Underperform. At our TP, Kingfisher trades on a CY25 P/E 10.7x and CY26 10x.
H1 results call summary Alongside H1 results, management presented an update on the progress it has made on its strategic initiatives. The CEO reiterated that Kingfisher is in the ''best operational shape in years'' but acknowledged that there is more work to be done. The focus of the QandA centred on the building blocks of the gross margin improvement and the second half profit dynamics since FY Jan-26 adj. PBT guidance implies an H2 profit decline. Where do the shares go from here? Kingfisher''s shares are +16% as we write (GBp 292), which reflects positioning, the strong H1 performance, particularly the +100bps gross margin expansion, and management''s confidence in its strategy. However, FY Jan-26 adj. PBT guidance at the upper end of the range, implies that H2 profits could decline -11%. While this reflects seasonality and timing of costs, we are mindful of the caution around the consumer in the UK and France, as well as higher marketing and technology spend in H2. We maintain our Underperform rating. Next news Kingfisher is scheduled to report Q3 sales on 25 November. Results recap H1 results first take: upper end of the range Key takeaways from the call . Consumer outlook: Management saw a resilient UK consumer in H1 with double-digit growth in the big-ticket order book, but flagged labour-market softness, high food inflation and UK Budget uncertainty. It expects a middle of the range - flat to low single digit growth - outcome for the UK. French demand remains subdued - despite low interest rates, the savings ratio is elevated. It is relatively cautious about the French consumer in H2 and expects a middle to lower end of the range - low-mid single digit decline to flat - outcome for France. Polish demand was slightly worse than expected in H1, but shows early signs of a slow recovery. It also expects a middle of the range - low single digit decline to low single digit growth - outcome for Poland. . Gross margin dynamics: H1...
Headline Results Beat Expectations Kingfisher has reported H126 results (Jan year-end) reporting Adjusted PBT of £368m, versus our forecast of £317m and consensus of £327m. Group lfl sales in Q2 came in at +0.9% versus our forecast of -1.9% and consensus of -0.4% (Q1 was +1.8%). Geographically management noted strong UK performance across both B&Q and Screwfix with LFL +4.4% and 3.0% respectively with improving sequential trends in France and Poland. Looking forward, management expect markets for the year remain consistent with its expectations back in March, whilst they are mindful of mixed consumer sentiment and political uncertainty. Ultimately the Group are upgrading guidance for FY Adjusted PBT to the "upper end" of prior guided range (£480-£540m), versus consensus currently of £519m and our forecast of £502m. Expectations for free cash flow increase from c.£480m to £520m (previously £420m to £480m). The Group also note the ongoing £300m share buyback programme is to be accelerated, completing by March 2026. Divisional Performance Solid sales performance supported market share gains in the UK, France and Spain, whilst Poland performed broadly in line with the market. In terms of the divisional detail: i) LFL sales in the UK and Ireland came in at +3.9% driven by a strong performance from B&Q (+4.4%) and another positive performance in Screwfix (+3.0%). Within B&Q, TradePoint continues the perform well with lfl sales up 6.9%; ii) France was more challenging with lfl sales down -2.1% with both Castorama (-1.4%) and Brico Depot (-2.9%) under pressure from subdued consumer sentiment ; iii) Lfl sales in Poland came in at -2.1% with the Group noting that it saw signs of recovery with falling inflation, real wage growth, interest rate cuts and improvement in consumer confidence. We expect to increase our FY26 adjusted PBT forecast to £510m from £502m. Upgraded Guidance and Positive Outlook Overall, this is a strong performance from Kingfisher. Although the environment remains challenging, strong UK sales and improving trends in Europe are encouraging. The Group have managed gross margins well, increasing by 100bps during the period. We expect to increase our FY25 PBT forecast from £502m to c.£510m, primarily reflecting the better than expected H1 profitability performance driven by volume growth and gross margin improvement.
1H PBT 12% ahead of consensus expectations For the 26 weeks to the end of July, Kingfisher has reported a 10.2% increase in 1H PBT to £368m (Vuma consensus £327m; INVe £329m) with EPS up 16.5%, benefiting from the share buyback programme. Retail profit margin growth of 40bps to 6.6% was driven by gross margin and operating cost initiatives. Market share gains were seen in all key markets, with Poland market share flat. There was a strong UK performance (the weather helped) across both B&Q and Screwfix, with LFL +4.4% and +3.0% respectively, with improving sequential trends in France and Poland. Strategic initiatives drove strong sales growth in trade (+11.9%) and e-commerce (+11.1%). In term of key markets, 1H UK sales were up 4.5% (1Q +6.2%) with Trading EBIT up 5.7% to £344m (cons. £325m). France sales were down 2.4% (1Q total -4.9%/CC -3.2%) with Trading EBIT up 4.6% to £72m (cons. £63m), a 3.5% margin. Management has reiterated its confidence in delivering a medium term 5%-7% Retail margin, though achievability is subject to improved French market conditions. Poland sales were up 1.4% with LFL down 2.1% (1Q total -0.4%/CC -1.1% & LFL -3.2%) with Trading EBIT up 1.4% to £51m (cons £45m). FY26 guidance increased to top end of previous guidance range. Management are upgrading full year guidance to the ‘upper end’ of FY25/26 adjusted PBT of c.£480m to £540m, and free cash flow of c.£480m to £520m (previously £420m to £480m). This includes a £10m benefit from the sale of Romania and elimination of losses. Market consensus FY26 PBT expectation is £519m (INVe £530.6m). The upgrade to FY guidance is tempered by 2H weighted tech & marketing costs and concerns over the deteriorating UK economic outlook and increased political tensions in France. The company is accelerating share buy back programme and expects to complete £300m by end March 2026. Shares should react positively this morning, but need a better economic outlook to close the value gap Kingfisher’s share price is -10%/-8%/+1.4% on a 1m/3m/YTD basis, reflecting fading hopes of a 2H recovery and ongoing weak consumer sentiment in all key markets. Valuation is undemanding (CY26E PE 9.9x) on depressed earnings with a 5.1% DPS yield and ongoing share buyback. As discussed in our note Recovered Earnings Potential (published 22/10/24), we believe the market is materially underestimating where Kingfisher’s margins could recover to over the medium term, with our scenario analysis suggesting a recovered EPS range of 38p to 43p (FY25 EPS of 20.4p). However, a better economic outlook shorter term is needed to close the value gap.
H1 results: what happened? Kingfisher reports H1 Adj. PBT of GBP 368m ahead of consensus of GBP 327m. Q2 like-for-like sales growth of +1.4% is also ahead of consensus (-0.4%). Given the strong H1 performance, the company now expects FY Jan-26 adj. PBT to reach the upper end of its guidance of GBP 480-540m (consensus GBP 519m). BNPP Exane View: strong profit growth Key for us is that gross margins expanded +100bps YoY as a result of buying synergies, cost deflation and double-digit growth in marketplace. What''s encouraging is that its strategic growth initiatives (Trade and Ecommerce) grew double-digits and Kingfisher grew ahead of the market in both the UK and France. It has not commented on trading at the start of Q3, but it comments ''Our expectations for our markets for the year remain consistent with what we outlined in March''. Likely direction of consensus Kingfisher now targets the upper end of its FY Jan-26 Adj. PBT guidance of GBP 480-540m. This implies company compiled consensus of GBP 519m to rise by c.3% to the upper end of the range. Anticipated market reaction Kingfisher shares are +1% year to date, compared with FTSE350 Retail Sector +4% and the FTSE100 +13%. Bulls will point to the strong H1 profit growth and FY Jan-26 adj. PBT towards the upper end of the range; bears will point to broadly flat profits in Poland and less profit expansion implied for H2. Shares have been weak since Q1 results, so we would expect shares to react strongly. Conference call There is a pre-recorded webcast presentation at 09.00 UK, followed by a live virtual QandA. The live webcast is here. Valuation Kingfisher trades on CY25 P/E of c.12x and CY26 P/E of c.11x (at GBp 252, on our forecasts). We rate Kingfisher Underperform. Main points from H1 results . H1 profits: adjusted PBT of GBP 368m was ahead of consensus expectations of GBP 327m. This was primarily driven by +100bps expansion in gross margin YoY from buying synergies, some cost...
Solid UK performance expected to be offset by weak French and Polish results We forecast a 1.6% decline in 1H PBT to £329m (Vuma consensus £327m) with EPS up 1% to 12.8p, benefiting from the Group’s ongoing share buy-back programme. The results are expected to reflect a good UK performance, helped by favourable weather and strong seasonal product demand, which has been offset by more challenging French and Polish markets. By key markets, consensus Retail profit expectations are for UK profits of £325m (1H25 £325m), France £63m (1H25 £69m) and Poland £45m (1H25 £50m). Focus will be on: (1) robustness of UK Q2 performance given the long-awaited recovery in the UK market is now unlikely before next year. Management signaled it was planning for slower Q2 sales growth (Q1 +6.2% with LFL +5.9%) as it believed season sales had been pulled forward into Q1. Both Screwfix and B&Q have taken market share, with B&Q’s growth also benefiting from the addition of 8 converted Homebase stores in 1H and ongoing investment in Tradepoint and marketplace. (2) Update on the French restructuring and modernisation plans, as to whether there are signs that French profitability has finally bottomed; (3) Poland, to understand how temporary the impact of geopolitical factors on consumer demand will be. Upgrade to guidance seems unlikely at this point, with ongoing subdued consumer sentiment in all its markets Post its Q1 update in May, management reiterated its FY26 PBT guidance range of £480m - £540m (FY25 PBT £528m) at constant currency, which includes the elimination of a £10m loss from selling Romania. Market consensus FY26 PBT expectation is £519m (INVe £530.6m). A better economic outlook is needed to close the material medium-term valuation gap Kingfisher’s share price is down 8%/9%/flat on a 1month/3 month/YTD basis, reflecting the fading hopes of a 2H recovery and ongoing weak consumer sentiment in all key markets. The valuation (CY26E PE 9.9x), on depressed earnings, is undemanding and does not reflect the strength of its cash generation nor the fact the Group is well positioned to benefit from operational leverage when discretionary spending does recover, given market share gains and/or efficiencies in recent years (see our note Recovered Earnings Potential - published 22/10/24). A 5.1% DPS yield and share buyback offers share price support but, to close the valuation gap, we believe an improvement in the economic outlook is needed.
Weak DIY sales data, lower Q2 LFL expectations At its Q1 sales in May, Kingfisher cautioned against a potential demand pull-forward as well as weakness in Poland. The May and June DIY sales data releases for the UK, France and Poland show weakening sales trends. Consequently, we lower our Q2 like-for-like estimates in UKandI to +1.2% (from +2.0%) and Poland -1.5% (from 0%). With one month still to trade, we see some downside risk to UK and Poland growth in particular. We reiterate our Underperform rating. Q2 / H1 results due on 23 September Company compiled-consensus models Q2 like-for-like sales growth for the group at +0.1% year-on-year, with the UK at +1.7%, France at -2.6%, and Poland at -0.8%. July''s DIY sales data releases will be closely monitored: UK Barclaycard on 12 August, Banque de France on 22 August and Statistics Poland on 25 August. We see downside risk to FY Jan-26 adj. PBT Kingfisher guides to FY Jan-26 adj. PBT of GBP 480-540m versus company-compiled consensus of GBP 522m and BNPP Exane of GBP 500m (unchanged). As we discussed in France wasn''t built in a day, the UK is a well-established business, but in our view, does not justify a premium valuation. France offers a recovery potential, but it has a poor profit margin track record. Hence, we continue to see downside risk to FY Jan-26 adj. PBT. Reiterate Underperform and target price of GBp 235 and USD 6.3 We lower our UK and Poland Q2 like-for-like sales growth estimates to reflect the weak DIY sales trends for May and June. We mark-to-market currencies, which offsets our lowered like-for-like estimates. On our unchanged DCF-based target price of GBp 235, Kingfisher trades on a CY25 P/E of 11.5x and CY26 of 10.2x. We reiterate our Underperform rating.
France and Poland retail sales: what happened? Banque de France and Statistics Poland published June retail sales this morning. June represents the second month of Kingfisher''s Q2 (May-July). French industry DIY sales declined -2.6% year-on-year (comparable stores, non-seasonally adjusted), after rising +2.2% in May. Poland ''other'' sales category, which captures home improvement spending, also declined -4.0% year-on-year (at constant prices) following -10.8% in May. Last week UK Barclaycard data for the period 24 May - 27 June reported a Home Improvement category sales decline of -4.0% year-on-year which follows -0.9% in May. BNPP Exane View: negative DIY sales across core markets In Kingfisher''s Q1 sales update on 28 May, management attributed its strong like-for-like sales growth to seasonal demand, especially at BandQ, and cautioned against a potential demand pull-forward from Q2. Recent retail sales data in the UK, France, and Poland for Kingfisher''s Q2 (May-July) indicate a continued slowdown. As discussed in France wasn''t built in a day, Kingfisher UKandI often sees muted growth after a strong quarter, and Kingfisher France typically underperforms the French DIY industry. The latest company compiled-consensus models Q2 like-for-like sales growth for the group at +0.1% year-on-year, with the UK at +1.7%, France at -2.6%, and Poland at -0.8%. With one month still to trade, we see some downside risk to UK and Poland growth in particular. Valuation Kingfisher trades on CY25 P/E of 13.6x and CY26 P/E of 12.1x (at GBp 278, on our forecasts). We rate Kingfisher Underperform. Next news Kingfisher is scheduled to report H1 results on 23 September. See Figure 2 for latest company-compiled consensus H1 expectations. Recent research KINGFISHER, KINGFISHER ADR: France wasn''t built in a day Figure 1: Retail sales data / Figure 2: Kingfisher H1 expectations /
Kingfisher’s strong Q126 sales growth of 1.6% (+3.1% ex calendar and FX, 2.7% LFL), beat consensus estimates by c.1.5% as B&Q led with nearly 8% LFL sales growth. The warm and sunny weather over the late Easter holiday drove seasonal sales (e.g. outdoor and gardening) and encouraged “big-ticket” projects. Some of this spend is likely to have pulled-forward demand from 2Q26 hence there is no change to management’s FY26E guidance of £480m-£540m Adj. PBT at this stage. However, with market share gains and further strategic progress in trade and e-commerce we see significant profit growth potential for Kingfisher. We raise our FV from 340p to 355p, equivalent to 14x cal 2026 PER and a 3.5% dividend yield.
While we like the Screwfix France, Trade and Marketplace strategy, we think these could take time to meaningfully drive profitable growth. Furthermore, repairs in France are showing limited improvements and we still see cracks in the foundation. Downgrade to Underperform, GBp 235 TP. Why does France matter? France offers a potential profit recovery, the UK is well-established but, in our view, does not justify a premium valuation. Other growth levers may take time to drive material growth outside of the UK. Why has France not worked? Kingfisher France has a weak track record, having lost market share in a weak French DIY market. What is being done in France? Improvements, such as product range corrections, simplifying the organisation, and restructuring the store estate, have not yet led to sustained positive LFL sales growth or enhanced profitability. Why is it not enough? For Kingfisher France to achieve management''s medium-term profit margin target of c.5-7%, it needs to achieve some operational leverage, a 3% sales CAGR (consensus -0.1%), and a c.+150bps increase in gross margins, unless it can cut costs materially. We don''t think this is achievable and model a 2.7% margin. Our analysis suggests that increasing Trade and Online sales penetration could be material profit drivers. However, due to low brand awareness, and steady penetration growth, we believe meaningful profitable growth may take time. c.14x one-year fwd P/E not justified, downgrade to Underperform with TP of GBp 235 Kingfisher shares have rallied +19% YTD and trade above historic average P/E. Our FY26-28 Adj PTP are -2% to -4% below pre-Q1 trading update company consensus. Our DCF-based TP lowers to GBp 235 (from GBp 260). At our TP, it would trade on CY25 and CY26 P/E of 11.5x and c.10x.
Mixed update - UK standout performance, with France and Polish markets still weak Total 1Q26 Group sales were up 1.6% (+2.2% CC) with LFL sales up 1.8%. This includes a -0.9% calendar impact (reversal of a Leap year), so underlying total sales grew 3.1%. Growth was driven by volume and transactions. Retail price inflation was flat. Continued market share gains in the UK & Ireland, France and Poland. UK & Ireland were the standout performance, with France still weak and Poland impacted by ongoing geopolitical volatility. Castorama turnaround action plan on track. By main divisions, UK total sales were up 6.1% (consensus 0.8%; Q4 +1.3%) with B&Q LFLs up 7.9% (cons. 0.9%; Q4 +1.3%) and Screwfix LFLs +2.9% (cons. -0.9%; Q4 -0.1%) respectively. In France, total sales were down 4.9% or -3.2% at CC (cons. -3.9%; Q4 9.4% or -5.9% CC) with Castorama LFLs down 3% (cons. -4.2%; Q4 -6%) and Brico Depot LFL down 3.3% (cons. -5.4%; Q4 -5.4%) respectively. Poland total sales were down 0.4% (-1.1% CC) with LFL sales -3.2% (cons. 0.3%; Q4 +0.6%). Reiterating FY26 guidance On the outlook, management have reiterated guidance for an FY26 PBT range of £480m - £540m (FY25 PBT £528m) at constant currency which includes the elimination of a £10m loss from selling Romania. Company-compiled consensus FY26 PBT is £512m (INVe £531m). Long term value, but still need stronger performance in France/Poland for the shares to push on short term As discussed in our note Recovered Earnings Potential (published 22/10/24), we believe the market is materially underestimating where Kingfisher’s margins could recover to, with our scenario analysis suggesting a recovered EPS range of 38p to 43p (FY25 EPS of 20.4p). Our TP is based on the present value of recovered earnings on a 12x multiple. However, given the recent short term rally in the shares, we believe a better performance was needed from France and Poland for the shares to push on today.
Kingfisher is primed, ready for a recovery in “big-ticket” spending. However, management’s understandably cautious guidance range for FY26E Adj. PBT has led the stock to give up its YTD gains. We believe this enhances Kingfisher’s value attractions. Kingfisher’s FY25 results illustrated that management’s strategy to grow trade penetration and e-commerce sales is driving market share gains in the UK & Ireland, France and Poland. Over the next three years we forecast c.36% growth in Adj. PBT and our upside scenario suggests c.90% potential growth. Whilst investors wait for this, we forecast a 10.5% FCF yield and substantial cash returns. Hence, trading on under 9 x cal 2026 PER, we see scope for a significant re-rating. We reiterate our 340p Fair Value, equal to c.12.5x cal 2026 PER and c.3.5% dividend yield.
Strategy on track but disappointing guidance Kingfisher broadly met FY Jan-25 expectations with a strong cashflow performance and is making progress in strategic areas such as trade, online marketplace and reshaping the France store estate. However, cautious profit guidance disappointed the market, and suggests that current conditions remain volatile. We lower our EPS forecasts for FY Jan-26 by c.5% and maintain our Neutral rating. Getting into operational shape Management noted market share gains across all markets and stated that Kingfisher is in its best operational shape for some years. The company is delivering structural cost savings and advancing its strategy: notably, marketplace has grown to over 40% of BandQ online sales, and trade is c.18% of group sales, excluding Screwfix. Screwfix France has expanded to 30 stores. However, more is needed, as France''s 2.4% retail profit margins are well below the medium-term guidance of 5-7%. Outlook FY Jan-26 Management was bullish about Kingfisher''s medium-term prospects and confident in driving gross margins (through retail media, marketplace, and lower raw material costs) and reducing costs (in areas such as self-checkouts and warehousing) in the year ahead. However, it cautioned about near-term market uncertainty, particularly in France and Poland, and wants more evidence before accelerating the roll-out of Screwfix France. We estimate that marketplace was broadly breakeven last year due to marketing investments. As a result, management guided FY Jan-26 adj. PBT to be GBP 480-540m, which at the mid-point is 6% below Bloomberg consensus of GBP 542m. Maintain Neutral rating, target price lowered to GBp 260 from 275 Kingfisher shares fell sharply, following a strong year-to-date performance. We lower our EPS forecasts for FY Jan-26 by c.5% and lower our DCF-derived target price to GBp 260. We maintain our Neutral rating.
Expecting to “fully offset” cost inflation in FY 25/26 through gross margin and operating cost mitigations Kingfisher has published FY24/25 results (Jan year-end) reporting PBT of £528m, slightly ahead of our forecast of £512m but broadly in line with consensus of £523m. Looking forward, the Group has given colour on how it expects each of its key geographics to perform in FY25/26. The Group expects the home improvement market in: i) The UK & Ireland to be Flat to LSD positive; ii) France to be LSD decline to Flat; and iii) Poland to be LSD decline to LSD positive. The Group does expect/hope to outperform that with market share gains. Indeed, management noted that for the first time in over six years it has gained “market share in all key regions”. Looking further down the P&L for FY25/26, the Group expects to “fully offset” c.£145m (operating cost inflation of c.£90m; UK employer national insurance contributions and similar taxes in France of c.£45m; impact of the new packaging fees regulations in the UK of c.£10m) of additional operating costs in FY 25/26 through gross margin and operating cost mitigations. With that in mind and taking account of a couple of one-offs (£33m benefit in prior year from business rates refunds that won’t repeat; £10m benefit this year from the sale of its Romanian business), the Group expects to deliver Adjusted PBT in FY25/26 of £480m-£540m. At the mid-point, this implies consensus downgrades of c.6%. At first glance we expect to move our forecast of £547m to £490-500m, implying a 10% downgrade. The Group does expect continued strong FCF generation in FY25/26, guiding for an outturn of £420-480m whilst it also remains confident that it can deliver FCF of £500m+ from FY26/27 onwards. Such is the confidence in the FCF generation that the Group has also today announced a new £300m SBB. FY24/25 PBT broadly in line with cons / prior guidance Regarding FY24/25 numbers themselves, the main points of note are: (i) Underlying revenue of £12.78bn represents a yoy decline of 1.5%, and a decline of 0.8% on a constant currency basis; (ii) Lfl Group sales fell 1.7% with Lfl sales in UK and Ireland at 0.2%, maintained by strong performance in B&Qs trade category and e-commerce sales. Turning to Europe, Poland lfl sales also came in flat, France experienced the largest lfl sales decline of -6.2%, and Iberia was the strongest performer growing +6.1%; (iii) Retail prices remained flat yoy but declines in big ticket sales had a negative mix impact on average selling prices. Volumes were down in the year but have been improving in the Group’s core categories; (iv) The Group delivered a robust gross profit of £4.76bn, improving gross margin by 50bps up to 37.3%; (v) Adjusted PBT of £528m was in line with management guidance for an outturn of £510-540m. Conference call at 9am Management will host an in-person results presentation for analysts / investors today at 09.00 (UK time). The webcast will also be available via the Investors section of its website.
FY25 results in-line with consensus expectations For 12 months to end January, Kingfisher reported a 6.6% decline in adjusted PBT to £528m (Vuma cons. £523m) on total Group sales down -1.5% (1H -1.8%). At its Q3 update at the end of November (before the announced disposal of loss-making Romania), management tightened the FY25 PBT guidance range to adjusted PBT of £510m-£540m (prev £510m-£550m). A flat YoY FY DPS of 12.4p (cons 12.4p) has been declared. The Group completed £300m buy-back a week ago. FY UK sales were up 1.2% (3Q +1.2%; 1H 0.9%) with Trading EBIT up 0.6% to £558m (cons. £565m). FY France sales were down -6.1% (3Q -6.4%; 1H -9.2%) with Trading EBIT down 31.6% (-29.8%CC) to £95m (cons. £88m). It is still early days, post restructuring, in simplifying & driving productivity and testing new formats, with management targeting a 5-7% recovered EBIT margin (FY24 3.3%). Poland sales were up 3.2% (3Q +6.6%; 1H 6.9%) with LFL down -0.1% (3Q -0.4%; 1H -0.2%), helped by an improving consumer backdrop, with Trading EBIT up 10.5% to £90m (cons. £93m). Guidance for FY26 slightly weaker than market expectations. New £300m share buy-back announced as cash robust Management is guiding to FY25/26 adjusted PBT of £480m to £540m (Vuma consensus £546m incl. c.£10m Romania loss) and free cash flow of £420m to £480m (prev c.£450m). It remains confident about the medium to longer-term outlook for the sector, though short term no sign of an inflection in France with management conscious of geopolitical noise in Poland. The UK market is expected to be solid. Targeting free cash flow of >£500m per annum from FY26/27 as previously guided. Forecast under review. Looks like bottom of profit cycle will be FY26 rather than FY5 Kingfisher is well-positioned for when the consumer recovery comes through. As discussed in our note Recovered Earnings Potential, (published 22/10/24), we believe the market is materially underestimating where Kingfisher’s margins could recover to, with our scenario analysis suggesting a recovered EPS range of 38p to 43p versus FY25E EPS of 21.3p. However, France looks like it will remain a drag, with FY26 likely to be the bottom of the current cycle profit rather than FY25. The share price is up 13%/12% over the last month/YTD so we expect some profit taking this morning. The shares are trading on a CY26E PE of 9.7x on cyclically depressed profits.
Focus will be on efficiency savings and cashflow We forecast a 6% decline in FY25E PBT to £531m (Vuma consensus £523m) and within this forecast, we have a £12m loss pencilled in for Romania. At its Q3 update at the end of November (before the announced disposal of loss-making Romania), management tightened the FY25 PBT guidance range to adjusted PBT of £510m-£540m (prev £510m-£550m). Management reiterated its £120m structural cost guidance for FY25 and left unchanged its £410m-£450m FY25 free cash flow guidance. Q3 trading was quite resilient (Group LFL -1.1% with UK & Ireland +0.4%, France -4.3% & Poland -0.4%), though October was impacted by increased consumer uncertainty in both the UK and France. For the 1st 3 weeks of Q4, Group LFL sales fell 0.5%, an improvement on Q3 exit rate. Focus will be on 1) the potential for further cost cutting in FY26 given the £45m headwind (split France £14m + UK £31m) from higher labour costs announced by both governments last October; 2) Any tangible signs that French profitability has stabilised as well as any signs the UK & Polish markets are turning; 3) Another buyback announcement as Kingfisher continues to generate surplus cash, despite depressed earnings, and has just finished its previous £300m programme. 4) Progress with developing its marketplace and trade offer across its markets, and 5) an update on Screwfix European expansion. Earnings inflection point coming, with market under-estimating operational leverage on the upside Kingfisher is well-position when the consumer recovery comes through. FY25 could mark the bottom of the downgrade cycle, though the short-term unknown remains whether current geopolitical uncertainty pushes interest rate cuts and a consumer discretionary recovery further out. As discussed in our note Recovered Earnings Potential, (published 22/10/24), we believe the market materially underestimates where Kingfisher’s margins could recover to, with our scenario analysis suggesting a recovered EPS range of 38p to 43p versus FY25E EPS of 21.3p. This is not reflected in current valuation (CY26E PE 9.5x; DPS yield 4.7%) nor market consensus (consensus FY27 EPS 25.7p: Source Vuma).
Kingfisher is an industry-leading home improvement retailer that is primed, ready for a recovery in “big-ticket” spending. We review management’s strategy to grow sales and profit margins in the medium term. We believe that Kingfisher’s resilience in the UK is due to the successful execution of its expansion strategy into trade, online and smaller stores (among other things). By serving more customers, in more convenient ways, Kingfisher has grown UK market share and we anticipate the roll out of these initiatives will drive market share gains in France and Poland too. Over the next three years we forecast c.40% growth in Adj. PBT and our upside scenario analysis suggests 90% potential growth. Whilst investors wait for this, we forecast a 10%+ FCF yield and substantial cash returns. Hence, trading on only c.10x cal 2026 PER, we see scope for a significant re-rating from this point in the economic cycle. We initiate coverage with a 340p Fair Value based on 12.5x cal 2026 PER and c.3.5% dividend yield.
Disposal of Romania Kingfisher has announced the disposal of Brico Dépôt Romania to Altex Romania for an EV of €70m (c. £58m). The sales is expected to be completed in 1H 26 subject to regulatory approval. In FY24, Brico Dépôt Romania made sales of £269m (2.1% of Group sales) and contributed a retail loss of £(18)m/free cash outflow of £(17)m. Leaves a more focused Group This deal is not a surprise. Kingfisher has never made a profit in Romania, having entered the market in 2013 when it acquired Bricostores Romania and it also acquired Praktiker Romania in 2017. This disposal will leave the Group focused on the UK, France, Poland and Spain. Undervalued cashflow and well positioned for consumer recovery when it comes Kingfisher is well-position when the consumer recovery starts. The macro backdrop was starting to improve post interest rate cuts, but short-term concerns are now likely to weigh on the share price until there is a clearer view on how the Budget has impacted GDP growth, the interest rate cycle, and consumer confidence/spending. Kingfisher is expected to continue to generate surplus cash and we still believe the market materially underestimates how far Kingfisher’s margins could recover (see our note, Recovered Earnings Potential, published 22/10/24)
October storm: politics and weather Kingfisher''s Q3 like for like sales growth of -1.1% reflected a slowdown during October, despite easier comparatives. Consumer caution and milder weather were particular challenges. We trim FY Jan-25 estimates by c.1% but make a more significant 7% cut to FY Jan-26 as wage cost pressures build. The improvement project has had a bit of a setback, and we maintain our Neutral rating. Q3 Sales Miss Kingfisher''s Q3 LFLs of -1.1% fell short of consensus'' -0.3% expectations. Kingfisher had already reported the first six weeks; simply weighted, the final seven weeks were c.-1.8% despite easier comparatives. UK saw robust trade trends and good marketplace growth, while big-ticket was soft. There was a similar pattern in France, while Poland big-ticket momentum improved. Outlook FY Jan-25 and FY Jan-26 Q4 has started better with -0.5% LFL sales in the first three weeks of November. Management trimmed its FY Jan-25 adjusted PBT guidance to GBP 510-540m, and we cut our estimates by 1% to the mid-point of GBP 525m. For FY Jan-26, the company quantified UK/France wage pressure to be GBP c.45m and only expects partially to mitigate these pressures. We cut Adj. PBT by 7% from GBP 597m to GBP 555m. Reiterate Neutral, TP lowered to GBp 285 from GBp 310 The market has been unforgiving of UK retailers reporting recently (BandM, WH Smith, JD Sports and now Kingfisher), reflecting nervousness about 2025. On our new forecasts Kingfisher trades on a CY25 P/E of 11.6x and CY26 P/E of 9.8x (at GBp 259). The outlook for interest rates and home improvement in 2025 is still quite encouraging, yet proof is still required about whether France can meaningfully recover in the year ahead. We maintain our Neutral rating.
Q3 trading was resilient though France is still challenging Group Q3 sales were down -0.6% (1H +0.9%), or flat at constant FX. LFL sales down -1.1% versus 1H. After solid trading in August/ September, the UK and French markets were weaker in October, impacted by Budgets in both areas. UK sales were up 1.2% (1H +0.9%) with LFL +0.4% (2Q -1.4%; Q1 +1.2%). Screwfix LFL sales were up 1.8% & B&Q LFLs down 0.4%. In France, sales were down 6.4% (1H -9.2%) with LFL down 4.3% (2Q -9%; Q1 -5.3%). Castorama (LFLs -4.7%) was weaker than Brico Depot (-3.7%). Poland sales were up 6.6% (1H +2.8%) with LFL down 0.4% (2Q -0.8%; 1Q +0.4%). FY25 guidance tightened but also indicating higher costs next year due to Budgets Management has tightened FY25 adjusted PBT guidance to £510m-£540m (INVe £538m; Vuma consensus £533m) from £510m-£550m. Q4 trading to date has improved on the Q3 exit rate with LFL sales down -0.5%. FY25 free cash flow guidance remains unchanged (£410m-£460m) due to reduced inventory. The £300m buy back is due to complete by March 2025. However, management is guiding to higher FY26 costs stemming from October’s Budgets in France and UK, which will amount to c£45m extra costs (split France £14m and UK £31m), and is working on whether this can be fully mitigated or not. Also, net Interest costs are likely to be c£10m higher in FY26 due to lower net cash balances and slightly higher IFRS16 lease interest. We expect FY26 PBT consensus of £596m (£INVe £607.5m) to come back by c.10% depending on views on mitigation. Forecasts under review A downgrade on FY26 is disappointing short term. The key unknown is whether Government policy changes will delay the consumer recovery as the macro outlook was starting to improve. As per our previous note, ‘Recovered Earnings Potential’ (published 22/10/24), a recovered margin analysis suggested FY27E PBT forecast could be 37%-53% too low when a consumer recovery does come through and Kingfisher returns to more normalised margins. The shares are down 5% / up 21% over the last month / YTD and were valued on a CY25E PE of 11.9x before this morning’s downgrade.
Downgrade cycle appearing over was our main takeaway from the 1H25 results in mid-September as management tightened its FY25 adjusted PBT guidance range to £510m to £550m, from a previous range of £490m to £550m set back in March at its FY24 results. Upgrading FY25E/FY26E PBT expectations by 3.6%/3%, reflecting the 1H25 beat and narrowing of management’s guidance towards the top of the previous range. Geared into improving consumer discretionary spending – the company is well positioned to benefit from operational leverage when discretionary spending recovers given market share gains and/or efficiencies. While such a shift to more discretionary spending is yet to be seen, apart from in Poland, the macro backdrop appears to be on an improving trend in its key territories. A recovered margin scenario analysis suggests our FY27E earnings forecast and consensus could be 37% to 53% too low, with upside risk to forecasts if a consumer recovery does come through. The current assumed number of shares, which may vary given Kingfisher’s share buyback, implies a recovered EPS range of 38p to 43p for FY25-FY27. Reiterate BUY with our TP raised to 387p (from 285p), reflecting a change in our TP methodology to a present value multiple of recovered earning (prev. 12x CY25E PE) given how difficult it is to forecast a cyclical recovery. Taking the midpoint of our recovered earnings scenario and applying a multiple to earnings of 12x (the 10-year average forward PE for Kingfisher) implies a recovered medium-term TP of 487p. Discounting this back at an 8% discount rate for 3 years results in our new TP of 387p.
A refund driven beat, but there''s more going on Earlier this week, Kingfisher H1 Adj. PBT comfortably beat consensus, driven in part by a one-off business rates refund and the timing of cost saving initiatives. Management raised the bottom end of its full year profit guidance, and here we increase FY Jan-25e Adj. PBT by c.2% to the mid-point of the new guide. Kingfisher also upgraded its free cash flow forecast, accelerated its share buybacks and said that the macroeconomic environment is improving incrementally. France is likely to remain the key debate and we continue to think it will take time to fix, but we had underestimated the short squeeze and benefit from the thematic of falling rates. We remain Neutral but lift our target price. FY Jan-25e profits guided higher Management raised the lower end of its FY Jan-25e Adj. PBT range to GBP 510-550m (previously GBP 490-550m). Moving parts include a GBP 25m one-off repayment of UK business rates for BandQ but also greater losses in its Turkey JV. We raise our forecast to GBP 531m (was GBP 519m). Reasons to be a bit more optimistic Kingfisher reported solid Q3 current trading figures (Aug/Sep LFL group sales -0.3%) with a sequential improvement in France and UK. Management said it expects a gradual improvement in Poland, with markets remaining rational. We leave our Q3 sales expectations unchanged. Online marketplace is growing, and trade initiatives are developing. There''s not much evidence that the turnaround in France is yet gaining traction, but there''s more evidence that it can be capital light. Reiterate Neutral The outlook for rates and home improvement point to more optimistic assumptions and our DCF-derived target price rises to reflect these. There is still a material short interest base in the stock which could further unwind. Yet proof is still required about whether France can meaningfully recover over the next couple of years. We maintain our Neutral rating.
Gross margins increase 40bps during the period Kingfisher has published interim results (Jan year-end) reporting an Adjusted PBT of £334m, a beat on our forecast of £261m and indeed consensus at £286m. We do however note, the Kingfisher outturn includes the impact of £25m of business rates refunds at B&Q. In terms of the key highlights: i) Lfl sales at a Group level in H1 came in at-2.4% (-0.9% Q1/-3.8% in Q2) broadly in line with consensus at -2% but a touch below our forecast of -1.1%. Management notes that the sales performance was in line with expectations supported by market share gains in the UK and Poland whilst France performed broadly in line with the market. It is noted that lfl sales in Q3 thus far (July 28th to date) have improved to -0.3%; ii) Kingfisher managed gross margins well during the period, +40bps yoy (consensus at +10bps), with “good management of product costs & retail prices; lower clearance costs and stock provisions” noted; iii) Supported by the one-off £25m of business rates refunds at B&Q, the Group has increased the lower end of its Adjusted FY25 PBT guidance range to £510-550m (previously c.£490m to £550m) and we note that it has maintained the upper-end of the guidance range despite the expected FY net loss in Turkey of c.£25m (vs FY24 £1m net loss and cons of a c.£4m net loss). The Group has increased its FCF guidance more significantly, it is now guiding for an outturn of £410-460m (previously c.£350m to £400m). France remains difficult but performance now in line with mkt In terms of the divisional detail: i) LFL sales in the UK and Ireland came in at -0.2% driven by another positive performance in Screwfix (+1.2%), offset by a negative outturn in B&Q (-1%). It is of note that within B&Q, TradePoint continues the perform well with lfl sales up +7.1%; ii) France remains challenging with lfl sales down -7.2% with both Castorama (-7.7%) and Brico Depot (-6.8%) under pressure although importantly both performing in line with the broader market according to management; iii) Lfl sales in Poland came in at -0.2% with the Group noting that it saw an improving customer environment supported by trade. We expect to increase our FY25 forecast to £520m from £490m Overall this is a robust performance from Kingfisher. Although it is clear that the sales environment remains challenging, it has managed gross margins well during the period and its cost savings initiatives are coming to fore. We expect to increase our FY25 PBT forecast from £490m to c.£520m, primarily reflecting the better H1 (largely driven by the £25m of business rates refunds at B&Q). We also expect consensus, which stands at £509m, to move higher, likely in the order of c.4%.
FY25 guidance range narrowed, helped by one-off £25m business rates refund Management has tightened previous FY guidance, which is now for FY25 adjusted PBT of £510m-£550m (prev .£490m to £550m, with Vuma consensus at £509m; INVe £519m), down on FY24 PBT of £568m. We expect FY25 consensus PBT to move up c.4.1% towards £530m to reflect the one-off £25m business rate refund, with FY26 consensus unlikely to change materially in our view at this stage. Free cash flow guidance has been increased to £410m to £460m (prev. c.£350m to £410m). The Group remains focused on driving market share, with strategic focus being new differentiated formats, Trade; building a data-led experience; ecommerce plus marketplace; and greener home solutions. Solid UK performance with Poland the stand-out. Early days in turning around France For 6 months to end July, 1H adjusted PBT fell 0.5% to £334m (cons. £286m) on total Group sales down 1.4% (Q1 -0.9%). This was supported by: 1) £25m of business rates refunds at B&Q (a one-off), 2) H1-weighted cost savings, and 3) H2-weighted tech costs (flat in H1). Core categories remained resilient with ‘big-ticket’ and seasonal impacted by a weak market backdrop and weather. A flat YoY 1H25 DPS of 3.8p has been declared. The Group has completed £150m of its £300m buy-back. 1H UK sales were up 0.9% (1Q +2.6%) with Trading EBIT up 6.2% to £325m (cons. £286m) post the £25m business rate refund. A solid performance with Screwfix and Tradepoint continuing to outperform B&Q. France sales down 9.2% (1Q total -8.1/LFL -5.3%) with Trading EBIT down 32% to £69m (cons. £72m). It is still early days, post restructuring, in simplifying & driving productivity and testing new formats, with management targeting a 5-7% recovered EBIT margin (FY24 3.3%). Poland sales were up 6.9% with LFL down 0.2% (1Q total +8.6%/LFL +0.4%), helped by an improving consumer backdrop, with Trading EBIT up 41% to £50m (cons £36m). Downgrade cycle appears to have finished Kingfisher is well-positioned to benefit from operational leverage when demand comes back. We appear to be at the end of the downgrade cycle which is likely to be taken positively today, although the share price has started to anticipate this (share price is up 4%/19% over the last month/YTD). Shares are trading on a CY25E PE of .11.8x on cyclically depressed profits.
We have adjusted our estimates following Kingfisher''s Q1 sales release. Our Adj. PBT rises modestly, driving our target price increase. We adjust our EPS forecasts for a slower phasing of share buybacks. We do not consider the changes to be material; our rating is unchanged.
1Q trading in line with expectations Total 1Q Group sales down 0.3% (+0.3% CC) with LFL sales down 0.9% including a +1.9% calendar impact (of which +1.1% is due to the leap year which will unwind as the year progresses). UK & Ireland took market share, with France sales broadly in line with the market and Poland’s sales trends improving supported by a stronger market. Overall, core sales (66% of sales) were resilient, with seasonal sales also resilient despite unfavourable weather, and big ticket demand was weak in-line with the market. By main divisions, UK sales were up 1.2% (consensus -1.2%; Q4 +0.8%) with B&Q and Screwfix up 0.4% (cons -1.5%; Q4 +0.4%) and +2.4% (cons -0.9%; Q4 +1.4%) respectively. In France, LFL sales were down 5.3% (cons -5.3%; Q4 -8%) with Castorama and Brico Depot LFL down 5.5% (cons -5.2%; Q4 -8%) and down 5.2% (cons -5.4%; Q4 -7.9%) respectively. Poland LFL grew 0.4% (cons -2.2%; Q4 6.6%). No change to outlook Management has reiterated FY25 guidance for adjusted PBT in the range of £490m-£550m (INVe £519m, company-compiled consensus £512m). 2Q trading has been in-line with underlying Q1 sales trends (-2.8%), with Group LFL sales -2.5 % (3 weeks to 18 May). They remain cautious near term given the lag between housing demand and home improvement demand, with repair, maintenance and renovation on existing homes resilient. The dynamics are slightly different by market going forward, with the UK against weak comps in 1H, with comps getting easier for France and Poland as the year progresses. Consensus expectation is for 1H PBT of £290m. Undemanding valuation. Reiterate BUY Kingfisher is well-positioned to benefit from operational leverage when demand comes back. No guidance downgrade today is likely to be taken positively by the market and it appears we may be at the end of the downgrade cycle, although consumer demand short term is likely to remain subdued. Valuation (CY25E PE 11x; DPS yield 4.7%) is undemanding given robustness of cashflow with the share buyback programme ongoing. Management have reiterated their FY25 FCF target of £350m-£410m.
More than a scratch, but shares rise Kingfisher FY Jan-25e Adj. PBT guidance was lower than expected. However, the shares rallied, reflecting the short interest levels, a French restructuring plan which isn''t too financially painful, a lower capex guide and multi-year cost savings. We cut our FY Jan-25e Adj. PBT forecasts to around the midpoint of guidance but our target price rises, reflecting lower risks around France and lower spending. The debate on the stock is likely to centre on whether the action in France is fast enough. Whilst downside risk from here seems limited, it could be a long project, and we remain Neutral. FY Jan-25e profits guided lower Management guided FY Jan-25e Adj. PBT to GBP 490-550m, a c.7% cut to consensus at the midpoint. We cut to GBP 522m (previously GBP 618m). Sales at the start of Q1 improved sequentially but remain negative, and we assume full year group LFLs of c.-1%. We expect group gross margins to be flat, and a small increase in operating costs net of GBP 120m savings. French DIY transformation - no big bill for the project A comprehensive overhaul of the French business was unveiled today, including a management reorganisation and the restructuring of one-third of Castorama''s store estate (c.30 stores). In the medium term, management targets 5-7% margins in France, versus 3.3% last year. Management also cut capex guidance to 3% of sales and said that it aims for GBP c.100m savings in outer years. Investors will question whether the changes in France are sufficient to transform the business but there was no large cost attached to the change programme, which was a relief for the stock. Remaining Neutral Investors were braced for a painful restructuring plan, which hasn''t materialised. This has reduced the downside risks, and combined with lower capex and higher cost savings our DCF-derived price target (rolled forward with the passage of time) rises to GBp240. We maintain our Neutral rating.
FY24 PBT in-line with November’s downgraded guidance For the 52 weeks to 31st January, Kingfisher has reported a 25.1% decline in underlying FY24 PBT to £568m (FY23 £758m) versus lowed company guidance of £560m at November’s Q3 (INVe £560m/company compiled consensus £557m). By key division, UK & Ireland retail profits fell 8% to £555m (cons £567m), with France down 28.8% to £139m (cons £129m), while Poland EBIT fell 44.5% to £82m (cons £72m). A flat full year DPS of 12.4p is proposed (FY22 12.4p). Management has reaffirmed its commitment to last year’s announced £300m share buyback programme (£50m completed to date). Q4 UK & Ireland LFL sales were down 1.6% (1H 1.7%; 2Q +4.1%; 3Q +1.1%) with France Q4 sales down 8% (1H down -3.8%; 2Q -3.5%; Q3 -8.6%) and Poland LFL sales down 6.6% (1H -10.9%; 2Q -11.5%; 3Q -9%). Overall, Group Q4 LFLs down 4.3%. Guiding to a 7% cut in consensus FY25 PBT at mid point – France + Poland challenging. UK recovery pushed out On the short term outlook, management is cautious on the overall market given the lag between housing demand and home improvement demand, with repair maintenance and renovation on existing homes resilient. Sales trends were better in Q1 to date than Q4, with Group LFL sales -2.3% and an improved sales trend in UK & Ireland, France and Poland versus Q4. Management’s guidance is for FY25 adjusted PBT of c.£490m to £550m versus company compiled consensus adjusted PBT of £560m (INVe £595m). Plans for £120m of cost savings/efficiencies are expected to partially offset cost headwinds. There is a clear plan to improve operating performance in France and a medium-term retail profit margin target of 5% -7% has been announced. FY25E forecast and TP under review. Cashflow remains resilient Kingfisher is well-positioned to benefit from operational leverage when demand comes back. We believe the market is approaching the end of the downgrade cycle, but we recognise that the shares are unlikely to outperform materially until investors are prepared to look through the current weak consumer environment. Cashflow remains resilient with management targeting FCF of £350m-£410m in FY25, c.£450m in FY26, then ‘more than £500m per annum’ from FY27.
Running repairs - updating forecasts following Q3 results We update our forecasts following Kingfisher''s Q3 disappointing sales update in November, and this housekeeping drives mid/high single-digit earnings cuts. Q3 results - lowered company guidance In Kingfisher''s Q3 sales update, management lowered its FY Jan-24 Adj PBT guidance from GBP590m to GBP560m (see: Q3 Sales first take: another guidance downgrade). The major surprise was the sales weakness in France. Kingfisher has already reported current trading up to 18 November but the Banque de France November DIY data (released on 21 Dec) will be noteworthy. Forecasts cut to consensus and guidance levels With this note we cut our FY Adj PBT to GBP563m, in line with where consensus expectations have settled. Much more of a debate is the FY Jan-25 outlook: consensus models flattish profit growth (Visible Alpha GBP576m but likely to keep falling); whilst we cut our forecasts to GBP618m from an admittedly too optimistic starting point. We are expecting a modest year-on-year bounce-back in profits from: [1] Poland, supported by improving macro; [2] an uptick in French profits, since FY Jan-24 France profits will probably be at their lowest level in 20 years and management is taking cost action; [3] slightly reduced start-up losses in Screwfix International. We expect flat profits in the UK. Valuation and Risks Whilst the profit growth we are forecasting in FY Jan-25 seems a reasonable base case to us, there are clearly several downside risks given that sales have decelerated so recently. One risk is that the UK, which has been very resilient so far, begins to slow. Resolving some of the challenges in France may take time, and could require some restructuring, and profits may not bounce back as we have modelled. On our base case, however, we see only limited downside to the shares. Our DCF-derived price target is GBp225 (down from GBp230) and we maintain our Neutral rating.
Kingfisher’s trading performance for Q3 FY23/24 was below AV and the market’s expectations. The Group’s lfl sales declined by 3.9% yoy, once again due to a poor showing in France and Poland. The management issued a profit warning as the softness has continued even during the initial weeks of the Q4. We are likely to reduce our financial estimates by around 8-10% for the forecast years. However, the stock’s valuation is not expensive at the current levels and we maintain our positive recommendation.
Material weakness in France. Performance elsewhere as expected Kingfisher has reported total Group 3Q sales down 2.7% with LFL sales down 3.9% versus 1H +1.1%. UK performance was robust with sales still weak in Poland, as expected. Today’s focus will be on France where there has been a material drop off in sales, which started to deteriorate in Q2. This appears to be in-line with market weakness (September’s Banque de France sales for home improvement were down 9.1%). Q3 UK & Ireland sales were up 1.1% (1H 1.7%; 2Q +4.1%) with France sales down 8.6% (1H down -3.8%; 2Q -3.5%) and Poland sales down 9% (1H -10.9%; 2Q -11.5%). In France, Brico Depot LFLs were down 10.6% and Castorama down 6.7%. Brico Depot is more exposed to Trade. FY24 PBT guidance lowered to c.£560m (previous c.£590m) vs INVe £582m Q4 (November) has started largely in line with Q3 trends, with Group LFL sales -3.4%. Continued resilience seen in the UK with market weakness in France. Brico Dépôt has closed the underperformance gap vs Castorama. Lowered sales expectations for France means management now expect to deliver c.£470m of FCF (previous guidance >£500m). Management has reaffirmed its commitment to its recently commenced £300m share buyback programme (£26m completed to date). Forecast and TP placed under review The shares have rebounded 14.6% over the last months and were trading on a CY24E PE of 9.1x and a DPS yield of 5.3% on our pre-existing forecasts. We believe we are approaching the end of the downgrade cycle, but we recognise the shares are unlikely to outperform materially until investors are prepared to look through the current weak consumer environment.
1H results were weaker than market expectations due to Poland, which more than offset slightly better-than-expected UK & France performance. Adjusted Group PBT fell 29% to £336m, with Retail profit down in every geography, as expected, reflecting a more challenging consumer environment. The UK & Ireland was the most robust, helped by DIFM/trade sales growth, resilient DIY but seasonal sales were weak. 3.9% UK sales growth and a flat gross margin were not enough to offset 8.9% opex inflation, so 1H retail profits were down 10%. In France, retail profits fell 22% with sales down 3.8% (const FX), impacted by a challenging consumer environment and bad weather. Poland was impacted by macro challenges, with slower market growth than expected and YoY comparables were tough. Performance was weak across core, big ticket and seasonal. Gross margin was down 170bps, reflecting higher customer participation in promotional activity, clearance and mix. Underlying trading was weaker than the FY24 PBT guided downgrade from c.£634m to £590m. Management has pulled back on expansionary capex investment in Europe with lower new store numbers now guided in Poland & France. FY24 guidance for ‘New Businesses’ is a £30m loss (prev: £40m loss). FY24E/FY25E PBT cut by 8%/10% reflecting new FY24 PBT guidance. FY24E/FY25E EPS fall by 9%/6% reflecting the buy-back. Our TP drops to 255p (prev 265p), now based on 10x CY24E PE (prev 10x CY23E PE). Upgrade to BUY as the valuation (CY24E PE 8.6x; DPS yield 5.6%) is undemanding and we believe we are approaching the end of the downgrade cycle, although we recognise the shares are unlikely to perform until investors are prepared to look through the current weak consumer environment.
Kingfisher’s H1 FY23/24 lfl sales was 40bp ahead of market expectations but the PBT was 5.4% weaker. Although UK&I sales remained in the black, the performances in France and Poland were the pain-points. The Q3 lfl performance (to date) of -2.4% yoy is also below market expectations. We expect the pressure on earnings to continue during H2. Management has lowered FY23/24 PBT guidance to £590m (vs £634m earlier). We will reduce the target price by 7-8% but maintain our positive recommendation.
A surprise downgrade Kingfisher reported lower than expected H1 profits, driven primarily by weakness in Poland. Moreover, management lowered its H2 outlook, which overall implied a c.7% cut to annual guidance. We cut our forecasts to this new guidance level. Although there are some interesting growth avenues, not least the further expansion of Screwfix Europe announced today, macro headwinds overshadow the investment case. We maintain our Neutral rating. First half results disappoint, especially in Poland Having guided H1 Adj PBT of GBP 350m, Kingfisher reported GBP 336m, with a healthy performance in the UK overshadowed by margin pressure in France and Poland. H1 retail profits in Poland dropped from GBP 94m last year to GBP 35m, and the environment remains challenging. Outlook - a mixed bag Management maintained its FY Jan-24 guidance for over GBP 500m of free cashflow. However, it lowered its profit guidance from GBP c.634m to c.590m. It reduced capex by GBP c.25m but announced a widely-expected GBP 300m share buyback programme. These suggest that management is balancing short term factors against its medium-term growth agenda. Regarding growth, the decision to roll-out Screwfix online to c.20 European markets was encouraging, as was progress with retail media and marketplace. The other area of encouragement was the resilient performance in the UK, both at BandQ and Screwfix, where Q2 sales and H1 profits beat expectations. Target price GBp 230, maintaining Neutral rating We cut our FY Jan-24 Adj PBT forecast to GBP 592m, in line with management guidance. For FY Jan-25 we assume a bounce-back in France and Poland profits, modelling Adj PBT GBP 673m. Our DCF-driven target falls to GBp 230 (from GBp 250). We maintain our Neutral rating.
A very weak Polish performance more than offset UK/France being slightly ahead of consensus Kingfisher has reported a 29% decline in 1H PBT to £336m (company-compiled consensus £359m; 1H23 £472m) versus management’s guidance at May’s Q1 update to expect to report adjusted 1H PBT of c.£350m. Group sales were up 1.1% (1Q +0.8% impacted by March’s adverse weather + tough Polish comp ) with Group Retail profits down 22% to £433m (consensus £445m; 1H23 £555m). A flat1H DPS of 3.8p was declared. By main division, UK& Ireland sales were up 3.4% (1Q24 +1.4%) with Retail profit down to £306m, a margin of 9.2% (1H23 £339m; margin 10.5%). Screwfix saw strong market share gains, helped by new space. France sales fell 0.6% (1Q24 -4.1%) with retail profits down 19% to £104m, a margin of 4.5% (1H23 £129m; margin 5.6%). Castorama performance was more resilient than Brico Depot. Poland sales were down 3.6% (1Q24 -3.3%) with retail profits down 63% to £35m, a margin of 1.8% (1H23 £94m; margin 10.3%). Comparatives were strong, but Q2 was weaker than expected as consumers shopped more promotions. FY24 PBT guidance reduced by 5% Management has reduced FY24 PBT guidance to £590m, having previously been comfortable with (then) consensus PBT of £633m in May (consensus £624m). Q3 Group LFL sales to date are down 2.4% versus Q2 -1.2% and Q1-3.3%. It has continued to see positive momentum in the UK & Ireland, a slight slowdown in France and small improvement in Poland. Consensus PBT for FY25 of £681m (INVe £690m) is likely to come back too. Management continues to expect over £500m free cash flow for the year (WC unwind) and has announced a new £300m share buyback this morning, as expected. Forecast and TP under review In our view, valuation (CY24E PE 8.7x and a DPS yield of 5.5%) is not particularly demanding at this point in the cycle, with the share price down 5% over a year and flat YTD. Kingfisher has a strong balance sheet and continues to buy back shares. However, we think the shares are unlikely to perform until investors are prepared to look through the weak consumer environment, inflationary pressures and higher interest rates. Next news: 3Q24 22 November.
Kingfisher’s Q1 trading performance was stronger than ours as well as the market’s expectations. The Group’s lfl sales of -3.3% yoy was 140bp ahead of the consensus, mainly attributable to the UK&I (-0.8% yoy; +150 bp vs consensus). The impact of the adverse weather conditions and strikes in France are non-structural issues. The management has announced a better-than-expected start to Q2 and has also stated that it is comfortable with the current profit consensus. We maintain our positive stock recommendation.
1Q trading was slightly better than expected and we have updated numbers to reflect the detail. There is no change to our overall forecasts albeit we have had to adjust the composition of 1H:2H. There was no strong message from 1Q and the consensus forecasts now embed a stronger and almost flat yoy 2H profit outturn. In terms of story, valuation and recommendation nothing has really changed. We feel as with other legacy retailers that KGF is not really developing a material break out strategy to offset the drag effect of its existing asset base on medium/longer term growth prospects.
Kingfisher’s (KGF’s) 1Q update is unlikely in our view to prompt reappraisal of already-held views. Overall reported Group LFL of -3.3% was slightly ahead of consensus of -4.7% and in the detail the UK -0.8% LFL beat consensus of -2.5%. Despite generally unhelpful weather conditions and some likely elevated markdown of seasonal lines KGF has confirmed it is happy with existing underlying consensus PBT estimates for FY1/24 of £634m (FY1/23 £758m) reflecting broadly reversal of COVID sales benefits and various inflationary impacts. Sales in 2Q is slightly improved at -1% LFL for May to date (probably weather related). The situation here remains in our view that there is no strong investment theme because there is no apparent strategic thrust and a continuing need to downsize physical operations. As with other legacy traditional retailers this needs to be offset by meaningful growth in online now, and longer term by settling on a more sustainable balance between consumer and trade. There is clearly a possibility that short term influences become collectively more favourable as inflation bottoms out and demand firms up. But we would expect investors to look through that at a financial profile of a likely static sales base generating modest Free Cash Flow able to generate capital repatriation because of long term overcapitalisation of its balance sheet.
Weak start to FY24 as expected A weak start to FY24 was expected, with management guiding at the FY results to expect weakness from adverse weather conditions in March and a tough Polish comp from a particularly strong quarter last year. Q1 Group sales (to 30 April) grew 0.8% (-2% CC) with LFL sales down 3.3% including a -0.5% calendar effect (Bloomberg consensus -4.7%) which implies a slowdown in March and April compared to total sales growth of 1.9% reported for February. Performance from core and ‘big ticket’ categories (82% of sales) was resilient with LFL -1.3%. Seasonal categories LFLs fell 11% showing the weather impact. By main divisions, UK sales were up 1.4% (Bloomberg consensus -2.4%) with B&Q and Screwfix down 0.8% (cons -4.6%) and 1.6% (cons. -1.8%) respectively. In France, LFL sales were down 4.1% (cons -3.1%) with Castorama and Brico Depot LFL down 3.1% (cons. -2.8%) and 5.2% (cons. -3.8%) respectively. Core and big ticket performance was resilient with both banners weather-impacted and also affected by 10 days of national pension reform strikes. Poland total sales declined 3.3% with LFL down 10.3% (cons. -8.7%). No change to FY24 guidance FY24 guidance was reiterated which is that management is comfortable with company-compiled consensus PBT of £634m (INVe £630m). Consensus for FY25 PBT is £695m. Trading has improved since April according to management as some pent-up demand is coming through. Q2 to date LFL sales fell 1%, with a negative ‘Coronation effect’ of 0.4% Reiterate HOLD Valuation (CY24E PE of 8.9x and a DPS yield of 5.4%) is not particularly demanding at this point in the cycle. Kingfisher is in a robust financial position with a strong balance sheet and continues to buy back shares. However, in our view, the shares are unlikely to perform until investors are prepared to look through the weak consumer environment, inflationary pressures and higher interest rates.
Kingfisher FY1/23 Prelims showed the expected PBT decline as COVID boosted sales reversed and opex inflation impacted. The two noteworthy new items for consideration were the good start from the online marketplace/platform and the surprisingly weak Polish performance. In a loose conglomerate like KGF this divisional variance should be expected and the effects were at least in opposite directions. Management expects and has guided for low-mid £600ms of PBT in FY1/24, taking consensus back to just above pre-COVID levels. The question is then whether this will represent a new base for growth or whether KGF’s longer term struggle to exit legacy assets, while transitioning to some digitisation, will continue to limit financial progress. Our forecasts assume effectively a holding position until there are some indicators. We do not see any real underlying improvement in KGF’s operations under current management over the long term, with modest potential growth channels being offset by the need to close physical space in largely mature major markets.
Kingfisher’s FY22 performance was a mixed bag. The Group’s lfl sales declined by 2.1% yoy, with no surprises in the UK and France businesses. The adjusted PBT of £758m (-20.2% yoy) was 2.3% ahead of the market expectations. The FCF softness was a one-off in our opinion. We expect kingfisher to continue to gain market share in the core segments. The strategy to roll out compact store formats and monetize retail media opportunities are steps in the right direction. No major changes expected in our financial estimates.
Results fuelled a lot of our concerns discussed in Papering over the cracks. While generally aligned with the principles of Powered by Kingfisher, we fear normalisaiton will expose structural challenges. Meanwhile FCF commentary highlighted the growing gap between earnings and cash generation. Whil
FY23 PBT 2.3% ahead of consensus and in-line with company expectations For the 52 weeks to 31st January, Kingfisher has reported a 20.2% decline in underlying PBT to £758m versus the company guidance range of £730m to £760m given in November (INVe £741m/company compiled consensus £741m). By key division, UK & Ireland retail profits fells 24% to £603m (cons £559m), with France down 11.9% to £195m (cons £210m), while Poland EBIT increased 9.4% to £148m (cons £174m). A full year DPS of 12.4p is proposed (FY22 12.4p). The £300m share buyback continues with circa two thirds completed as of 31 Jan and it has the intention to announce another one later in the year. Kingfisher announced the acquisition of Connect Distribution Services (CDS), a B2B/B2C retailer of appliance spares, accessories and consumables, from administration by Screwfix. CDS’ last filed accounts for the year to 31 October 2020 showed sales of £98.8m and EBITDA of £7.3m, so not material relative to the Group scale but potentially a nice add-on. Management is comfortable with current FY24 PBT consensus of £633m (INVe £667m) Kingfisher reports an encouraging start to 1Q24 with Group total sales up 1.9% and LFL sales +1.5%, driven by the UK. Resilient sales trends seen in ‘big-ticket’ categories (broadly flat YoY) as well as surfaces & décor (largest category by weighting) and tools & hardware. Management expects some impact in March from adverse weather conditions and strong Polish comparatives. New medium term priorities set out are for sales to grow ahead of the market, with +1.5% to +2.5% net new space contribution. Kingfisher expects PBT to grow faster than sales, and strong free cash generation of £450m to £500m in FY24 and then over £500m in FY25/26. Forecast/Recommendation/TP put under review The valuation not particularly demanding (CY24 PE of 8.9x with a DPS yield of 4.8%) and we believe the market will like the strength of cashflow and the proposed continuing buyback announced this morning. Kingfisher is in a robust financial position, given its strong balance sheet, to ride out short term economic pressures. However, in our view, the shares are unlikely to perform until investors are prepared to look through the inflationary pressures and higher interest rates ahead.
Resilient FY23 performance Kingfisher last updated the market in November when it reported Q3 total group sales +1.7% with LFL +0.2% (3-year LFL +15.3%). Q3 UK LFL sales were down 2.3% (3-year LFL +12.9%), impacted by the prolonged warm weather in October. Weather and petrol strikes also impacted France with Q3 LFLs up 0.5% (3-year LFL +1.6%), while Poland’s performance continued to be strong, with LFLs up 7.6% YoY (3-year LFL + 21.3%). Management commented that trading was stronger in the first three weeks of Q4 to 19 November, versus Q3, with group LFL +2.8% (3-year LFL +15.3%). Management guidance was for FY23 adjusted PBT to be in the range of £730m to £760m. We are forecasting FY23E PBT of £741m, with company-compiled consensus also £741m. By key division, we are forecasting UK & Ireland EBIT £564m (cons £559m), France EBIT £197m (cons £210m) and Poland EBIT £181m (cons £174m). Focus to be on outlook, strategic progress & feedback on recent initiatives, such as online developments/marketplace Focus will be on the industry outlook for FY23 for Kingfisher’s three key geographies, and in particular the UK as Kingfisher’s most important market by profit. The performance of its trade formats (Tradepoint/Screwfix) is expected to have held up better than DIY. The backdrop is likely to remain challenging, with material inflationary headwinds still in place. We are looking for a progress update on the ‘Powered by Kingfisher’ strategy, especially the potential to drive higher margins in France having completed its ‘fixes’ in 2H and its exclusive brand (OEB) strategy as work continues to make the individual banners more distinctive. Also, we look for some performance feedback on management’s more longer-term growth initiatives, such as 1) online; 2) B&Q Marketplace, launched in UK in March 2022 and the Spanish/Portuguese ecommerce marketplace launched more recently; 3) Screwfix France, which was launched online in April 2022 and first c.5 stores opening in 2H23; 4) compact store and store rightsizing performance; 5) growth of its DIFM installation services and its Needhelp marketplace; and 6) the take-up of its energy-saving tools and services in the UK and France. Valuation (CY23E PE 9.9x) does not look demanding, given cash generation and balance sheet strength. However, we believe the shares are unlikely to perform until there is better visibility on consumer demand as inflationary pressures persist.
Meeting Notes - Feb 20 2023
KGF BEZ WIL HILS HSBA IHG SAFE VMUK
Big box DIY had its moment in the sun. The COVID dividend has been reinvested into improving the relevance of banners and positioning the business for growth. But as spend normalises, share gains are reversing and structural challenges persist. Earnings expectations have rebased for next year, but
Following the 3Q update we present new forecasts. Better than expected performance in France has resulted in us increasing FY1/23 estimates by 1%. We have reduced FY1/24 by 4% to £659m. As we have previously said the debate here has been whether there would be any lasting benefit from COVID. The current round of FY1/24 downgrades has been going on “off-piste” for a while now with guidance being given for FY1/23, while the much more significant movement in longer term forecasts has been outside the time horizon of formal guidance and yet somehow or the other FY1/24 appears to have been reduced by 15-20% since March. There are three major influences at play here in determining the longer-term prospects for Kingfisher (KGF) – reversal of COVID benefits, reversal of Ukraine related cost pressures and the effects of reversing the previous One KGF strategy and replacing it with Powered by KGF. So it is likely too simplistic to say we are just seeing the reversal of COVID being played out with these downgrades. The restructuring here has been going on for seven years and in all likelihood will have to be renewed once we are through the external shocks referenced above. So more change is likely which will be bad for the share price in our view. In the meantime we would appreciate more transparency from the company on guidance over more than the very short term.
Kingfisher Q3 trading witnessed all banners performing ahead of market expectations. While lfls declined in the UK, the group’s lfl sales (+0.2% yoy) were led by the French and Polish businesses (+0.6% and +7.6%, respectively). Despite overall market share gains and a strong showing during the initial three weeks of Q4 (+2.8% yoy), investors disliked the hair cut in the FY22 PBT guidance (£730-760m vs £730-770m earlier). This is not a big issue in our view. We will upgrade our financial estimates slightly but remain cautious given the stock’s current level of valuation.
Resilient performance Resilient performance with total sales up 1.7% in constant currency and LFL +0.2%. Q3 UK LFL sales were down 2.3%, France up 0.5% and Poland up 7.6% YoY. UK sales were impacted by warmer weather in October as was France, which also had footfall impacted by petrol station strikes. On a 3-year basis versus pre-COVID levels, UK LFLs were +12.9%, France +14.6% and Poland +23.1%. Management comments that, while the market backdrop remains challenging, DIY sales continue to be supported by new industry trends such as more working from home and a clear step-up in customer investment in energy saving and efficiency. DIFM and trade activity also continues to be well supported by robust pipelines for home improvement work. Strategically, KGF has launched its first Screwfix store in France (4-5 planned by year end) and energy-saving tools in France & the UK. It also launched its e-commerce marketplace in Spain and Portugal. No change to forecast Q4 has started well. For the 3 weeks to 19th November, LFL sales were up 2.8%. FY23 guidance is £730m to £760m versus previous guidance of £770m with trading scenarios for the balance of H2 providing a potential range of outcomes of c.£730m to £770m. The trim of £10m to the top end reflects a cost-of-living payment to UK colleagues, investment in Screwfix France, and slightly higher energy costs. The market is already there with company compiled consensus of £742m. Retain Hold recommendation Valuation (CY23E PE 9.1x) is not that demanding. Kingfisher is in a robust financial position, given its strong balance sheet, to ride out short term economic pressures. However, we believe the shares are unlikely to perform until investors are prepared to look through the inflationary pressures and higher interest rates ahead. Hold recommendation retained.
FY23e forecasts are supported by a strong 1H in the bank and one off tailwinds in Poland. However, with DIY at an earlier stage of normalisation and management’s growth focussed initiatives yet to bear fruit despite margin investment, we remain cautious on the outlook. For FY24e, we look for -4% LF
While 1H results were in-line with expectations, we felt there was a concerning shortfall in UK profits versus our expectations, made up for by better French and Polish profits. UK retail profits fell 41% YoY, against tough comps and a return to a more normalised promotional environment, with France flat, benefiting from ‘fixing’ its supply chain operational issue. Poland profits were up 57% (+66% at const FX) with a strong recovery from COVID post last year’s closure and market share gains as Polish consumers boycott Leroy Merlin given its stance on its Russian stores. Management’s FY23 PBT guidance range was refined to £730m-£770m (prev £770m), which considers the potential for a more uncertain macroeconomic environment into year end. Management stated that performance YTD is currently consistent with FY23 PBT of c.£770m. On a 3-year basis versus pre-pandemic levels, Q3 LFL sales (to 17th September) were +15.2%, versus +16.6% in 1H (adjusting for calendar impact, Q2 3 year LFL +17.4%: Q1 +14.8%). We cut FY24E PBT by 12.7% reflecting a more cautious view on consumer demand in the UK and higher investment in establishing Screwfix France, partially offset by higher Polish profits. FY24E EPS fall by 9% as we also adjusted for the UK Government’s announcement that it is maintaining the Corporation Tax rate at 19% rather than raising it to 25%. We are now assuming 22% for FY24/FY25E, though it will depend on the mix of profits (tax rate: 19% UK; 26% France; 19% Poland). Valuation (CY23E PE 8.7x) is not that demanding. Kingfisher is in a robust financial position, given its strong balance sheet, to ride out short term economic pressures. However, we believe the shares are unlikely to perform until investors are prepared to look through the inflationary pressures and higher interest rates ahead. Our TP falls to 240p (prev 260p), reflecting the downgrade. HOLD.
There were no major surprises in Kingfisher’s H1 FY22/23 performance. The group’s lfl sales came in at -4.1% yoy (vs consensus of -4.2%). Almost all banners performed in line with expectations. A good start to Q3 also bodes well for Kingfisher to achieve FY22/23 consensus. However, we expect the overall business performance (home improvement demand) to come under pressure during the forecast years as rising inflation and a fragile economic outlook dents consumer sentiment. We maintain a positive outlook on the stock’s valuation.
The effective reduction in FY1/23 PBT guidance appears minor at 3% at the midpoint of the new “range” of £730-770m. But we are now effectively around the midpoint of cum and ex-COVID PBT and the question is therefore how much of the remaining COVID benefit will be retained. In simple terms looking at sales per sq ft in the UK and France the base here could shrink by maybe 7-8% in the event of a fullish reversion. KGF has operational gearing of around 5x (gross/EBIT margins), implying PBT down 35-40% before mitigation or maybe £150-200m of PBT reduction from current forecast levels with mitigation. That may sound overly gloomy. But is anything that different to pre-COVID? Kingfisher itself has moved forward a little on digital but hardly at all on rightsizing its estate. The organisation is run pretty much the same way as before the current wave of restructurings that started in the mid-teens. Ultimately KGF still appears to us to suffer from an inability to make its market position count financially. It moves with its markets rather than ahead of them. We are reducing FY1/23 and FY1/24 PBT estimates by 9% and 12% to reflect weakening demand and increased difficulty with inflation mitigation. We continue to view KGF as not properly investible until there is some visibility over the end shape, post all the restructuring, whenever that might be.
Reported 1H PBT £472m, versus consensus £469m Reported 1H23 PBT is £472m (-29.5%) versus company compiled consensus of £469m as KGF faced tough comparatives. Group sales were down 4.1% (2.8% at constant FX) with resilient sales from both DIY and DIFM/Trade categories. 1H LFL sales were down 4.1% while 3 year LFL sales were up 16.6% (1Q 16.2%). A 3.8p DPS has been declared. By region, UK retail profits fell 41.3% to £339m, reflecting strong comparables, a more normalised promotional environment and the return of business rates, with France’s profits flat at £129m as self-help benefits came through. Poland profits were up 59% to £94m as it was up against weak comparables last year as stores were still impacted by COVID restrictions FY23 PBT guidance range £730m to £770m, versus consensus £745m Trading in 2H to date has been in-line with management’s expectations with 3 year LFL sales to 17th September up 15.2% (down 0.7% YoY). Management reiterates that performance is consistent with its previous FY23 guidance for adjusted PBT of c.£770m and, taking into account a more uncertain macro environment ahead, they have run several scenarios which suggest a range of £730m-£770m is achievable. This compares to company-compiled consensus £745m/INVe £741m. Consensus forecasts looking for a further fall in profits in FY24 Valuation (CY23E PE of 8.2x) is not that demanding, in our view given the cash generation and strong balance sheet. While the global macro outlook remains more challenging with material inflationary pressures, management remains focused on executing against its strategic priorities. Consensus expectations for FY24 PBT at £702m are already expecting a more challenging year ahead. We suspect there may well be further downward pressure. We place our forecasts/TP under review.
Ecommerce now accounts for 18% of Group FY22 sales versus 8% in FY20, helped by the pandemic accelerating the shift online. Kingfisher had to respond fast during COVID, rapidly evolving a store-picked online model and is now building out its service proposition across its operating divisions. It has built a profitable model, helped by a higher average basket size online. By using stores, it can easily flex the ecommerce model up and down with demand, use labour more efficiently, and benefits from reduced stock investment. Orders can be picked and delivered faster with in-store picking. Range and choice is expected to become the new battleground. In March, Kingfisher launched the B&Q marketplace and is looking to roll this out across its European operating companies. The B&Q marketplace will offer customers an additional 100,000 home improvement products within the next 6 months with plans to scale the business to over 4m SKUs within 5 years. Marketplace could become a material new income stream. Kingfisher charges merchants 10-15% commission on gross sales, with an ambition that its marketplace will generate 40% of its online GMV. We would expect most of this revenue to fall through to profits and be margin enhancing due to the relatively low operating costs and low cost of customer acquisition given Kingfisher’s natural online traffic. While we expect the marketplace to be profit additive, the unknown is the cannibalisation impact on its existing sales base. Kingfisher’s valuation (CY22E/CY23E PE of 8.2x/7.9x) does not look that demanding given its cash generation, and appears to reflect the expectation of lower FY23 profits and little growth into FY24. However, it is difficult to see the shares performing given wider macro concerns, and uncertainty remains over what ‘normalised’ future earnings could look like and whether Kingfisher can become a sustainable growth story.
This presentation provided interesting detail on the workings of the digital business in particular. Key themes were the development of a more flexible systems architecture, use of physical stores as fulfilment “hubs” rather than dedicated fulfilment infrastructure and more detail on the way the marketplace model within the overall digital presentation is configured. While a lot of this is new for Kingfisher (KGF), virtually everything presented was a distillation of processes/strategies evident widely in the broader ecommerce ecosystem. There are often advantages to being a later adopter. We felt that the weakness in the strategy as presented is that it is effectively an existing customer-based strategy with limited ambition for customer acquisition (and this heightens the risk of cannibalisation of the in-store business). The digital systems also seem to us to use a separate Cloud-based ERP system to the rest of the business and a full integration is still outstanding. KGF also presented its latest ESG strategy including commitment to net zero Scope 1 and 2 emissions by 2040 and increases in the proportions of Sustainable Home Products (SHP). The digital marketplace model still needs to be integrated into the overall ESG framework.
We present updated forecasts after the 1Q update which was 3-4 percentage points ahead of consensus (source: company) at -5.4% LFL, mainly highlighting the difficulty of forecasting accurately coming out of COVID rather than any meaningful underlying position. Kingfisher (KGF) has reiterated its FY1/23 PBT guidance of £770m and states that the early part of 2Q has continued reasonable. The debate is undecided on how much of the COVID sales bounce will be retained but forecasts in our view have a significant retention embedded in them. While trade continues reasonable, pressure to reorganise the physical estate remains limited. On the assumption of a degree of further trade normalisation we would assume that further material space closure will be necessary and this is not factored into our or other people’s forecasting. Hence, we retain our negative stance, albeit the recent price movement makes this less of a big call in investment terms.
Kingfisher’s Q1 trading was stronger than market expectations. Lfl revenue was 1.4% ahead of the street’s estimates, with the momentum led by all business segments. Among the positives: 1) the DIY and DIFM demand remains strong and, hence, management was able to pass on the pricing pressure to customers, and 2) Q2 has started on a similar note, and the supply chain is not concerning, at the moment. Still, we expect consumer demand to slow from H2 onwards.
Q1 beats, but no huge surprises Kingfisher reported Q1 sales which were 1.7% ahead of consensus, maintained full year profit guidance at a level above consensus, and announced a new GBP 300m share buyback programme. The business is proving resilient, and we raise profit forecasts by 4% (to Adj PBT GBP 730m) and more at the EPS level by including the buyback. The outlook remains uncertain and there were no major surprises from the results; staying selective across the sector, we maintain our Neutral rating. Getting through peak in good shape Kingfisher has enjoyed solid demand trends and favourable weather patterns during its Spring/Summer season, and has maintained good levels of supply throughout. The results reflected good recent industry data and share gains. In light of recent management commentary, it was also unsurprising to see profit guidance reiterated and a new share buyback programme announced. How the shape of the year evolves Management disclosed accelerating sales for the first two weeks of Q2 which supports the view that demand is holding up well. We model three-year stack LFLs in H1 of +16% and H2 of +9% to reflect a slowdown in consumer demand, although gross margins should strengthen in H2 due to the promotional comp from last year. Earnings are quite sensitive to top line estimates: we think H2 revenue growth would need to be about 300bps stronger than our model for the company to meet its full year guidance. Alternatively, H2 gross margins would need to be 70bps better than we model. Raising estimates, target price unchanged We raise our FY Jan-23 Adj PBT forecast from GBP 700m to GBP 730m but remain below management''s guidance of GBP c.770m. We model H1 Adj PBT of GBP 475m. Our target price of 310p remains unchanged, partly as some of the EPS upgrade is driven by the newly-announced share buyback, and in part because we raise the equity risk premium used in our DCF by 50bps, harmonising it with other stocks in our...
Demand resilient For the 3 months ended 30th April, total Group sales were down 5.8%. 2 year LFLs are now less relevant as these are lapping the 1st COVID lockdown now. 3 year LFL sales were ahead 16.2%. Demand for both DIY and DIFM/trade segments remained resilient. In terms of LFLs for the key divisions, B&Q -18.3% (3 year +16.3%), Screwfix UK -10.9% (3 year +18%), Castorama flat (3 year +13.9%), Brico Depot -7.5% (3 year +13.5%) and Poland +54.5% (3 year +22.8%). Good momentum into Q2 with LFL sales down 2.5% for the 2 weeks to 14 May, including a 1% adverse calendar impact, with 3 year LFL +21.8%. Outdoor picked up nicely and trade remains strong. Guidance reconfirmed; another £300m share buyback programme Management has reconfirmed guidance for FY23 adjusted PBT of c.£770m (company compiled market consensus is lower at £737m; INVe £741m). Management has announced another £300m share buyback programme reflecting confidence in outlook and strong cash generation. Forecasts/TP/Recommendation placed under review Valuation (CY22E/CY23E PE of 8.7x) is not that demanding, given the cash generation, and appears to reflect the expectation of lower FY23 profits and little growth into FY24 (company consensus £764m; INVe £765m). However, it is difficult to see the shares performing, particularly given concern on the impact inflation may have on short term discretionary consumer spending later in the year. Uncertainty also remains over what ‘normalised’ future earnings could look like and whether KGF can become a sustainable growth story. Management has stepped up growth investment, launching a scalable ecommerce market place as well as focusing on expanding Screwfix in the UK and France, new store openings in Poland and improving its Trade offer. However, KGF is still a big box retailer and structural challenges have not gone away.
FY22 was a record year for Kingfisher, benefiting from elevated demand for Home during COVID and also reflecting progress made on implementing its ‘Powered by Kingfisher’ strategy. Management completed all the ‘fixes’ in the UK & Poland and expects to complete France in FY23. Kingfisher has emerged post pandemic with a strong balance sheet. IFRS16 net debt/EBITDA was 1x at year end with potential to gear up further in our view. Year end net debt increased to £1,572m (LY £1,394m) reflecting a working capital outflow, driven by inventory rebuild and inflation, and the commencement of a £300m share buyback (£75m left to do). Investment in growth is being accelerated with the launch of a scalable e-commerce marketplace, expansion of Screwfix in the UK and France, new store openings in Poland and investment into in its trade and digital offer. Downgrading FY23E/FY24E PBT by 2.6%/2.9% respectively (c.4% below company guidance), reflecting more cautious UK gross margin assumptions (inflation/more pricing activity), higher start-up losses from Screwfix France/Marketplace/NeedHelp partially offset by higher profits from Poland. Management said it was comfortable with FY23 market consensus of £769m (down 19% on FY22), which reflects a ‘normalised’ post COVID cost base. Valuation (CY23E PE 9.6x) is not particularly demanding and appears to reflect the expectation of lower FY23 profits. However, given how fast market drivers are changing, uncertainty remains over what ‘normalised’ future earnings could look like and whether KGF can be a sustainable growth story, it is difficult to see the shares performing, particularly given the inflationary headwinds on consumer spending ahead. Ultimately, KGF is still a big box retailer and the structural challenges have not gone away. Our TP, now based on a low double-digit CY23E PE to reflect increased trading risk, falls to 285p (prev 335p).
Kingfisher’s FY21 performance was a mixed bag – lfl sales were stronger than expected but the adjusted earnings missed the consensus slightly. Investors seem to be panicking due to management’s commentary about heightened macro-economic and geopolitical uncertainties plus a softer start to Q1 FY22/23. We do not see this as a surprise (considering the tough comparable base) and expect the company to continue gaining market share in key operating regions. No change to the stock’s recommendation.
We believe that this announcement contains no significant news flow. Numbers-wise we expect that the market will be satisfied with new guidance for FY1/23 that the company is happy with the existing sell-side consensus of a fall from just-declared PBT of £950m to £769m as COVID benefits start to fall away further. The start to the new year at LFL -8.1% is flattered by the yoy reintroduction of fitting services into B&Q’s Showroom offer (which unsurprisingly is noted as the strongest area into the new year) and some closures in the comparative period in France. We will get a better idea of underlying trade from 2Q onwards.
FY22 results in-line with expectations For the 12 months to January, Kingfisher reports FY22 underlying PBT of £949m (+20.9%) versus management’s guidance at the top end of £910-950m and INVe £955m. Sales were up 6.8% with LFL sales at constant FX +9.9% or +18.1% on a 2 year basis, with gross margin +30bps to 37.4%. FY22 was a record year for Kingfisher, benefiting from elevated demand for home categories during the pandemic as well as reflecting progress on the implementation of its ‘Powered by Kingfisher’ strategy. Balance sheet remains strong with net leverage of 1x. A 12.4p DPS was declared (+50%) and Kingfisher has completed £225m of its planned £300m share buyback programme. Management is comfortable with FY23 consensus expectations Management is comfortable with current consensus expectations, given heightened macro and geopolitical environment. Company-compiled consensus is for FY23 PBT of £789m vs INVe at £761m. As expected, given commentary from others, Kingfisher has had an encouraging start with Q1 LFL sales down 8.1%, with 2 year LFL +16% Recommendation/forecast/TP put under review Valuation (CY22E PE 10x) appears to reflect the expectation of lower FY23 profits, though given how fast market drivers are changing, uncertainty remains as to what ‘normalised’ future earnings could look like and whether KGF can be a sustainable growth story. Ultimately, KGF is still a big box retailer. The structural challenges from the shift online, the rise of the discounters and the underlying ‘do it for me’ trends have not gone away, in our view.
FY22 PBT guidance range is £910m to £950m Management last guided in November to FY22 PBT coming in at the top end of its guidance range of £910m-£950m. We forecast FY22E PBT of £955m versus company-compiled consensus of £950m. We forecast a FY22E DPS of 12p (consensus 12.5p). For FY23, the market is already anticipating a decline in PBT, mainly due to a return to full UK business rates and LFL sales decline. Company-compiled consensus is for FY23 PBT of £789m vs INVe at £761m. Focus will be on sales momentum, strategic developments and capital allocation Given the material inflationary headwinds for consumers from April and elevated demand for home categories during the pandemic, the main debate focuses on what ongoing demand could be and what an appropriate sustainable margin is as trading normalises. While many of Kingfisher’s markets were impacted by various COVID restrictions at some point in 1H21, Kingfisher also faces tough comps from the elevated demand for home categories, so it will be interesting to see if sales have continued to slow. Kingfisher last reported Q4 Group LFL sales to 13 November up 13.2% on a 2-year basis. The update on the ‘Powered by Kingfisher’ strategic priorities will be of interest in understanding the scale of any self-help opportunities available. In particular, fixing the historic range/logistic issues in France, the Tradepoint re-launch, the results of compact store/new format trials, the ability to mitigate inflationary pressures, and the development of the Group mobile/online proposition, such as the recently launched marketplace. Capital priorities will be in focus given balance sheet strength. Kingfisher completed £225m of a £300m share buyback programme in March. Valuation reflects uncertainty over outlook; we will revisit forecasts, TP and recommendation post FY results Valuation (CY22E PE 9.4x) appears to reflect the expectation of lower FY23 profits, though given how fast market drivers are changing, uncertainty remains as to what ‘normalised’ future earnings could look like and whether KGF can be a sustainable growth story. Ultimately, KGF is still a big box retailer and the structural challenges from the shift online, the rise of the discounters, and the underlying ‘do it for me’ trend have not gone away, in our view.
Meeting Notes - Dec 08 2021
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Kingfisher has been through an extraordinary period, and is likely emerging as a better business in many ways. However, current momentum suggests the battle for profitable market share isn’t being won, or at least not sufficiently so. Even if the sequential softening in demand abates we fear outer
Kingfisher’s Q3 trading sales were slightly ahead of our estimates. The company continued to gain market share and has also made a promising start to Q4 (+0.4% lfl up to 13 November). However, the stock slipped post the results as the FY21/22 outlook upgrade was disappointing, considering the momentum of company’s ytd performance. We do not see any structural issue with the business model and maintain the stock recommendation.
Good momentum continued in Q3, although the rate of growth slowed as up against tougher comps. Total Q3 Group sales were down 4.2% ex Russia, with the 2 year LFL basis +15% (Q2 +20%). Good sales performance was seen from all banners and categories on a 2-year basis, across both retail and trade channels. UK 2 year LFL +15.7% (Q2 +24.1%) with B&Q up 17.1% (Q2 +26.5%) and Screwfix +13% (Q2 +18.7%). In France, 2 year LFL +14.1% (Q2 +16.4%) with Castorama +15.7% (Q2 +14.7%) and Brico Depot +12.4% (Q2 +18.4%). All stores remain open. Romania has limited access to stores with restrictions currently expected to last until early December. Despite supply chain challenges, management is comfortable with stock availability and continue to manage it effectively, with availability improving. Momentum has continued into Q4, with LFL sales to 13 November on a 2-year basis up 13.2%. Guiding to FY22 adjusted PBT towards the top end of the previous guidance range of £910m-950m, although company-compiled consensus is already there at £952m. H2 21/22 LFL sales: expected to be towards the higher end of previously guided range (-7% to -3%; corresponding 2-year LFLs of +9% to +13%) Move to HOLD from SELL: With the share price at our TP, we move our recommendation back to HOLD. We expect demand to normalise as discretionary spending switches back to leisure and other retail categories. This is reflected in forecasts with profits expected to be lower next year. Ultimately, Kingfisher is still a big box retailer and the structural challenges from the shift online, rise of the discounters, and the underlying ‘do it for me’ trend have not gone away, in our view.
Kingfisher reported better-than-expected figures at its H1 FY21/22 results, with lfl sales and adjusted PBT coming in ahead of market expectations and management’s guidance. Lfl sales outlook for H2 has been raised, the share buy-back programme re-introduced and the interim dividend increased. However, the share price was down c.5% today, as investors worried about inflationary cost pressures and supply chain constraints which are expected to continue into 2022. We will update our estimates and target price; the investment case is under review.
1H PBT slightly ahead of previous guidance range. Announces £300m share buyback programme Underlying 1H22 PBT was £669m (+61% YOY) versus July’s revised management guidance range of £645m to £660m (company-complied consensus £657m). A 1H DPS of 3.8p was declared (FY21 2.75p) and the company announced a £300m share buyback, reflecting excess cash generation and confidence in outlook. Strong performance from the UK & ROI, France, Iberia and Romania, with Poland impacted by COVID store closures in Q1. Management believes it has ‘fixed’ the UK and Poland with the range and logistics optimisation plans due to be completed in France within 12 months. The Power by Kingfisher strategy is moving ahead at pace with an acceleration in digital to enable faster fulfilment and expanded product range. The company plans to relaunch UK Tradepoint and open the 1st French Screwfix stores. Quarterly 2-year LFLs are slowing, with UK Q3 to date +16.6% (Q2 +24.1%; Q1 38.6%), and France Q3 to date +14.7% (Q2 +16.4%; Q1 18.1%). Guidance for H2 and FY increased Management is now planning for H2 LFL scenarios of -7% to -3% (previously -15% to -5%), with corresponding 2-year LFL of +9% to +13%. This implies an FY22 adjusted PBT guidance range of £910m to £950m versus consensus FY22 adjusted PBT of £913m (source: company website) and INVe £910m. Struggle to see where sustainable medium-term growth will come; reiterate Sell Kingfisher has been a COVID beneficiary from demand for house-related items and improved profitability from the business refocus. Comparables have started to get tougher from 2Q. We expect demand to normalise as discretionary spending switches back to leisure. Ultimately, Kingfisher is still a big box retailer and the structural challenges from the shift online, rise of the discounters, and the underlying ‘do it for me’ trend have not gone away, in our view.
Kingfisher’s Q2 FY21/22 trading update came in ahead of market expectations. Following an impressive c.64% lfl sales growth in Q1, the momentum finally receded with Q2 registering a sales decline of >1% so far, as DIY spend tailwinds unwind. On the back of the better-than-expected performance, management upgraded its sales and profitability outlook for H1 FY21/22. Although we will raise the estimates and target price, ‘Reduce’ recommendation is re-affirmed as DIY spend normalises and the limited margin improvement potential going forward.
Unscheduled Q2 trading update leads to full year profit upgrades of c.10% Last night Kingfisher reported continued strong trading. The market was already anticipating consensus upgrades but the scale (likely c.10%) was impressive and there is upside risk heading into H2 unless trends fade sharply. We raise our target price to 390p but maintain our Neutral rating. Strong Q2 trading not a surprise, but UK standout performer Industry data (Banque de France, Barclaycard) and competitor results (e.g. Toolstation) already suggested continued strong trading at Kingfisher. The company reported that for the first 10 weeks of Q2 (May to mid-July) like for likes were +22.3% on a two-year stack. This was ahead of expectations for the quarter (Visible Alpha consensus +15.2% and Exane BNPP +18.6%). Compared with our forecasts the UK was ahead but France and Poland were slightly behind. H1 profit guidance raised, but it''s all about the H2 fade Kingfisher raised its H1 Adj PBT guidance from GBP 580-600m to GBP 645-660m. Banking the beat versus prior consensus GBP 602m implies a full year upgrade (from GBP 850m) of between 5% and 7%. Our FY forecast was already higher, at GBP 890m, and we raise by 8% to GBP 965m today. We think H2 consensus is modelling too sharp a sales slowdown from the current two-year stack LFL run-rate of +22% to H2 +8%. We model +14% in H2, i.e. one year LFL of -1.6%. Our H2 Adj PBT forecast of GBP 305m still strikes us as potentially conservative: last year''s GBP 371m was after repaying GBP 68m of government support so we are allowing for a GBP c.130m drop in underlying profits from lower sales, more marketing, promotion and input inflation. Our FY Jan-23 Adj PBT forecast rises 6% to GBP 860m. Target price up to 390p but maintain neutral rating On our new forecasts at the current price (369p) the stock trades on CY22 P/E 11.7x and FCF yield of c.5%, with surplus cash which it could potentially begin to return to shareholders. We...
With the narrative around recovering DIY demand well established and understood, the Kingfisher equity debate rests on the ability to transform from a COVID winner to a structural winner. Management are executing, investing and communicating well. But format and competition concerns can’t suddenly
Strong year to date performance from UK hardline stocks The UK hardline general retailers have performed strongly year to date, most supported by healthy sales trends from lockdown continuing to be stronger for longer. In our view this remains an attractive part of the sector. Kingfisher has been the stand-out performer and we downgrade to Neutral after this run. We upgrade WH Smith to Outperform. Although the travel recovery may take a while we see this as an excellent entry point for this high quality stock. Not such hard times We still like the UK hardlines sub-sector. Growth rates, compared with 2019, continue to be healthy as the categories remain relevant for consumers still very much in touch with their homes. The bottom-up equity stories are generally attractive - a combination of self-help, growth and not being disintermediated by online. We see upside risk to consensus forecasts across the board, despite healthy guidance raises already this year, and valuation multiples are not particularly demanding. Downgrading Kingfisher to Neutral, upgrading WH Smith to Outperform Kingfisher shares have been the stand-out performer across the sector over the past 12 months and year to date. The bottom-up story is still at an early stage under new management, even after last week''s earnings upgrade we find consensus forecasts conservative and the stock trades on a fair multiple (CY22 P/E 12.6x). From here we think the upgrade cycle and growth opportunities are more attractive at WH Smith and upgrade to Outperform. It has lagged in the past three months (flat versus Kingfisher +38%) and as investors try to time getting on board for a travel recovery we focus on what could be a sharp recovery in UK retail profits. BandM and Dixons: continue to see attractive upside at BandM; Dixons remains Neutral BandM has also been a laggard, flat over the past three months. We remain bullish, seeing this as an attractive growth and cash-return story on a low...
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Following a much better than expected 1Q update we have moved our FY1/22 PBT estimate up by 18%, in line with 1H sales and profit guidance. However, the company's willingness to run with -9% consensus LFL estimates for the current quarter despite having started with +8% suggests that it believes that we are on the cusp of reversal of COVID benefits. That is sensible, albeit events have thus far proved unpredictable. We believe that we have become overly susceptible to the mood music here as expectations have been regularly exceeded. Accordingly, we have cut our estimates for FY1/23 and FY1/24 as our underlying premise here is that nothing ever really gets better at KGF except sometimes external conditions. We fully expect it to revert to being a £600m PBT company (in good years). We retain our Sell recommendation and 220p target price.
Q1 sales galloped c.64% yoy (in lfl terms) as consumers’ demand for DIY products sustained, besides favourable comparables. Given the strong sales trends in Q1 and early May, management revised upwards its sales and adjusted PBT guidance. We will raise our estimates, but are likely to maintain our cautious stance as the current DIY spend momentum seems unsustainable.
Strong start to year with UK standing out on a 2-year LFL basis A very strong start to the year with the Group annualising against weak comps from lockdown 1 in the latter part of the quarter when stores were temporarily closed. Group total sales were up 60% (+61.9% in constant currency) with LFL +64.4% (Q4 LFL +17.4%). UK LFL sales +65.0% (Q4 LFL +19.4%) with France +101.7% (Q4 LFL +15.4%) and Poland -12% (Q4 LFL +4.9%). E-commerce sales were up 63% (Q4 +154%; Q3 +153.4%) and now account for 21% of sales. To give a better view of the underlying performance, on a 2-year basis, Q1 LFL UK +39% with France +18.1% and Poland 20.5%. Management has announced the launch of Screwfix as a pure-play in France. Management raise guidance 1H22 LFL sales outlook raised to ‘mid-to-high teens’ from ‘low double-digit’. As a result, management guide to 1H adjusted PBT of £580m to £600m versus company-compiled analyst consensus of £488m, with FY22 consensus at PBT of £723m. Forecasts/TP/recommendation put under review Kingfisher has benefitted from the demand for house-related items during the pandemic and improved profitability from a refocus of the business. Comparables will get more difficult from 2Q and demand is likely to normalise as restrictions are lifted and discretionary spending switches back to leisure. Ultimately, Kingfisher is still a big box retailer and the structural challenges from the shift online, rise of the discounters and the underlying ‘do it for me’ trend have not gone away, in our view. We struggle to see where sustainable medium-term growth will come from.
Full year results demonstrated Kingfisher is not just a lockdown beneficiary Kingfisher has benefited from a year of strong home improvement demand. This trend should remain strong for a while, with soft comps in March/April and a staycation summer looking likely. Monday''s full year results, however, were also notable for management''s focus on the top line, the progress made with the store estate, the cash generation of the business and its sustainability agenda. Our FY Jan-22 EPS forecast rises by c.10% and we maintain our Outperform rating. Can''t complain about the finish There wasn''t much in Monday''s full year results for the bears: there was a profit beat, stronger net cash and a larger than expected dividend. Meanwhile on the outlook, there was strong current trading and full year guidance pointing to at least a high single-digit full year profit upgrade to consensus. There''s some nice workmanship going on here Returning France to a healthy level of profitability is probably the biggest lever in the PandL. We estimate that Kingfisher France only earns around a c.1% margin on a ''fully rented'' IAS17 basis versus BandQ which, on a pre-Covid and comparable basis, earns around 4%. But there''s no cutting corners here: management is focused on driving sales rather than on a short term margin fix. A long way from finishing the project Having reviewed our forecasts we feel Kingfisher shares still offer good upside. The self-help story is taking shape, with smaller ''big box'' stores supported by online (18% of sales), Screwfix international expansion, and an increasingly complete infrastructure backbone. This is further backed up by a balance sheet which has GBP c.1.5bn (70p/share) of surplus cash. The company has also committed to 1.5 degrees Celsius science-based targets which demonstrates its positive sustainability agenda. On a historically normal multiple of CY21 P/E 12.0x (at 315p), we maintain our Outperform rating. We include 15 questions...
Kingfisher delivered better-than-expected FY20/21 results. The group’s lfl sales grew >15% yoy in Q4, bringing the FY sales growth to c.7%, driven by higher DIY consumer demand. Cost control measures along with robust top-line growth aided the retail profit to come in >27% higher. Looking ahead, management expects growth momentum to continue in the near term, with tough comparable and moderating consumer demand to weigh in on the top line in H2. Management has also resumed the dividend pay-out.
22 - 26 March 2021
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Kingfisher continued to register strong sales growth in Q4 FY20/21, buoyed by the higher DIY spend by consumers since the onset of the pandemic. Management continues to refrain from providing full-year revenue guidance, citing the pandemic-related uncertainties and the impact of lockdown restrictions. We maintain a positive outlook on the stock.
The lesser spotted ''Christmas'' trading statement Kingfisher has never before updated the market for trading in January. Today''s announcement, confirming continued strong sales growth, lifts consensus forecasts for FY Jan-21 by c.6%. The company faces some localised restrictions in trading but all stores remain open, and online growth continues to run at c.+150%yoy. We lift our estimates to reflect the strong revenue growth, raise our target price to 340p (from 320p) and reiterate our Outperform rating. Still benefiting from the nesting trend Despite some concern, based on high frequency data, that DIY sales trends have slowed, Kingfisher today reported LFL sales growth of +11.4% in November and +22.1% in December. This reflects the opening up of stores in France after lockdown, some calendar effects, and an acceleration of trade (Screwfix). With households increasingly restricted in the early new year, we expect healthy home improvement trends to remain into the Spring: and recall, the company''s Q1 last year was impacted by the decision to keep stores closed, hence the comp base is a -24.8% like for like. Raising profit forecasts again In December the company signalled an underlying upgrade to profits albeit this was accompanied by announcing the repayment of UK business rate relief. Today the company had guided that it is ''comfortable'' with the top of consensus, being Adj PBT GBP 742m. We raise our estimate from GBP 700m to GBP 755m. For FY Jan-22 we raise by c.1% from GBP 653m to GBP 660m. Raising target price to 340p, reiterate Outperform Our target price rises to 340p. As well as the forecast upgrade we harmonise our WACC assumptions with the rest of the sector, lowering our market risk premium assumption by 50bps as we did for the companies featured in our recent report Many (un)happy returns 2021. At the intraday price of 286p the stock trades on CY21 P/E c.12x and CY22 P/E c.11x, an equity FCF yield of 8%.
Strong sales continue, benefiting from essential status Q4 Group LFL sales (year-end January) were up 16.9% to 9th January, having been up 12.6% to 14th November. This compares to Q3’s +17.4%. Strongest performance was in the UK (Nov LFL sales +24%; Dec +20.8%). France (Nov -0.1% LFL sales; Dec +29.4%) was impacted by a negative calendar effect in November (-5% impact in LFL sales), the closure of certain ranges in store in November and weaker trade trends versus DIY. French sales also benefitted from stronger growth in both formats post November lockdown. Polish LFL sales were up 0.2% in November and +9.7% in December. Management comfortable with top-end of consensus expectations Management is comfortable with the top end of consensus expectations, with a range of £667m to £742m (average £700m – company complied), which compares with our £683m. We place our forecasts/TP under review Reiterate Sell The big unknown is what level of demand will be sustainable going into 2021 as Kingfisher has been fortunate to be classified as essential. We expect a deteriorating macro environment to put pressure on discretionary spending as will a switch-back in spending to leisure pursuits assuming COVID restrictions are lifted as the vaccines are rolled out. We suspect demand has been pulled forward, and, consequently, we believe Kingfisher will not be able to match FY21’s strong performance. A sales drop back is likely to cause some operational de-leverage. There will also be a cost headwind as management has guided to £85m of temporary savings, net of COVID-related costs. A potentially stronger GBP/EUR post the EU trade deal could have a negative translational profit impact (KGF has enjoyed a cumulative £83m currency benefit since the Brexit vote). Ultimately, Kingfisher is still a big box retailer and the structural challenges from the shift online, rise of the discounters and the underlying ‘do it for me’ trend, have not gone away. There is much still to fix at Kingfisher and we struggle to see where sustainable medium-term growth will come from.
Mechanically adjusting for repayment of UK business rates Having already repaid the furlough support given by the UK government, today Kingfisher announced that it would repay the business rate relief. This would have saved GBP 130m, spread over two years. This materially reduces current year EPS expectations but only represents around 2% of the market capitalisation, hence our target price falls to 320p. No real surprises: business rates being returned Kingfisher joins the supermarkets and several other retailers deemed as ''essential retail'' (e.g. BandM, Pets at Home) in repaying the government support it received during the pandemic. This was due to reduce operating costs by GBP 110m in the current financial year and GBP 20m in the next. Although Kingfisher was permitted to trade throughout the first lockdown, recall that its stores remained closed for several weeks and as a result group Q1 LFLs were -24.8% and consequently full year LFLs will likely ''only'' be around +5%. Current trading indicated as remaining strong Kingfisher had already reported its sales performance to 14 November and today''s statement merely comments qualitatively that it is experiencing ''continued positive trading momentum''. We take some encouragement from this given concerns about DIY falling in importance for the consumer post-lockdown and also given some high frequency data from BDO had suggested a slowdown in its broad ''lifestyle'' category. A mechanical downgrade, view unchanged Our Jan-21e (company-defined) Adj PBT falls from GBP 810m to GBP 700m as the cost relief is stripped out. The stock trades on CY 2021 P/E of 11.4% and FCF yield of over 8%. Our target price is based on long term operating margins recovering to 7%, which is about 50bps higher than current year margins if all cost savings are excluded. We think this will come through from the ''Powered by Kingfisher'' strategy over the next few years.
After a 20% beat at H1, further upgrades after Q3 Q3 sales were strong and we expect full year consensus profit upgrades of around 7%, with further upside risk if Q4 continues as it has started. Currently the market views this as setting up a tougher comp base for next year, and we think it unwise to change FY Jan-22 forecasts at this stage. Nevertheless, on next year''s numbers the stock continues to look attractive to us, on a P/E under 12x and FCF yield over 8%. The market might not want to buy into ''work-from-home stocks'' but we see self-help under a new management team and see value here still. Strong, but as expected There was already enough industry data out there to suggest that Kingfisher would beat formal sell-side expectations in Q3, which it duly did. The market was always likely to place disproportionate emphasis on current trading so far in November particularly as it falls within the second lockdown. Trading in these two weeks is well ahead of the street for Q4 (+12.6% vs c.+3%) but was a deceleration from Q3 (LFLs +17.4%). The market is looking past the current financial year and shrugged off the profit upgrade: we raise Adj.PBT from GBP735m to GBP810m. Just building tougher comps for itself? Kingfisher quantified the temporary cost savings this year at GBP175m, and this helps to control expectations for FY Jan-22e (our forecasts are essentially unchanged at Adj.PBT GBP667m). Just as importantly, however, the company is getting on with its self-help strategy: closing Castorama stores, re-instating installation services at BandQ, expanding Screwfix in Republic of Ireland, introducing new ranges and driving higher online penetration. Margins in France had fallen to just 4.0% before COVID, and the market share gains are encouraging for margin recovery prospects. Maintain outer year forecasts, maintain Outperform The market is focused on FY Jan-22e earnings which are unchanged, explaining today''s negative stock reaction. But on...
In Q3 FY20/21, Kingfisher continued to benefit from the DIY-boosting pandemic – its lfl revenue increased 17.4% yoy with a massive 153% yoy growth in the e-commerce channel. Even during the first two weeks of November 2020, the momentum remained strong. However, management refrained from guiding for the full-year revenue and margin, as the second round of lockdowns in its key markets (France and the UK) and the Brexit scenario unfold uncertainties.
Kingfisher was resilient during H1 20/21, as DIY demand recovered strongly during Q2 20/21 – the group’s operating cost management was also much better than our expectations. More importantly, the company’s robust trading backdrop has sustained during August and September so far (+16.6% yoy lfl sales). While the surge in DIY demand is an industry phenomenon (and still unclear how long will it last), we turn more positive on Kingfisher’s new trading strategy, which has shown initial green-shoots.
H1 results and current trading beat expectations Kingfisher''s H1 profits comfortably beat consensus by c.20% and our own forecasts by c.12%. Current trading remains strongly double-digit across almost all banners and categories. It takes both commercial and strategic momentum into the second half of the year. Growth rates will fade and investors may be concerned about tough comparatives, but even on profits that fall next year Kingfisher is the cheapest stock in our coverage on CY21 EV/EBIT. We maintain our Outperform. Responsibly harvesting the near term benefits The Covid-19 situation has favoured Kingfisher in relative terms, with strong demand and material cost saving potential, and the business has responded exceptionally well to the challenge of the channel shift towards online. Profits look likely to be substantially ahead of prior expectations: we have raised full year EPS by 21%. At the same time the company is repaying the UK furlough scheme and considering repaying its EUR 600m Term facility that is backed by the French State. Building the strategy for 2021 and beyond We find plenty to like about Kingfisher''s strategy. It is pragmatic, empowers the retail banners, is focused on the top line and growth opportunities for trade and discount segments. Good progress is also being made in reducing inventories, complexity and disruption. We think the early market share gains are likely to continue, and show three charts which illustrate the opportunity for the group, as well as suggesting 15 questions for management inside. Another forecast upgrade; target price up to 325p The strong business momentum drives our Jan-21 EPS upgrade of 21% and higher year end net cash forecast (GBP 600m ex IFRS-16) but our outer year forecasts are left relatively unchanged: at this stage we assume that the beat this year broadly sets a higher bar for next year, rather than assuming profitability has step-changed. Even still, with the stock trading...
1H results 15% above consensus Kingfisher reported a 23.1% increase in 1H21 PBT to £415m (cons £361m/INVe £375m), fortunate to be able to trade through lockdown and benefit from the switch in consumer spending towards Home categories, which has continued through the summer. This is on sales down 1.1% in constant currency showing the benefits of the focus on reduced costs, strong B&Q performance and improved operational performance in France, helped by furlough and the rates holiday (£100m – will repay £23m of furlough to UK Government) and discretionary ‘temporary’ savings of £92m. Adverse impact in 1Q from COVID, offset by strong growth in 2Q. No H1 DPS declared as expected. E-com sales up 164%, and account for 19% of Group sales. Net cash in the bank stood at £2.1bn (working capital inflow £656m in 1H expected to reverse in 2H) with liquidity at over £3.7bn. 3Q to date trading remained very healthy Group LFL sales to date up 16.6% versus Q2 +19.5%, with demand levels starting to soften in most businesses from Q2 except for UK. By business: B&Q 3Q to date LFL +23.9% (Q2 +19.6%), Screwfix +9.9% (Q2 +2.4%), Castorama +20.6% (Q2 +25.3%), Brico Depot +12.6% (Q2 +28.9%) and Poland +10.3% (Q2 +15%). Upward pressure on FY20 consensus but question remains on pull forward of demand from FY21 Given that the strong momentum from 1H has continued into 2H, there will be upward pressure on FY21 consensus towards the high of £680-690m. We place our forecasts and TP under review. We forecast FY21E PBT of £558m, EPS 19.5p (consensus £585m), based on flat H2 total sales in its 3 major markets (UK, France and Poland). As previously said, the unknown is the sustainability of demand for the rest of the year as the macro environment starts to deteriorate and reversal out of cost savings in 1H next year plus the end of the business rates holiday. We suspect demand will have been pulled forward from next year and believe consumer spending is likely to be impacted by rising unemployment which, together with a switch-back in spending to more leisure pursuits, may hit discretionary retail spending in 2021. Consequently, we believe Kingfisher could struggle to match FY21’s strong performance. Valuation (CY21 PE 15.8x) is too demanding for a business for which we struggle to see where sustainable long-term growth will come from given the structural pressures in its markets from the shift online, the rise of the discounters and the ‘do it for me’ trend.
Another strong performance expected Kingfisher was fortunate to be able to trade through lockdown and benefit from the switch in consumer spending towards Home categories during lockdown, which has continued through the summer. We forecast 1H21E IFRS 16 PBT of £375m (+11% yoy) versus company-compiled consensus of £361m. Sales for almost the whole period have been reported with Q2 sales seeing an impressive return to growth in all markets from June. While it is early days in implementing the ‘Power by Kingfisher’ strategy, we are looking for an update on the cost efficiency initiatives and optimisation of its OEM sourcing programme, as well as progress on price repositioning and making its various formats more distinctive. We expect strong trading and its inventory reduction programme to have helped its net cash position. Risks to FY21 forecasts on the upside Focus will be on any comments on current trading. France is likely to have a good August, which is an important trading period, if the recently reprinted August Banque de France data is anything to go by. It suggests continued strong demand in France with DIY sales up 13%, though this is a slowdown on July’s 19% and June’s 30% growth. In the UK, August’s BRC data suggested that when the weather turned more autumnal, demand fell off in DIY. Given that our FY21E PBT forecast of £558m is based on flat H2 total sales in its 3 major markets (UK, France and Poland) and we are 5% below consensus of £585m, there may well be some upward pressure on FY21 consensus, if August was that strong in France. This is probably already reflected in the current share price, in our view. Challenging times ahead. Reiterate Sell. The unknown is the sustainability of demand for the rest of the year as the macro environment starts to deteriorate. We suspect demand will have been pulled forward from next year and believe consumer spending is likely to be impacted by rising unemployment which, together with a switch-back in spending to more leisure pursuits, may hit discretionary retail spending in 2021. Consequently, we believe Kingfisher could struggle to match FY21’s strong performance. Valuation (CY21 PE 16.2x) is too demanding for a business for which we struggle to see where sustainable long-term growth will come from given the structural pressures in its markets from the shift online, the rise of the discounters and the ‘do it for me’ trend.
Impressive trading continues in Q2. Since last update to mid June, UK & ROI sales growth has slowed from mid-20%’s to high teens; France from the 30’s to high 20’s and Poland accelerated from low to mid-teens (see Figure 1). Group Q2 LFL was +21.8% though YTD Group LFL still down 3.7%. We caution against reading too much into current high demand. DIY has definitely been popular during lockdown with consumers having time to consider the state of the home. Those in a job/on furlough have been saving as they not been able to spend on leisure/holidays. However, pent up demand is likely to fall away over the remainder of the year and consumer spending shift back to other categories as retail and leisure reopens. In addition, we expect the macro environment to deteriorate and hit retail spending in 2021. Upgrade FY21E PBT by 19% but maintain FY22E PBT. The upgrade to FY21E reflects company guidance that 1H21 PBT will be higher yoy due to strong trading & cost reduction, some of which is non-recurring (e.g. UK rates/furlough payments). INVe 1H21E PBT £375m (1H20 £338m). We have increased UK profitability reflecting higher gross margin (low promotional activity) and a reappraisal of the opex base. This has more than offset lower profitability in France and Poland where pricing has been more competitive. Reiterate Sell. The new team has much to fix and while ‘Powered by Kingfisher’ is looking to reposition Kingfisher for a more digital word, the group faces structural pressures in all its major markets and potentially a FX headwind when there is clarity over Brexit trade talks. As set out in our note Challenging Times Ahead (published 30/6/20), we struggle to see where sustainable long-term growth will come from, given the shift online, rise of the discounters and ‘do it for me’ trend. Our TP, based on high single digit CY21E PE, is unchanged at 170p.
After delayed full year results, Kingfisher releases Q2 early Kingfisher issued an upwards profit warning today, guiding for an increase in first half profits compared with last year. Strong trading has continued, dragging first half revenues back towards flat despite the store closures in Q1, while government support (furlough, UK business rates) helped the cost outcome to be better than we had expected. The majority of the beat in H1 is on costs, but the sales trends are also encouraging for Q3 and beyond. We raise our full year forecasts materially, to Adj PBT of GBP 610m, but after a strong run maintain our Neutral rating. The shift to spending on the home continues Kingfisher''s sales growth post-lockdown has remained stronger for longer. Q2 like for like sales growth looks set to be c.+21%, ahead of our prior estimate (+16%). One surprise here is the continued performance of online, growing by c.+200% pa throughout June and July, not fading now that stores are fully operational. It was also encouraging to see Kingfisher France outperform the market in June (growing at 33% vs 30%), following several years of underperformance. Costs savings drive the majority of the upgrades Management has guided H1 Adj PBT to be above last year''s level of GBP 337m. We raise our forecast from GBP 238m to GBP 370m. The sales beat contributes GBP c.60m of gross profit to this, but the larger part comes from costs beating expectations. Staff furlough benefits may have been larger than anticipated and also the costs of the online shift appear to have been less painful. Full year upgrade of over 40% With an extraordinary H1 nearly completed, in which profits have risen year on year, we assume that DIY trends moderate in the second half of the year, and we look for H2 like for likes of c.+3%. Costs, however, will be assisted by c.GBP 60m of business rates relief, so profits should rise yoy again. We move to full year Jan-21e Adj PBT GBP 610m (was GBP 432m)...
No grand 5-year strategy update this time round from Thierry Garnier and no quantitative financial targets for the first time in over 20 years of covering Kingfisher. Mr Garnier gave a particularly damning review of the poorly implemented ‘ONE Kingfisher’, disagreeing with the previous management’s view. We find the new ‘Powered by Kingfisher’ strategy underwhelming. Detail is lacking with many questions left unanswered. Whilst keeping the best of ‘ONE Kingfisher’ and returning to more distinctive trading banners makes sense, time has been lost. Structural pressures have increased with much still needing to be done to turn KGF into an agile business. Upgrading FY21E PBT by 29%, but reducing FY22E by 9% reflecting very strong current trading (Q2 Group LFLs up 21.8% to 13 June versus Q1 down 24.8%) and a pull forward from 2021. 2021 demand environment expected to be challenging. We would cautious against reading too much into current trading patterns. DIY has definitely been popular during lockdown, but we believe demand has been pulled forward. Rising unemployment later in the year is expected to weigh on consumer demand and hit retail spending in 2021. Brexit is a relatively big issue for Kingfisher compared with most retailers as 60% of its sales are in Europe. Since 2016, we estimate the Kingfisher P&L has had an £81m transactional benefit from weaker sterling. FX could become a headwind once trade talks are agreed (or not). Downgrade to Sell from Hold. The shares have rallied 73% from their low on 20 March. We still struggle to see where sustainable long-term growth will come from given the structural challenges Kingfisher faces. TP, based on a high single-digit CY21E PE, cut to 170p from 175p reflecting forecast changes.
FY19/20 was another subdued year for Kingfisher, on both the revenue and profitability fronts. The road ahead also remains bumpy, as the Coronavirus- and Brexit-related uncertainties prevail. In such backdrops, the new CEO’s reasonable revival plan (which covers the retailer’s key pain-points) offers some relief. But, a faultless execution is a must, as investors would be less trusting now (considering the previous sour experience) even though management is new.
FY20 results broadly in-line FY20 reported IFRS 16 pre-exceptional PBT post P&L transformation costs was £544m vs INVe £554m/company-compiled consensus £558m. No FY dividend declared as expected. Year-end net cash was £37m (FY19 £84m). LFL growth from Screwfix, Poland and Romania offset by weaker sales at B&Q, France, Russia and Iberia. Benefits from Group buying and sourcing largely offset by incremental clearance and logistics & stock inefficiencies in France. Initial focus was on improving France (Castorama in particular) and implementing a new trading approach, rebalancing activity between Group and local, improving click & collect/home delivery and focusing on fewer initiatives within the business (paused some of the range change in FY21). This resulted in improved LFL performance pre-Covid, as already reported. New ‘Powered by Kingfisher’ strategy – logical, but lacks any real detail This is an evolution of ‘ONE Kingfisher’, as expected, though it lacks detail as to the shape of the store portfolio, cost savings and working capital opportunities. Focus is on developing distinct retail banners (it seems to be keeping both Castorama and Brico Depot format in France), addressing diverse customer needs, 'powered' by the Group. The strategy is to move to a simpler local operating model with an agile culture, looking to build a ‘mobile-first’ customer experience and grow differentiation via own brands. An operating model ‘u-turn’ with more commercial decisions being devolved back to the individual operating companies, as already hinted at, with buying and IT still centralised. New store concepts will be tested in the coming months. The company intends to go through with the divestment of Russia, but will keep Iberia now. Upward pressure on forecasts given strong current trading; no formal FY21 guidance Since Covid-19 impacted, Kingfisher has seen an improving relative sales trend (Group LFL sales moved from -74.0% in the first week of April to more than +25% since the second week of May). In May, UK sales +15.5%, France +24% and Poland +16% were helped by stores reopening/lifting lockdown. Improved financial liquidity, helped by strong current trading, with access to £3bn of cash as at 12 June, including £2bn cash at bank. Our forecasts/TP/recommendation are under review.
Recent Q1 trading update was better than expected, with Kingfisher benefiting from being an essential retailer and trading through lockdown in some form. In addition, with people spending so much time in their homes, they turned to DIY and gardening projects, particularly in the UK and Poland. Upgrading FY21E PBT by 19% to reflect the stronger start to the year. Momentum seems to have continued into Q2 and peak trading (August) is yet to come in France. Stronger sales are likely to have been offset by higher operating costs associated with the implementation of social distancing, though Kingfisher does have the advantage of larger stores which makes it easier to trade. We leave our FY20E forecast unchanged as the year ended pre-COVID. Immaterial changes to FY22E, as we have concerns that the consumer generally is going to emerge from this pandemic with higher levels of debt and we foresee a significant step up in unemployment. As a result, we expect non-food spending to come under pressure, particularly as more leisure activities start to reopen and the consumer has to prioritise spending. Having spent on DIY in 2020, the category may not be so strong next year. We await Mr Garnier’s strategic update, due with Kingfisher’s FY20 results (date yet to be confirmed), on how the new team is progressing with sorting out the poorly implemented ‘ONE Kingfisher’ strategy devised by the previous team. We are looking for him to address the long term structural pressures the Group has been under from the shift online, which is expected to accelerate with COVID-19, and the move from DIY to DIFM. Reiterate HOLD. We struggle to see where longer term sustainable growth will come from. Our TP, based on high single digit CY21E PE, rises to 175p.
Kingfisher’s lfl sales tanked c.25% yoy in Q1 FY20/21, infected by Coronavirus in the second half of the period. Although the top-line improved on a weekly basis, in accordance with the relaxed lockdown/containment measures, we remain cautious about the retailer’s full-year performance, amidst the uncertain macro-economic environment induced by the COVID-19 pandemic and Brexit. However, we believe the group’s cost-cutting and cash-preserving actions are sufficient to sail through the crisis.
Q1 sales down 24% impacted by COVID19. First week of May LFL +2.7% post stores reopening Q1 sales were down 24% at constant FX (LFLs down 24.8%). The positive trends seen in Q4 continued up to 14th March reflecting operational improvements in France and the implementation of a more devolved trading approach across the Group. E-commerce is up 4-fold since lockdown. Stores started reopening in France and the UK in the second half of April with over 95% of Group stores now open (the Republic of Ireland and Spanish stores are still closed). Group LFLs have returned to positive territory yoy in May. Relative sales trends have improved, with Group LFL sales moving from -74% in first week of April (first full week post closure in UK and France) to +2.7% yoy in first week of May (UK +18.7%, France -18.7%, Poland +35.8% and Romania +16%). In the final week of April and first week of May, LFLs were helped by the phased reopening of stores in the UK and France. The first week of May reflect exceptional demand in the UK and Poland in particular. We believe this reflected pent-up demand, though we suspect DIY is likely to have a reasonable summer given consumers are likely to continue spending plenty of time at home. Our sales forecasts had broadly assumed sales down 40% in May/June/July, then down 10% for 3 months, and flat for the rest of the year. We now place these under review. Sufficient liquidity headroom – access to over £2 billion The company has confirmed its eligibility for the Bank of England’s Covid Corporate Financing Facility (CCFF). It also has a €600m (c.£525m) term facility guaranteed by the French State, which has to be drawn down. An un-drawn £250m RCF has been agreed in addition to its original fully drawn 2 RCFs totalling £775m. Management does not envisage having to use the additional facilities under its current planning assumptions. Waiting for strategic update with FY20 results – no date set yet As discussed in our note, When large stores are an advantage published 29/4/20, we expected Kingfisher to be able to implement social distancing within its stores more easily than most and, while there are likely to have been increased costs, this statement shows demand is there. We await Mr Garnier’s strategic update on how the new team is progressing with sorting out the ‘ONE Kingfisher’ strategy, which was poorly implemented by the previous team, and how he will address the long term structural pressures the Group has been under from the shift online, which will have been accelerated with COVID-19, and the move from DIY to DIFM. We still struggle to see where longer term sustainable growth will come from.
After 6 weeks with ‘dark’ stores in France & the UK, Kingfisher has started re-opening stores, from last week in the UK and this week in France. There is pent up demand with long queues & online reportedly performing strongly, albeit from a small base. With large stores, it is in a better position than some to put social distancing measures in and these potentially may not detrimentally impact trade. Downgrading FY21E/FY22E PBT by 45%/9% respectively, reflecting a COVID-19 scenario of 22% yoy sales decline. We expect the UK to have been more robust relatively, helped by its higher online participation and less restrictive lockdown, though the peak Easter trading period was ‘lost’ in FY21. France’s peak trading period is July/August and most stores could be open by then. We make no changed to FY20E beyond removing the final dividend. Mr Garnier’s new strategy is due with the delayed FY20 results. No new date has been set. We believe 2 major decisions are needed. 1) Does he agrees with ‘One Kingfisher’ principles & complete it? 2) Does he adopt the ‘GoodHomes’ future of DIY vision set out by his predecessor, one where customers need complete project solutions & service rather than just product? Longer term structural issue persist from the shift online and move to DIFM from DIY. We set out the questions we would like answering to understand where sustainable long term growth may come from. A short-term profit rebound is likely at some point as the ‘ONE Kingfisher’ disruption costs fall out; systems & processes are optimised & the world adapts to COVID-19. Upgrade to HOLD from Sell. We believe a high single digit CY21E PE is appropriate for an ex growth business like KGF which has limited sustainable growth prospects but a solid cash flow & asset backed balance sheet (c.£3.4bn freehold assets vs an EV ex IFRS16 debt of £3.3bn). This drives our new TP of 160p (prev 170p).
Management is unable to quantify COVID-19 impact. Has £1,025m in liquidity available Management is unable to quantify the financial impact. At 31st January, Kingfisher had cash and cash equivalents of £195m and two undrawn RCFs totalling £775m. In total the company has £1,025m in total liquidity immediately available, according to management. Kingfisher is due to announce its FY results on 24th March. We were expecting a strategic update from new CEO Mr Garnier, who joined in September, on his turnaround strategy and how he was going to address the structural challenges Kingfisher faces in France and the UK. This may not happen now given current events. Stores in France and Spain all closed All 221 stores have closed in France from midnight Sunday 15th March until 14th April. In Spain, all 28 stores are closed until 29 March. Management is focused on cost reduction where possible and looking at click & collect and home delivery to help offset store closures. Its remaining 1,100+ stores in the UK, Ireland, Poland, Romania, Portugal and Russia are currently open. We were forecasting that France would account for 35% of FY20E sales and 21% of profits, with the UK accounting for 44% of sales/59% of profits and Poland £13% of sales/21% of profits. Spain is non-core and management is trying to dispose of operations there, along with Russia and Portugal. Supply chain – c.85% of orders placed have a less than 4 weeks delay On the supply chain, 25% of total COGS are directly sourced from the Far East. The group also sources from Europe. In China, 95% of vendors’ factories have reopened, with capacity building. Approximately two thirds of its outdoor and seasonal product had shipped before Chinese New Year. At this moment, management estimates that 85% of placed orders have a less than 4 week delay. In Italy, nearly all its vendors remain open, but there is uncertainty over shipping.
Kingfisher’s poor performance continued in Q3 FY19/20 – lfl sales declined 3.7% with most of the banners in the red. Operational inefficiencies, lower promotional activity and challenging market condition kept the top-line under pressure, especially in France (-6.1%). With no respite in sight, management anticipates the softness to persist in Q4 FY19/20.
3Q trade has been reported about 2.5% below consensus estimate at LFL level which arithmetically results in a £20-30m reduction to pre-existing consensus PBT estimates of £633m (source: Kingfisher). Given the trends evident however it is likely that this will follow through into the balance of the year. So we would expect further weakening of 2019/20 PBT estimates to sub £600m. For now a 5% reduction looks to take into account a good portion of the end out-turn.
Risk to forecasts continues It is hard to find a positive in Kingfisher’s Q3 update, with Group LFL down 3.7%. The new dynamic seems to be weakness in Poland and management is now talking about a weak consumer backdrop in all key markets. In addition, performance continues to be impacted by disruption from the implementation of new ranges, continued adjustment to promotional activity and operational challenges in France. It is early days for Mr Thierry Garnier, having been in the CEO role for just 8 weeks, but he commented that Kingfisher is suffering from organisational complexity and too many large-scale projects. He intends to pause some of these in order to focus on stabilising trading and as a result expects no immediate effect from these changes. Management expects weaker trading to continue into Q4, despite weak French comps from last year’s ‘gilets jaunes’ demonstrations. Valuation does not appear overly demanding, but it is not compelling enough for the execution risk and limited longer-term growth opportunities, in our view. Risk to consensus is on the downside. FX is also starting to move against Kingfisher with sterling’s recent strengthening. We place our forecasts and TP under review. See our note No sign of an inflection point,16 October, for our thoughts on the issues faced. Detail UK & Ireland LFLs were down 1% with B&Q down 3.4% (Bloomberg consensus -3%), impacted by the softer market backdrop with management estimating there was a negative 1.5% impact from the discontinuation of showroom services. Screwfix LFLs were up 3.7% (consensus +4.4%), a slowdown on H1’s run-rate of 4.8%. French LFL sales were down 6.1% with Castorama LFLs down 6% (cons -4.1%) and Brico Depot down 6.1% (cons 6.1%). Performance reflected lower promotional activity and the impact of transformational activities. Milder weather has not helped with the underlying market also being soft. Poland LFL sales were down 3.2% (cons +1.6%), a material change in dynamic from Q2 when LFLs were up 0.9%. This was impacted by new range implementations and the removal of one further Sunday of trading each month earlier this year (management estimates a negative impact of 1%). Management reports a much softer market generally and expects this to continue into Q4. Romania, small in the context of the Group, LFLs +6.1% driven by good performance by the Brico Depot stores with total sales (down 0.6%) impacted by the annualisation of clearance activity in the former Praktiker stores.
Thierry Garnier, who joined as CEO on 25th September, inherits a business structurally challenged in its key markets, where sales/market share are in decline, and it is difficult to identify the longer term growth story. Little profit progression 3.5 years into the ‘ONE Kingfisher’ transformation, despite an estimated £87m of FX translational benefits and c.£200m of GNFR & unified/unique sourcing benefits. Pre IFRS 16 underlying Group PBT increased by just 5% between FY16 and FY19. Adjusted for the positive FX and transformation benefits and the negative clearance/disruption costs, underlying FY19 PBT has fallen £228m, or 34%, versus FY16’s £670m We downgrade FY20e/FY21e reported PBT post IFRS16 by 6%/9%, driven by weaker sales. Our TP falls to 190p (prev 200p) with the downgrade partially offset by peer group re-rating. 3 immediate priorities for new CEO Mr Garnier are to: 1) rebuild the senior leadership team; 2) decide whether he agrees with the principles of ONE Kingfisher; and 3) adopt (or not) the ‘GoodHomes’ vision of the future of DIY where customers need complete solutions, rather than being product-led. Completing the ‘ONE Kingfisher’ vision is logical, as breaking up the business would result in dis-economies of scale and would be a high risk strategy, in our view, given the Group’s underlying profitability is far from stable. Reiterate Sell. Valuation is not overly demanding, but we believe it is not compelling enough to compensate for the execution risk and potentially limited long term growth opportunities.
Kingfisher once again disappointed investors with its dwindling top-line. Although H1 FY19/20 profitability was ahead of street estimates, it is likely to be offset with higher stock clearance costs in the second half. All eyes are now set on the new CEO, if he will make the difference. Impatient investors are, however, unlikely to give him much time to prove his worth. No material change in our estimates.
H1 underlying PBT 3% ahead of consensus Reported underlying H1 PBT post IFRS 16 down 6.4% to £353m vs company complied consensus of £342m. The beat was driven by a stronger than expected gross margin (up 60 basis points). The Transformation programme continues, with unified product (COGS) now 59% of the range. Sales trends by division are directionally similar to recent quarters, with sales growth in Screwfix, Poland and Romania offset by decline in B&Q and France. However, what stands out is the significant deterioration in Q2 sales performance in the core businesses, with B&Q sales down 8.2% (Q1LFL +2.8%) and France down 5.1% (Q1 -3.7%). FY underlying PBT forecast under pressure Management has maintained its flat gross margin guidance for the full year despite delivering 60 basis point improvement in H1, highlighting higher H2 clearance costs given weak sales. We expect FY20 consensus expected to fall by c.3% to £635m-645m u/l PBT pre Transformation costs and post IFRS16, including Russia and Spain which management has failed to dispose of (we had u/l PBT of £668m post IFRS 16 and ex c.£5m of losses from Spain and Russia). Note the forecasts below are on a pre IFRS16 basis (which is expected to have a minimal impact at the PBT level) and after Transformation costs. Our view: Core businesses remain structurally challenged Strategically, Kingfisher is in limbo until the new CEO, Thierry Garnier, starts next week and has time to assess the business. He inherits a business where it is hard to identify the longer term growth story and sales/market share are in decline. Both France and the UK (collectively c.80% of EBIT) face structural issues in our view. A radical change of direction seems unlikely given a break-up of the business was effectively ruled out by Chairman, Andy Cosslett, at the Capital Markets Day in May. In addition, he said that the Board supports the evolution of the ‘ONE Kingfisher’ strategy into ‘GoodHome’ as set out by departing CEO, Ms Laury. We place our forecasts and TP put under review.
Kingfisher has reported 1H PBT (before transformation and exceptional costs of £109m) of £353m (1H 2018/19 £377m both years IFRS 16) and on the basis of weak 2Q sales at B&Q and Castorama and some phasing benefits in the gross margin to 1H we would expect 1/20E market consensus underlying PBT estimates to reduce by 3-5%.
One Kingfisher aims to offer better value for money than competitors by exercising the group's scale in buying. Three years into the five-year plan and gross profit has declined every year as ranges have been transitioned. It's hard to believe that there will be no benefit whatsoever from the programme, so we are looking at some heavy back-end weighting when new ‘unique' ranges, those designed by Kingfisher, come in.
Kingfisher has started the year on a soft note, as France continued to disappoint. The underlying performance of the UK banner B&Q was also unimpressive, if we exclude the temporary benefits of soft comparables. Overall, we remain cautious on the implementation / output of the performance turnaround plan. The hunt for a new group CEO also continues. We will revise our estimates downwards.
We felt that this was a communication exercise of limited relevance and that the strategic activity being showcased should be paused until new management is in place. It highlighted departing management’s realisation that the historical model is changing. But it also played to the narrative that the problems are largely down to the markets rather than the strategy and execution more generally and that is debatable in our view.
The company says the strategy is working and is progressing close to the original plan. Yet forecasts tell a different story. It seems the new ranges are delivering sales and margin increases (how else could B&Q have held profit last year?), so we do not understand why the gross margin (group +80bp in H2 last year, ex-Casto) is guided to be flat in the current year. Incremental stock clearance should only be 30-40bp. It is this sort of inconsistency which has undermined investor confidence so completely.
It was yet another challenging year for Kingfisher, as the subdued performance continued in France. A poor show at Castorama and in other international businesses offset the improved profitability in the UK and Poland. We believe investors might become increasingly impatient if the ongoing issues in the French and B&Q businesses endure and the ‘One Kingfisher’ transformation plan fails to deliver quickly.
The announcement of succession planning for CEO Veronique Laury and the announcement that splitting the way that the business is looked at between Business as Usual (BAU) and the One Kingfisher Transformation Plan effectively marks the end of the latter. This is reinforced by the announced departure of the Head of Transformation Steve Willett (albeit this may stimulate excitement about a Screwfix split off). We expect that consensus underlying profit estimates for 2019/20E will reduce by midsingle digit percentage following the cautious guidance here.
We are downgrading our forecasts, once again. The restructuring to a single business was always going to make it harder for Kingfisher to compete and to navigate macro headwinds. The latter has freshened from a fresh breeze to a Force 6. This does not mean the strategy is wrong, but it does mean that execution is more difficult. We believe the board is more likely to change the CEO than the plan.
Poor performance in France is not a surprise but the magnitude of the lfl slump surely is. Although management is planning to exit three countries to focus on core geographies (the UK and France), investors are unlikely to have faith in the stock unless a tangible solution for Castorama is visible on the ground. This poor show also casts clouds over the success of the ‘One Kingfisher’ plan, as aggressive price investments/ promotional needs in France might erode the margin improvement guided by management.
Castorama under-performed the (flat) French DIY market by 7% in this quarter. That really is poor for a market leading business. We do not have any sense of control in Castorama. We believe that turning Castorama around is now likely to become more of a priority than implementing the One Kingfisher plan to completion.
Kingfisher reported subdued H1 FY18/19 profitability, as a decent performance in UK and Poland was offset by a weak France. Management plans to underpin performance in the country with a series of steps, starting with H2. Still, the company needs to produce a sustained lfl plus margin improvement in France and error-free implementation of turnaround plan benefits, a key trigger point for investors. We have downgraded the stock recommendation from ‘Buy’ to ‘Add’.
H1 fell short, with underlying profit down 15%; FY estimates were cut, again, by 3%. H2 needs to deliver a 3% increase to meet these lowered forecasts. Although such an inflexion seems unlikely, the shares will take more note of the direction of travel. A 60bp swing in the gross margin rate, more effective cost management in France, and the rising tide of unified and unique products argue for some improvement, at least.
This morning’s results and accompanying investor/analyst conference were revealing as the latter strongly suggested that work is underway to re-calibrate the existing One Kingfisher strategy with the likelihood of a new 5-year plan emerging in early 2019 in our view.
Despite a better performance in Q2, we believe B&Q will remain under pressure in the rest of FY18. However, French consumer-centric banner Castorama needs an urgent overhaul as investors have been patiently waiting for a performance turnaround for many quarters. Management will be sharing the action plan on 19 September 2018. However, an unconvincing strategy is likely to result in a downgrade of the stock recommendation.
The migration to the promised land of One Kingfisher is being let down by poor execution at Castorama, where urgent action is needed on Labour productivity. In the 5 years to January 2019, sales densities in France have fallen 4%, yet headcount has increased by 6%. In stark contrast, B&Q has seen densities -9% but headcount -21%. The productivity gap is worth £120m to profit. Cryptic comments in today's Q2 trading statement suggest imminent action. It is overdue.
It was a weak quarter for Kingfisher, even after adjusting for the unfavourable weather impact. While the UK remains fragile in the near term, France is likely to sail into the black going forward. The turnaround plan remains on track (with future targets intact), and the stock remains well-placed to benefit from any positive development on the macro-economic / DIY front. We have tweaked our estimates but maintain the stock recommendation.
Clearly -4% LFL is not a great figure – but neither in our view is it all that relevant given that 3% points of that were down to obvious weather impacts. There are bigger games being played out both in terms of UK capacity and KGF’s own transformation programme. In contrast to M&S yesterday at least here these have some chance of moving profits forward in the foreseeable future rather than an indistinct promise of being in an un-quantified better shape to grow from after 5 years.
Kingfisher reported weak Q4 numbers, largely due to softer DIY demand in the UK and higher than expected working capital outflow. While the UK is likely to remain under pressure in the near term, the long-term health/ fundamental prospects of the business remain intact. The second pain point should also ease partially as the buffer inventory stock becomes utilised through the course of year. Kingfisher remains an attractive investment at the current level.
Kingfisher (KGF) has reported PBT before exceptional and other re-structuring costs of £797m against consensus of £785m (2016/17 £787m) Its guidance and the weakening of late year UK sales suggest that the pre-existing 2018/19 consensus of £822m (Source: KGF website) on the same basis will reduce to the £790-800m region – say 3-4%. We believe that investors are likely to be concerned by the 24% increase in inventory to support the sales base during implementation of the new buying strategy which has resulted in cash balances dropping much more than expected to £68m. Comments on the One Kingfisher plan are in our view relatively neutral compared with pre-existing expectation. We expect share price weakness today but longer term debates have not changed.
While debate today has focused on a narrow set of specifics – Inventory, buying gains and the UK market – we feel that it has been inevitable that problems would occur during the One Kingfisher programme because of the scale of the task being undertaken and KGF’s history of variable execution ability over an extended period. Management tried and to some extent succeeded in focusing attention on the mechanics of achieving buying gains today. But the overall equation still in our view misses significant financial elements. Today it has become clear that the cost of achieving One Kingfisher is not £800m of various capital and revenue costs but also a large working capital injection, most of which will not reverse. On the horizon there is also clearly further need to cut the physical store base and invest heavily in adapting the remaining stores to the new paradigm of mixed physical and digital presentation – not just online but stores that have a significant digital presentation element. This said we still believe that downside risk is relatively well priced in necessitating only marginal adjustment in forecasts and target price.
We expect the closure of Homebase to be announced in June. Losses this year of perhaps £170m are large compared to closure costs, which are limited to those that Wesfarmers decides to incur for reputational reasons (redundancies, perhaps some global suppliers). The £1bn of capitalised leases stays with Homebase; it’s a problem for the landlords.
We met the company on Friday. We believe that they are doing a pre-year-end round of buy and sell side meetings – so the following may already be known to some extent in the market. We generally regarded the discussion as interesting without material news as such. Much of what is being discussed shows a change of emphasis but mainly likely to deliver if successful in the medium to longer term. But we thought that the direction of thinking has become more realistic and positive.
Kingfisher posted Q3 results slightly below our estimates. France continued to be the pain point while the UK was once again driven by Screwfix. However, we expect a better performance in France going forward as management moves ahead with the turnaround plan, improving the value proposition and economic activity gradually picks up. Our fundamental estimates are reset upwards, but no changes in the stock recommendation.
Kingfisher reported Q1 FY17/18 numbers below our estimates. Lfl revenue declined by 0.6% (vs our estimate: +1.5%), largely due to a poor performance in France (-5.5% vs our estimate: -1.5%; contributes c.38% to group revenue). This was attributable to a sluggish French DIY market, management’s focus on preserving profitability and business disruption associated with the implementation of the turnaround plan. The UK & Ireland clocked 3.5% lfl growth (vs our estimate: +3.2%; contribute c.45% to group revenue), on the back of strong momentum in Screwfix (+12.6%). B&Q was up 0.5%, led by demand for seasonal products (+17.5%), while non-seasonal products were down 3.9%. Among other international markets (+0.7% yoy; contribute c.17% to group revenue), Poland led the pack with 3.5% top line growth (contribute c.11% to group revenue), while Russia and Spain were in the red (-7.8% and -1.2%, respectively). Reported revenue was up 5.0%, underpinned by +5.9% fx tailwinds (largely due to depreciation of GBP vs Euro and Polish Zloty). The company has bought back shares worth £79m (23m shares) in the current financial year as part of the previously announced c.£600m capital return by the end of FY18/19 (£200m returned in FY16/17).
Kingfisher reported FY16/17 results ahead of our estimates and market consensus. The lfl revenue increased by 2.3% (vs our estimate: +2.9%), once again driven by the UK business (+5.9%; our estimate: +6.0%; c.44% of group sales). B&Q clocked 3.5% organic growth (includes +2.6% sales transference from closed stores) on the back of strong demand for both seasonal and non-seasonal products (+3.1% and +3.6% yoy, respectively). Screwfix continued its solid growth momentum with 13.8% lfl, largely driven by the robust demand for plumbing and electrical products and strong digital growth (click & collect: +60%, mobile +124%). Among other international markets, Poland led the pack with lfl revenue growth of +7.5% (supportive housing market and new ranges; c.60% of segmental sales). However, France remained in negative territory (-2.7% yoy, FY15/16: -0.4%; c.38% of group sales), due to the ongoing slowdown in the home improvement market and restrained promotional activity by the company. Despite the negative scope impact of -0.6% yoy, the reported revenue advanced by 8.7% (vs our estimate: +6.2%) on the back of FX tailwinds (+7% yoy; depreciation of the British pound vs the euro and Polish zloty). The retail profit margin came in at 7.5% (+30bp yoy), benefiting from the transformation plan, cost efficiencies and higher operating leverage in the UK and Poland. The company opened 38 stores on a net basis in FY16/17 and plans to add 54 more in the subsequent year. A final dividend of 7.15p per share was announced (taking the full-year total to 10.4p; +3% yoy) and 58m shares worth £200m were bought-back during the year (plan to return another £400m in the next two years). Management has guided for a flat gross margin in FY17/18, expecting Unified & Unique Offer CPR benefits to be offset by price reinvestment and clearance. For the five-year transformation plan, the total cost guidance (£800m) remains unchanged. However, the company has revised estimates for P&L costs (£310m vs previously £220m; to be incurred over the first three years of the plan) and exceptional costs (£170m vs previously £270m; to be incurred over the first four years against earlier guidance of three years).
Kingfisher reported its Q3 FY16/17 trading update (ending October 2016) which was in line with our estimates. Lfl revenue increased by 1.8% (vs Q2 FY16/17: +3.0%, Q1 FY16/17: +3.6%; our estimate: +1.8%), largely on the back of a strong performance in the UK & Ireland (+5.8% vs our estimate: +4.8%; c.45% of group revenue). B&Q clocked 3.5% organic growth (Q2 FY16/17: +5.6%, Q1 FY16/17: +3.6%; c.2% benefit due to the sales transfer from closed stores), reflecting robust demand for both seasonal (+5.3% yoy) and non-seasonal products (+3.1% yoy). Screwfix continued its strong growth momentum (Q3 FY16/17: +12.7%, Q2 FY16/17: +13.3%, Q1 FY16/17: +16.2%), propelled by the enhanced digital capability and the new/extended ranges. Among other international markets, Poland was up 6.7% organically (Q2 FY16/17: +7.3%, Q1 FY16/17: +10.8%; our estimate: +5.5%; c.11% of group revenue,) benefiting from a supportive housing market and new ranges. However, ongoing sluggishness in the French home improvement market and subdued promotional activity worsened further Kingfisher’s organic growth in the country (-3.6% vs Q2 FY16/17: -3.2%, Q1 FY16/17: +0.2%; our estimate: -0.5%; c.38% of group revenue). Despite the negative scope impact (-0.5% yoy; closure of seven B&Q stores), strong FX tailwinds (+10.2% yoy; weaker pound vs euro and Polish zloty) led the total reported revenue growth to 11.5% (vs Q2 FY16/17: +8.4%, Q1 FY16/17: +5.1%; our estimate: +7.3%). The ‘One Kingfisher’ plan remains on track (59 out of 65 planned B&Q stores closed) and the transformation activity is scheduled to increase significantly in the next year. The company also completed share buy-backs worth £182m (target of c.£600m by end of FY18/19) during the period.
Kingfisher released a Q2 FY16 trading update ahead of our estimates as well as market consensus. The lfl revenue increased by 3% (vs Q1 16: +3.6%, Q4 15: +2.8%; our estimate: +1.5%), once again driven by the strong performance in the UK & Ireland (Q2 16: +7.2% vs our estimate: +1.8%). B&Q clocked lfl growth of 5.6% (vs our estimate: +2.5%) on the back of strong demand of both seasonal (+9.6% yoy) and non-seasonal products (+3.4%; includes showroom). Likewise, Screwfix continued the resilient performance with +13.3% lfl, led by its Omni channel capability, roll-out of new / extended ranges and new outlets. Among international markets, Poland (Q2 16: +7.3%, Q1 16: +10.8%; our estimate: +2.5%) continued to benefit from supportive market conditions, new ranges and strong growth from seasonal and non-seasonal products. France was down 3.2% on a lfl basis (vs Q1 16: +0.2%, Q4 15: -1.0%; our estimate: 0%) due to widespread industrial action and exceptionally wet weather. Both Castorama (-3.3% yoy) and Brico Depot (-3.1% yoy) slipped into negative zones during the quarter. However, the reported revenue increased by 8.4% (vs Q1 16: +5.1%, Q4 15: +0.7%; our estimate: +4.2%), on the back of FX tailwinds (appreciation in the euro and Polish zloty vs sterling). The company completed the disposal of the remaining 30% stake in B&Q China (for net cash proceeds of £63m; initial 70% stake was sold for £140m in April 2015) and returned £150m (44m shares) via share buy-backs of the previously announced c. £600m capital return programme. Management expects the gross margin for H1 16/17 to increase 50bp yoy in France (due to less promotional activity), decline 100bp yoy in the UK (reflecting mix effects from the strong growth in Screwfix, clearance related to the B&Q store closures and higher Omni channel sales) and expand by 150bp yoy in Poland (reflecting strong trading conditions). Also, the company remains cautious on the short-term outlook in the wake of post-Brexit uncertainties and challenging macro conditions in France.
Kingfisher released Q4 and FY15/16 results broadly in line with our estimates and slightly ahead of market consensus. In Q4, lfl revenue increased by 2.8% (vs 2.6% in Q3 and 2% in H1); Screwfix (+15.1% vs. +13.3% in Q3, 16.5% in H1) led the pack with strong digital and mobile growth, and the roll-out of new and extended product ranges. B&Q clocked 4.4% growth (vs. +2.4% in Q3 vs 0.7% in H1) on the back of stronger demand of indoor products (excluding showrooms: kitchen and bathroom). However, the sluggishness in the French home improvement market and subdued house building activity trickled down to Castorama (-1.3% vs. -0.2% in Q3) and Brico Depot (-0.7% vs. +0.4% in Q3). The operating profit margin (excluding JV and central costs) improved 120bp yoy to 4.9%, underpinned by lower promotional activity in France (+170bp) and the UK & Ireland (+80bp). For the full year, revenue was up 2.3% on a lfl basis (vs 0.5% in FY14/15; constant currency: 3.8% vs 2.9% in FY14/15), driven by a strong performance in the UK (4.4% vs 3.2% in FY14/15), Poland (3.6% vs 0.4% in FY14/15) and lower losses in new geographies. While France remained largely flat (-0.4% vs -2.3% in FY14/15), adverse currency movements, particularly the depreciating euro, led to a 4.8% decline in reported revenue to £10,441m (vs our estimate of -5.2% yoy). The underlying EBIT margin was up 40bp to 6.3%, primarily driven by productivity initiatives (roller checkouts and store-friendly deliveries) at B&Q. The company booked an exceptional gain of £143m on disposal of a 70% stake in B&Q China during the year. The B&Q store closure programme (15% space reduction by end of FY16/17, 65 stores) is on track with the first 30 closed in FY15/16. The company opened a 42 stores net during the year, mainly driven by 62 Screwfix openings in UK. Adjusted net profit for the year slipped by 9.8%, while the full-year dividend was increased by 1% yoy to 10.1p per share. For FY16/17, management is positive on the economic fundamentals in UK, while it remains cautious on the outlook for France.
Kingfisher announced an aggressive transformation plan on its Capital Markets Day, aiming to uplift PBT by £500m through to 2021 (FY14-15: £674m). The total cash expense of the programme is estimated at c. £800m (capex: £310m + operating expense: £220m + exceptional costs: £270m). Highlights of the plan include: • Unique and unified offer - Plan to reduce COGS (c.£7bn) by 5% through unification of product categories (reduce SKUs from 27,790 to 6,684) and collective sourcing. The proposition would entail a cost of £480m and result in a £350m benefit (5% of the £7bn buying scale). • Digital plan - Investment in e-commerce platforms to strengthen online penetration (from 2% to 6-7% of total sales), with the focus on leveraging the Screwfix platform, Brilliant Basics. Investment of £210m is expected to yield a £50m uplift. • Operational efficiency - Unifying c.90% of £1.2bn goods not for resale spend (products not directly sold to customers, i.e. print and paper, handling equipment, etc.). Investment of £110m is estimated to result in a £100m profit uplift by 2021. In terms of P&L effect, management has guided for overall pre-exceptional profit to be adversely impacted by £50m in FY16/17 and £70-100m (net of operational efficiency) in FY17/18. Along with these transformation costs, exceptional costs of £270m (for supply chain revamp) will be incurred over the first three years of the plan (FY16/17-FY18/19). Kingfisher plans to continue with the Screwfix expansion and is looking to open four new stores in FY16/17 (vs six in FY15/16). After completion of £200m stock repurchases this year, management announced plans of a £200m pa capital return over the next three years as well.
Kingfisher released Q3 15 results with revenue down 2.5% to £2,651m due to adverse currency exposure, particularly for French business growth with an 8.5% impact from the euro depreciation. On a constant basis, growth was a healthy 4% (vs. 3.5% in H1 FY15 (ending in January 2016)) with the UK trending better sequentially at 5.5% vs 4.6% in H1 and also the case with France (1.5% vs 1.1% in H1). On a lfl basis, revenue was up 2.6% (vs. +2% in H1) supported by good growth in the UK & Ireland (+4.6% vs. +3.3% in H1; B&Q: +2.4%; Screwfix: 13.3%), and Poland (+3.5% vs. +3.4% in H1) while France was broadly flat yoy (vs. -0.3% in H1). Due to significant gross margin pressure in France (-30bp) and the UK & Ireland businesses (-120bp), retail profit margin fell 40bp to 8.4%; however, good opex control in the UK and Screwfix's strong performance offset the impact partially. Kingfisher has also secured a further five agreements on the B&Q stores planned for closure, taking the total to 31.
