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.