James Gard: There have been a few high-profile profit warnings in September and our latest stock of the week, Kingfisher (KGF), was among them. The DIY specialist cut its full-year profit forecast and shares slumped around 7%. For the last six months, retail profit was down nearly a quarter amid higher costs and a marketing splurge in France and Poland. Retail is a hard enough sector to thrive in, unless you’re high street fashion firm Next, but there are different dynamics at work in home improvement. Yes, people don’t have the time they did in lockdowns to tinker with their houses, but in the current housing slowdown – especially in the UK – the emphasis is on “improve” rather than move.
That seems to be backed up by the data, as the UK is the only one of the company’s geographies to report sales growth. So things may not be as bad as the profit warning suggest. Still, the owner of Screwfix and B&Q is now relying more heavily on promotions as customer budgets get stretched. This is the same across the whole of retail though. Morningstar analysts have cut their fair value estimate for the shares after the results, but this puts Kingfisher in undervalued territory, especially after a near 10% fall this year. Shares have a potential upside of more than 30%, according to our analyst Matthew Donen. On the plus side, the profit warning has not dimmed the company’s plans to return cash to shareholders; the dividend has been held and a £300 million buyback has been announced, which takes recent buybacks to nearly a billion pounds.
For Morningstar, I’m James Gard.
