Kingfisher PLC (LON: KGF)

Kingfisher PLC (LON: KGF) is an FTSE 100 index-listed home improvement entity that operates in eight countries across Europe under retail banners such as B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş.

On 22 June 2022, the Company will hold its Annual General Meeting.

Recent trend of dividend payments

The Company has a progressive dividend policy of paying its shareholders and targets dividend cover of 2.25 to 2.75 times. Moreover, the Company will pay a final dividend of 8.6 pence per share on 27 June 2022, with an ex-dividend date of 19 May 2022. It takes a total full-year FY22 dividend to 12.40 pence per share, an increase of around 50.3% from the prior-year levels.

(Source: LSE, chart created by Kalkine Group) 

Growth Prospects

• Share Buyback Programme: The Company aims to return £550 million to shareholders, including dividends and ongoing £300 million share buyback. KGF has recently announced a fourth tranche of £75 million to be completed before 27 May 2022.
• Operational Achievements: The Group gained the market share in the UK and France during FY22 and effectively managed inflationary pressure, supply chain issues, and product availability.

Key Risks 

• Weak Industry Prospects: According to the Office for National Statistics, the UK retail sales dropped more than expected during March 2022 because of the record inflation hurting consumer demand.
• Federal Reserve Meeting: Federal Reserve Chairman, Jerome Powell, had hinted at an 0.5% increase in interest rates in the next Federal Reserve meeting due in early May 2022.
• Record UK Inflation: British inflation hit a 30-year high of around 7.0% in March 2022, which may cause a further interest rate hike.
• Weak Global Growth Forecast: The World Bank has reduced its global growth forecast for 2022 from 4.1% to 3.2%.
  

Key Fundamental and Shareholders Statistics of Kingfisher PLC.

BlackRock Institutional Trust Company, N.A. is the most significant shareholder as it holds nearly 135.40 million shares.             

FY22 Financial Highlights (for the year ended 31 January 2022, as of 22 March 2022)

(Source: Company Website)

• Financial Growth: During FY22, KGF reported a year of record revenue and profits.
• E-Commerce: The e-commerce sales went up by around 5.3% and represented approximately 18% of the total Group sales.
  

Share Price Performance Analysis

(Source: Refinitiv, Research done by Kalkine Group)

On 25 April 2022 at 09:44 AM GMT+1, KGF’s shares were trading at GBX 249.80, down by around 2.42% from the previous day’s closing price. Stock’s 52-week High and Low were GBX 389.67 and GBX 247.40, respectively.

On a daily chart, the stock price is sustained very close to the lower Bollinger band. Hence, there could be an uptick in the stock price in the near term. Moreover, the 14-days RSI of ~37.95 reflects an oversold territory.

Valuation Methodology: Price/Earnings Approach (FY23E) (Illustrative)

 Business Outlook

KGF reported strong financial performance in FY22 and witnessed growth in all banners and categories. It had also demonstrated an encouraging start to FY23 and targets further market share growth. Moreover, the Company’s like-for-like sales rose by around 16% during Q1 FY23 when compared with an equivalent period of FY21. Meanwhile, the expansion of Poland stores and the opening of first Screwfix stores in France will result in a decent net space growth of around 0.50%. In a nutshell, KGF remained confident of meeting consensus of sell-side analyst estimates for adjusted pre-tax profit during FY23.

Please note markets are trading in a highly volatile zone currently due to certain macro-economic and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

Considering the strong FY22 results, expansion plans, the better profitability and leverage ratios than the industry, strong dividend growth, and support from the valuation as done using the above method, we have given a “Buy” recommendation on Kingfisher PLC at the current market price of GBX 249.80 (as of 25 April 2022 at 09:44 AM GMT+1), with lower-double digit upside potential based on 10.28x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite for upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and is subject to the factors discussed above.

Note 3: Target Price refers to a price level that the stock is expected to reach as per the relative valuation method and or technical analysis taking into consideration both short-term and long-term scenarios.

Note 4:  Kalkine reports are prepared based on the stock prices captured either from the London Stock Exchange (LSE) and or REFINITIV. Typically, both sources (LSE and or REFINITIV) may reflect stock prices with a delay which could be a lag of 15-20 minutes. There can be no assurance that future results or events will be consistent with the information provided in the report. The information is subject to change without any prior notice.

Note 5: Dividend Yield may vary as per the stock price movement.  

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and the uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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