Kingfisher Plc

Kingfisher Plc (LON: KGF) is an FTSE 100 listed Home Improvement Company, which operates retail brands including Castorama, Screwfix, B&Q, Koçtaş, and Brico Dépôt.

Investment Highlights – Expensive at GBX 374.20

• The Company expects the first half of 2022 sales and adjusted pre-tax profit to be ahead of our previous expectations.
• Although the long-term opportunity for the Company is significant, the near-term outlook is highly uncertain and unstable.
• Currently, the stock is trading near the 52-week high, suggesting that the upside potential might be limited.
• From the technical standpoint, 14-day RSI stood at ~65.21, which means the stock price could decline in the short term.

Key Risks

• Increased competition can also put downward pressure on sales and margins.
• The restrictions and reductions in demand (due to COVID-19) could adversely affect financial performance.

Q1 FY22 Trading Update (as on 20 May 2021)

(Source: Company Website)

• On a constant currency basis, the total sales increased by 61.9%, with strong demand in all categories.
• LFL sales surged by 64.2%, due to a strong performance in the UK and France.
• E-commerce sales rose by 63%, with two-year growth of more than 250%.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Valuation Methodology: Price/Earnings Approach (FY22E) (Illustrative)

Conclusion

In H1 FY22, the Company expects mid-to-high teens Group LFL sales growth, with a higher adjusted pre-tax profit (in the range of approximately £580 to 600 million). For FY22, it expects adjusted pre-tax profit to be ahead of previous guidance. LFL sales for Q2 FY22 (till 15 May 2021) surged by 8.2%, with a 2-year LFL increased by 25.0%. Meanwhile, it delivered strong sales growth in Q1, with an increase in e-commerce sales. Moreover, in late April 2021, it launched Screwfix as a pure-play online retailer in France. The Company has shown positive results in the kitchen products. However, the Company is encouraging social distancing and limiting the number of customers in the opened stores, which will adversely impact the financial performance of the Company. Presently, the company is trading near its 52-week high, raising doubts about its upside potential at current prices. The stock made a 52-week low and high of GBX 163.10 and GBX 389.60, respectively.

Based on the factors as highlighted above, we believe the stock of Kingfisher Plc is “Expensive” at the closing price of GBX 374.20 (as on 20 May 2021).

Fevertree Drinks Plc

Fevertree Drinks Plc (LON: FEVR) is an AIM-based beverages company with operations in around 75 countries.

Investment Highlights – Hold at GBX 2,749.00

• The Company had a very positive start to 2021 and expects revenue growth in FY21.
• In the Off-Trade channel, the performance was especially strong, exceeding the anticipations across all the regions.
• It will deliver an excellent rate of sale growth, supported by the launching of the new products and a strong balance sheet.
• The debt/equity ratio recorded by the Company in the past two years was considerably below the industry median. In FY20, the debt/equity ratio was 0.01x.
• The Company has decent fundamental metrics as it has maintained Net Margin and ROE above the industry median in FY20.
• From a technical standpoint, 20-Day SMA (GBX 2,530.6) supporting an upside potential.

Key Risks

• FEVR had an increased risk of packaging regulation and risk of contaminated product.
• There are certain potential risks that can impact the business, such as bribery & corruption risk, failure to maintain strong relationships with key customers, supplier failure, climate change, cyber-security, technology & infrastructure risk, changes to exchange, interest or tax rates, and product quality & safety.

Recent News

On 20 May 2021, the Company has appointed Laura Kate Hagan as Non-Executive Director.

AGM Trading Update (as on 20 May 2021)

• In the first four months of 2021, the Company delivered a strong performance in the Off-Trade.
• Since the start of the year, the Off-Trade performance in the UK has been strong. In the 13 weeks ending 18 April 2021, the sales increased by 10.1% YoY.
• In the US, the Company saw a strong performance in Off-Trade sales, with increase of 38.2% YoY in the 12 weeks to 27th March.
• The On-Trade stays materially impacted in several markets of Europe.
• In Australia, the On-Trade performance has shown a good recovery in suburban areas. Moreover, Fever-Tree's progress in the Off-Trade remains strong.

One Year Share Price Chart

 (Source: Refinitiv, Thomson Reuters)

Conclusion

The Board is confident to deliver good growth across all the regions, supported by a strong balance sheet. Despite the impact of Covid-19, it saw a strong sales performance and is also trading in line with the Board's expectations for FY21. The Company also saw positive trading in the Off-Trade across all the regions. When the market begins to re-open, the demand will switch to the On-Trade channel apart from the Off-Trade channel. Fevertree Drinks has increased its investment and is committed to making an investment in future opportunities to deliver sustainable growth during the long-term. The stock made a 52-week low and high of GBX 1,663.50 and GBX 2,768.00, respectively.

Considering the uncertainties and market dynamics, we are currently maintaining the “Hold” stance on Fevertree Drinks Plc at the closing price of GBX 2,749.00 (as on 20 May 2021) and will recommend fresh buying at the right time.

*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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