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.

The Company will release Q3 trading update on 19 November 2020.

Investment Highlights - Kingfisher Plc – Expensive at 302.80

• Although the long-term opportunity for the Company is significant, the near term outlook is highly uncertain and unstable.
• As per valuation metrics, Price/Earnings & Price/Cash Flow multiples of the Kingfisher Plc are currently higher as compared to the corresponding multiples of the Speciality Retailers industry, reflecting overstretched valuations.
• From the technical standpoint, 90-day RSI is currently supporting downward movement (around 57 level), which means the stock price could decline in the short term.

Key Risks

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

Recent News

On 8 October 2020, Kingfisher announced that its Senior Independent Director, Mark Seligman, has informed board to step down from his position on 29 January 2021.

On 1 October 2020, Kingfisher announced the completion of the sale of Castorama Russia to Maxidom, for a total consideration of around RUB 7.4 billion or £73 million. Out of total consideration, the 80% paid at the closing of the transaction, and the remaining 20% will be paid in the next two years period. The Company got all regulatory approvals and completed sales on 30 September 2020.

Financial Highlights – H1 FY2021 (31 July 2020) (released on 22 September 2020)

 (Source: Interim Report, Company Website) 

• In the first half of the financial year 2021, the Company has delivered resilient performance, with strong sales recovery in Q2 FY2021.
• On a constant currency, the sales were down by 1.1% in H1 FY2021, with a decrease in LFL sales by 1.6%. The decrease in sales was driven by the adverse impact of COVID-19 in Q1 FY2021.
• In constant currencies, the retail profit increased by 17.7%, driven largely by a strong performance in the UK & Ireland, where sales and gross profit increased, and operating costs reduced.
• Due to the ongoing uncertainty, there is no H1 FY21 interim dividend.

One Year Share Price Chart

(Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The Company has shown improvement in the first half of the financial year 2021, with a strong recovery in Q2 FY2021 across all businesses and categories. The Company expect the same level of recovery in Q3 FY2021. KGF has shown decent start to the second half of 2021, with Group LFL sales was up by 16.6%. The Company has taken significant operational and financial actions, after a decent demand for home improvement.

Overall, the Company stays encouraged by decent revenue growth. 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. The Company’s performance will also be impacted by recent lockdown announced by the UK government for 4 weeks till December 2. The stock made a 52-week low and high of GBX 101.00 and GBX 326.20, respectively.

Based on the factors as highlighted above, we believe the stock of Kingfisher is “Expensive” at the current price of GBX 302.80 (as on 3 November 2020, before the market close at 10:40 AM GMT), with support from recovery in the trading environment needs to be evaluated at a later stage.

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

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