Kingfisher PLC

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

Investment Rationale for Valuation – BUY at GBX 251.00

• Guidance Reiterated: Following the solid performance in Q1 FY23, KGF has affirmed that it expects to deliver adjusted pre-tax profit of around £770 million.
• Decent Dividend Target: KGF targets to cover range of 2.25 to 2.75 times, based on adjusted basic earnings per share.
• Share Repurchase: On 28 April 2022, KGF confirmed that it completed the £300 million share repurchase program announced on 21 September 2021.
• Undervalued Multiples: On a forward 12-month basis – key trading multiples (EV/Sales, EV/EBITDA, Price/Earnings, Price/Cash Flow, and Price/Book) are undervalued against the Consumer Cyclicals sector.
• Technical Indicator: The MACD line has given a bullish crossover against the signal line, reflecting a positive price momentum.

Key Risks

• Inflationary Pressure: The Company’s food businesses have experienced increased inflationary pressures in raw materials, commodities, supply chain, and energy. Consequently, it can impact the Company’s margins for the full year.
• Macroeconomic Risks: British consumer confidence sank to all-time-low due to the cost-of-living crisis. Moreover, the interest rate worries, the US dollar hitting two-decade peaks, and subdued economic forecasts can continue to impact corporate profits and put pressure on equity markets.

Q1 Trading Update (for the three months ended 30 April 2022, as of 23 May 2022)

(Source: Company Website)

• Top-Line Growth: Kingfisher demonstrated a solid performance as sales surged to pre-pandemic levels with 3-year like-for-like growth of 16.2%.
• Resilient Demand: KGF managed inflation pressure well during the first quarter with good product availability as the demand from both DIY and DIFM/trade segments remained resilient.

One Year Share Price Chart

 (Source: REFINITIV; Analysis done by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY23E)

*Peers: Marks and Spencer Group PLC, Next PLC, and Associated British Foods PLC.

*All selected peers are LSE-listed Companies from the Consumer Discretionary sector.  

Conclusion

The comprehensive guidance for FY23 has been given in the image below:

(Source: Company Website)

Based on the decent performance, gain in market share, demand for products 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 251.00 (as of 23 May 2022, at 8:50 AM GMT+1) with lower double-digit upside potential based on 10.31x Price/NTM Earnings (approx.) on FY23E earnings per share (approx.).

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.

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

Note 2: Investment decision should be made depending on the investors’ appetite on 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 subject to the factors discussed above.

Note 3: Dividend Yield may vary as per the stock price movement.

Note 4: Target Price refers to a price level which 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 5: ‘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.’

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 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 unfavorable movement in the stock prices.

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