Kingfisher Plc

Kingfisher Plc (LON: KGF) is an international home improvement company, which operate under retail brands including Castorama, Screwfix, B&Q, Koçta?, and Brico Dépôt.

The group will announce its Q1 trading update on 21^st May 2020.

Q4 Update and Covid-19 Update
On 23^rd March 2020,Kingfisher announced the delay of its preliminary statements for at least 2 weeks in compliance with FCA (Financial Conduct Authority).  The group’s total sales declined by 0.8 per cent on a constant exchange rate and declined by 1.5 per cent on a like-for-like basis in FY2019/20. Driven by the implementation of a new trading approach and operational improvement in French business, the group’s Q4 total sales increased by 1.7 per cent on a like-for-like basis. The company’s cash and cash equivalents stood at GBP 195 million, with borrowings of GBP 158 million as on 31^st January 2020. The net debt stood at GBP 2.526 million as on 31^st January 2020 and two revolving credit facilities of GBP 775 million as on 17^th March 2020. The cash balance as on 20^th March 2020 stood at around GBP 1.1 billion. The board will not propose any dividend related to FY2019/20, due to Covid-19 outbreak. The group is continuously monitoring the situation, has increased IT security measures and taken multiple actions related to Cash flow mitigation. The company is taking the necessary steps to protect the health of its employees and is committed to supporting government and local authorities. The group source from multiple locations including Western Europe, Eastern Europe, China and other Asian countries. Around 25 per cent of total annual COGS (cost of goods sold) are sourced from the Asia region. In the Chinese region, the factories are reopened, and vendors are rebuilding their capacity. In the Italian region, the factories are closed or will be closed as per Italian Government orders. The group has temporarily closed its stores in Spain and France and will only provide essential products. The stores in the UK are open, and the group is putting measures to ensure stores safety. The group also increased its online home delivery and enabled the Drive-through option. The group’s stores in Russia, Portugal, Romania, Poland and Ireland remained open. The group before store closures from 1^st February to 14^th March was trading positively.

Share Price Performance 

Daily Chart as of March 30^th, 2020, after the market close (Source: Thomson Reuters)

Kingfisher Plc shares were trading at GBX 142.55 at the time of writing after the market close on 30^th March 2020. Stock's 52 weeks High is GBX 268.20 and Low is GBX 101.00.

Valuation Methodology

*Peers: Superdry Plc, ASOS Plc, Dixons Carphone Plc and Next Plc.

Conclusion
In the financial year 2020, the company’s sales in the UK were expected to remain bleak with a softer market backdrop. France sales are anticipated to remain soft due to the reduction in the promotional activity at Brico Dépôt and Castorama, and Poland sales will be impacted by the trading restrictions and softer overall market outlook. The decline in the earnings momentum was impacted by the challenging trading conditions in France and the UK. This, combined with the outbreak of COVID-19, resulted in store closures in many European countries. Although in China, the factories are opened, and vendors are rebuilding their capacity, the disturbance in the supply chain has made it difficult for the company to source its products. The group is encouraging social distancing is limiting the number of customers in its opened stores, which will adversely impact the financial performance of the company.

Keeping in mind the risks faced by the company, investors are recommended to “AVOID” taking fresh positions at the closing price of GBX 142.55 (as on 30^th March 2020).

Frasers Group Plc

Frasers Group Plc (LON: FRAS), earlier known as Sports Direct International Plc, is a sporting goods retailer company. The company operates in sports, fitness, fashion and lifestyle.

The group will announce its preliminary results on 16^th July 2020.

Covid-19 Update
On 20^th March 2020, Frasers Group released an update related to the impact of Covid-19. The group is continuously monitoring the impact of the outbreak on its UK business and international business. The board expect Covid-19 will be creating significant disruption to its business and will result in a decline in customer footfall. The group expect it will not be able to achieve set EBITDA growth which was earlier expected to be in the range from 5 per cent to 15 per cent. Due to the uncertain environment, the company will not release any guidance related to the financial year 2020. Before the outbreak of Covid-19, the group was trading in-line with the expectations. The company, with its strong management team, will be able to respond to the changing market conditions and challenges.

Share Price Performance

Daily Chart as of March 30^th, 2020, after the market close (Source: Thomson Reuters)

Frasers Group Plc shares were trading at GBX 187.10 at the time of writing after the market close on 30^th March 2020. Stock's 52 weeks High is GBX 536.35 and Low is GBX 166.60.

Valuation Methodology

*Peers: Vivo Energy Plc, Pendragon Plc, WH Smith Plc and JD Sports Fashion Plc.

Conclusion
The company has delivered a decent financial performance before the outbreak of Covid-19. The company’s net debt has reduced, which shows that the company is generating significant cash flows. The company has improved its product mix, which has helped in driving higher margins and efficiencies. However, due to the challenging environment and some uncertainties, the company’s business could be impacted. The company is facing key suppliers’ risk, which could impact the revenue and operations of the company. Due to the outbreak of coronavirus, the company expect not to achieve set EBITDA growth and don’t release any formal guidance for FY2020.

Based on the valuation and risks factors as highlighted above, we recommend investors to keep a “Watch” on the stock at the closing price of GBX 187.10 (as on 30^th March 2020), with support from few catalysts needs to be evaluated at a later stage.
 
 
*All forecasted figures and peers information has been taken from Thomson Reuters.

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