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Kingfisher is still cautious

The home improvement-firm will announce its full-year figures on Tuesday 31 March, where an update from the new CEO will also be in focus.

B&Q store
Source: Bloomberg

The company is still cautious in its outlook as poor trading in France and a good-but-not-great business performance in the UK has left it in a not too bullish mood. The firm’s slide in profits is starting to gather momentum, and what started out as a slip in first-half operating profits has turned into a drop in third-quarter figures.

Kingfisher’s Screwfix business is the standout performer of the group as it registered low double-digit growth in like-for-like third-quarter sales, but the market feels the group as a whole hasn’t reaped the rewards of the strong British property market. When you compare share price performance over the past year for Kingfisher with homebuilders like Taylor Wimpey for example, the latter is the winner. The owner of Homebase, Home Retail Group, has also underperformed the housebuilders in the same time frame.

Kingfisher has blamed the strength of the pound for its decline in earnings and that problem is being exacerbated by the slump in the euro and the depreciation in Asian currencies since the previous update from the company. The stagnation of the French economy is curtailing the Castorama businesses, but the company has spent £6 million on expansion costs for operations in Romania, Germany, and Portugal. However, there will be a time lag before the businesses take-off.

The former head of the French division, Veronique Laury, took over from Ian Cheshire as CEO in December. The shareholders will be keen to hear what changes Ms Laury has in store for the company. She has been with Kingfisher for more than a decade, and is anticipated to expand the Brico Depot and Screwfix brands in the coming years.

The consensus is for revenue of £10.96 billion and adjusted net income of £499 million when the company announces its full-year numbers. These estimates represent a 1.3% drop in revenue and a 9.6% drop in adjusted net income. The company will also announce its second-half number in the same announcement. The market is expecting revenue of £5.18 billion which compares with first-half revenue of £5.76 billion.

Equity analysts are moderately bullish on Kingfisher. Out of the 27 recommendations, seven are buys, 13 are holds, and seven are sells. The average target price is 325p, which is 11% below the current price. Investment banks are comparatively bullish on Home Retail Group and out of the 20 ratings, nine are buys, eight are holds, and three are sells. The average target price is 201p, which is 18% above the current price.

The share price has been rising since November, and the initial target is 380p. Beyond that traders will look to 400p. A move lower is likely to find support at 364p, and if that level is punctured then 350p will be in sight.

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