Kingfisher rewarded with post results share surge

Kingfisher (LSE:KGF) has seen some home improvement of its own, with the UK and Ireland continuing to prop up the wider business against a generally tough European backdrop.

For the group as a whole, sales of £6.76 billion in the six months ended 31 July fell by 2.4% on a like for like basis and slightly missed expectations of £6.81 billion. More positively, statutory pre-tax profit rose by 2.3% to £324 million, while the company’s preferred metric of adjusted pre-tax profit declined slightly to £336 million, but was comfortably ahead of market estimates of £286 million. 

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The results reveal once more that it is fairly clear where the repair work needs to be done. France accounts for 31% of group sales yet only 16% of profits, following a drop of 34% compared to the previous year. Like for like sales dropped by 7.2%, with low consumer confidence being held up as a major factor, although the pressure on Castorama has been in evidence for some time.

Indeed, the group previously announced that the unit would now be simplified, and reported good progress in the restructure and modernisation of the store estate, while Kingfisher has also been trialling some of its more successful UK strategies abroad in an attempt to bolster sales.

There is also pressure in the UK and Ireland market, but this part of the business is rather more resilient in withstanding these challenges. The unit accounts for 50% of group sales and in this period that has translated to a 77% share of group profit, following an increase of 6.1% to the profit number. This was achieved despite some expected weakness in the sale of big ticket items such as kitchens, bathrooms and storage, although the company noted that support was in evidence from repair, maintenance and existing home renovation activity.

Within the UK and Ireland Screwfix, long since Kingfisher’s jewel in the crown, continues to hold its own and indeed the format is now steadily being extended abroad.

There was also a stand out performance in the period from TradePoint, with an increase of 5.8% in like for like sales. The ecommerce category also continued its momentum, with sales rising by 8.4% and now accounting for 18.3% of the overall total, up from 16.8% the previous year.

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There is potentially more to come from the group’s largest unit in that there could be a boost resulting from an improvement in housing demand in the UK over the next few months, the beginnings of which are beginning to show. By the same token, Kingfisher is mindful that this would also come with a time lag until any such benefits wash through to home improvements spend, a delay which it estimates to be between nine and 12 months.

At the group level, Kingfisher is well on track to achieve the previous target of £120 million of cost reductions for the year, the £300 million share buyback scheme is still in progress and net debt has shown a reduction in the period from a previous £2.18 billion to £1.95 billion. The decision not to increase the dividend could be a source of some disappointment, although the current yield of 4.3% nonetheless remains relatively attractive.

The outlook for the remainder of the year includes a tightening of the projected adjusted full year profit range, which now stands at £510-550 million, compared to a previous £490-550 million. In the weeks since the end of this reporting period, like-for-like sales overall are down by 0.3%, reflecting some difficulties which have included inclement weather as well as some customer retrenchment in the year so far.

Further out, Kingfisher believes that it still has much to go for. The continuing trend of hybrid-working and energy efficient renovations help underpin sales, while the strength of the Screwfix brand is clear.

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The warm reaction to the numbers represents something of a round of applause and adds to a share price which had already seen an increase of 23% over the last year, as compared to a hike of 7.4% for the wider FTSE100. Even so, the shares remain down by 21% over the last three years which reflects that the company remains a work in progress despite the advances it has made.

In terms of the market consensus, the general view of the shares as a 'hold' could conceivably come under some positive pressure should investors recognise an improving direction of travel.