June 2021


2021: June

Kingfisher PLC (ticker: KGF) supplies home improvement products and services in the UK, Ireland, France, and internationally, as well as offering property investment, finance, digital, sourcing and IT services. 

It operates from approximately 1,380 stores in eight countries across Europe, under brands such as B&Q, Screwfix, TradePoint, Castorama, Brico, and Koctas. 

Kingfisher plc was incorporated in 1982 and is headquartered in London.

 RATIONALE

We are sure it will come as no surprise to learn that Kingfisher, the second largest home improvement retailer in Europe, has performed very strongly over the last 18 months. People have been trapped inside their homes, working from their homes and trying to sell their homes, meaning home improvement projects have skyrocketed. Additionally, key Kingfisher stores such as B&Q and Screwfix were designated as ‘retailers of essential products’, and therefore could remain open at a time when any excuse to leave the house was gladly taken. As a result, Kingfisher had a very profitable set of full year results:
  • Sales up 6.8%, driven by strong trading from Q2 and reduced disruption.
  • Like-for-like (LFL) sales up 7.1% with growth across all banners in the UK & Ireland, France, Poland, Romania and Portugal.
  • LFL sales up 15.5% in Q4 20/21 with growth across all retail banners and categories.
  • E-commerce sales up 158%; now 18% of total Group sales (compared with 8% in 19/20).
  • Click & collect sales up 226%; 78% of Group e-commerce sales (19/20: 62%).
  • Retail profit up 27.4%, largely driven by B&Q performance.
  • Adjusted pre-tax profit up 44.4%.
  • Free cash flow of £938 million, up £747 million, reflecting higher operating profit, working capital inflow of £376 million and lower capital expenditure (capex).

As you may have seen in our previous month's top 10 list, Kingfisher has been on our radar since releasing their results in April. However, we have had some reservations about investing for a couple of reasons. Firstly, when things go back to normal, are we going to see a corresponding retraction in these financials? Secondly, to what extent is Brexit going to play a part in this company, whose income is somewhat dependant on income from the EU and for whom import tariffs could take a sizeable chunk out of the bottom line?

Following what was a fantastic set of annual results for 2020, Kingfisher released some pretty stellar results for the first quarter of 2021 as well, and with them a cautiously optimistic year-on-year outlook for the rest of 2021 and beyond. As a result, our fears have been somewhat waylaid. Lastly, their annual report also assured investors that the impact of Brexit so far has been cost neutral. 

Images courtesy of Kingfisher PLC.

So is Kingfisher PLC undervalued?

Kingfisher does not score quite as highly on our metrics as some of our previous CC picks. The IVI score of 86% is decent but not indicative of being drastically undervalued, and with a p/e ratio of almost 13, we probably wouldn't put this company alongside some of the others we have invested in so far in terms of pure value. What did strike us about this company though is the strategic detail and insight that is apparent throughout the annual report. They have made enormous adaptations in a short time to ensure they are equipped to handle the ongoing challenges of the pandemic and Brexit. We have been impressed by the way Kingfisher have taken advantage of a favourable situation, far from resting on their success, they have pivoted the business to support the changing needs of their customer base. They have even given this project a name, ‘Powered by Kingfisher’, and the payoff now seems to be filtering through to 2021. Their excellent performance so far being down to 4 key initiatives under this banner:

  1. E-commerce: with online retail now being their fastest-growing channel (2-year growth of over 250% and accounting for 21% of total sales), during Q1 Kingfisher established a new agile operating model for their technology and digital teams, and strengthened staff numbers.
  2. The launch of Screwfix as an online only retailer in France in late April. 
  3. The launch of their own brand kitchen range.
  4. The development of multiple innovative propositions for customers, such as compact store tests, a new mobile app for Screwfix, self-checkout terminals and a new tool for 3D kitchen and bathroom design. 

Kingfisher have also reinstated their progressive dividend policy, meaning they will be paying an interim dividend for all those who hold the stock before the 3rd of June - a nice bonus! Remember, this means that on the 3rd of June (the ex-dividend date) the share price will decrease by the amount of dividends to be paid due to market regulation, so we won't be concerned when the price is down a couple of % on that day. 

  • You can read the company's latest interim report here: https://www.kingfisher.com/content/dam/kingfisher/Corporate/Images/Other/2021/20210520%202021_22_Q1%20trading%20update_RNS.pdf
  • Thierry Garnier, Chief Executive Officer, had this to say about the Q1 results:
“With the strong start to the year, we now anticipate first half sales and adjusted pre-tax profit to be ahead of our previous expectations. Whilst the second half of the financial year remains naturally uncertain, we continue to see supportive long-term trends for our industry and are confident of continued outperformance of our wider markets.”   

Conclusion

We believe Kingfisher are well set to take advantage of market conditions over the next few years and to build on their excellent results this year, rather than reverting back to pre-pandemic levels. 

We will be adding it to the CC portfolio on the 1st of June. 

Share by: