October 2022

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

Why we bought in June 2021

Kingfisher, the second largest home improvement retailer in Europe, performed very strongly over the first 12-18 months of the COVID-19 pandemic. People had 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 in 2021. 

Since then, KGF's financial results have dipped (with sales down by 4.1% according to the H1 report) against a very high comparative year, but have been in line with the company's forecast following the end of the restrictions. However, the 3-year like-for-like results make for very encouraging reading, with double-digit growth in many key areas. In contrast, the share price has tumbled by around 40%, leaving the overall picture looking more attractive from a value-investing standpoint. As you can see from the above RADAR chart, several of the ratios we use to value companies have actually improved. 

Snapshot of the H2 outlook
  • KGF sales are significantly ahead of pre-pandemic levels (3-year LFL sales +16.6%), and are expected to remain strong for the second half of the year. 
  • The outlook for the rest of the year shows Q3 22/23 like-for-like sales (to 17 September 2022) up 15.2% on a 3-year basis, with 1-year LFL down 0.7%
  • H1 performance and current trading in Q3 consistent with FY 22/23 adjusted pre-tax profit guidance of c.£770m, as set out at the start of this year
  • The KGF dividend yield is now at a very healthy 5.75%
  • Employees at KGF are confident in the future of the company, with insiders purchasing £775,000 worth of stock so far this year. 
Conclusion

The DIY boom appears to be over for the time being and KGF have failed to achieve results as good as those driven by the pandemic in 2020. However, the bigger picture is that Kingfisher are growing in many key areas, and with 80 more stores set to open this year in new areas across Europe, the company looks in a good position in the long-term. 

It looks as though the economic situation in the UK is going to have wide-ranging effects for almost every UK business, and KGF will not be immune to these challenges. Our instinct is that the UK market is likely to get worse before it gets better. However, as we have said in the past, it is important to take advantage of over-corrections in the market, and to snap up strong, profitable companies when these downturns arise. Luckily, we have been through financial crashes before, and each time they occur we have been brave enough to see them as an opportunities, not as threats. 

We will be adding to our position in KGF when the market opens tomorrow morning. 

RETURNS TABLE  

Month Company Ticker Symbol Purchase Date Current Stock Price (p) Dividend Yield To Date (%) Amount Re-invested (£) Regular Monthly Investment (£) Purchase Price (p) Sold? Dividend Income (£)
February 2021 Hikma Pharmaceuticals PLC HIK 01/02/21 1363.50 2.66% £0.00 £1,657.54 2408.97 No £44.01
March 2021 Sylvania Platinum Ltd SLP 01/03/21 87.00 8.17% £0.00 £1,077.77 120.85 No £88.01
April 2021 Plus500 Ltd PLUS 06/04/21 1685.07 2.46% £0.00 £1,717.48 1438.50 No £90.81
May 2021 Capital Drilling Ltd CAPD 04/05/21 83.00 4.10% £0.00 £1,587.89 69.00 No £65.05
June 2021 Kingfisher PLC KGF 01/06/21 220.40 5.86% £0.00 £1,254.37 337.00 No £73,53
July 2021 Ultra Electronics Holdings PLC ULE 05/07/21 3216.87 0.68% £0.00 £1,423.50 2327.08 Yes £9.72
August 2021 H&T Group PLC HAT 02/08/21 337.50 1.44% £0.00 £355.53 278.20 Yes £5.11
September 2021 Rio Tinto PLC RIO 06/09/21 4910.50 6.44% £0.00 £1,804.58 5414.00 No £116.26
October 2021 Redrow PLC RDW 04/10/21 399.20 3.94% £0.00 £884.27 655.73 No £34.83
November 2021 Cranswick PLC CWK 01/11/21 2680.00 0.57% £0.00 £1,676.78 3453.00 No £36.10
December 2021 BAE Systems PLC BA 06/12/21 1363.50 2.70% £0.00 £2,643.10 554.00 Yes £71.43
January 2022 Jersey Electricity PLC JEL 04/01/22 1703.00 2.83% £0.00 £2,096.48 627.00 No £59.28
February 2022 Hikma Pharmaceuticals PLC HIK 01/02/22 196.80 1.31% £0.00 £2,019.97 2064.00 No £26.52
March 2022 Bellway PLC BWY 01/03/22 206.80 0.00% £1,923.92 £1,141.81 2885.90 No 85.73
April 2022 Tyman PLC TYMN 04/04/22 399.20 2.74% £423.63 £2,515.61 320.00 No 80.53
May 2022 Tesco PLC TSCO 03/05/22 4910.50 4.54% £848.76 £3,527.96 273.14 No 198.53
June 2022 Redrow PLC RDW 06/06/22 264.00 0.00% £0.00 £1,718.37 517.00 No 0
July 2022 Rio Tinto RIO 04/07/22 83.00 0.00% £0.00 £1,668.17 4830.00 No 0
August 2022 Pets at Home PLC PETS 08/08/22 309.40 0.00% £2,026.25 £1,300.73 332.70 No 0
September 2022 Capital Drilling Ltd CAPD 05/09/22 83.00 0.00% £0.00 £449.79 86.20 No

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