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City broker: ‘Sell Kingfisher as no sign of French market upturn’

Last updated: 18:30 22 Mar 2017 GMT, First published: 15:26 22 Mar 2017 GMT

castorama store front
Kingfisher's french business - Castorama and Brico Dépôt - struggled last year

City broker Haitong has repeated its ‘sell’ recommendation for B&Q owner Kingfisher PLC (LON:KGF) as it believes the French DIY market is a while away from providing support to its ailing businesses on the other side of the channel.

The retailer – which also owns the Screwfix brand – saw adjusted pre-tax profits for the 12 months to 31 January 2017 come in 8% higher at £743mln, on adjusted sales of £11.2bn (2016: £10.3bn).

On the face of it that seems like a steady year and the “ambitious” five-year turnaround plan implemented in 2016 is paying dividends.

It doesn’t quite tell the entire story though, with strong performance in the UK and currency boosts due to the weak pound masking declining sales (on a constant currency basis) in France.

Kingfisher said a downturn in the home improvement market across the channel was to blame, although both its Castorama and Brico Dépôt businesses delivered weaker sales compared to the market.

Haitong’s Tony Shiret is starting to lose faith in the idea that the French market will return and provide a timely boost to Kingfisher’s operations in the country.

“There has always been an underlying presumption that France is a growth DIY market temporarily stalled, and that someday there will be a significant beta-type push for [Kingfisher] shares as its growth re-emerges,” said Haitong analyst Tony Shiret.

“After eight years of stasis (actually decline), that is now becoming a questionable thesis.”

When Kingfisher held its Capital Markets day last year, Shiret said the company was not expecting to have to take a hit on margins to get the French businesses back on track, although this is looking like it was indeed the case.

“Our overriding view of today was that the company’s belief in its French operations is being tested currently, and One Kingfisher may be subsidising Business as Usual already and may continue to do so unless the French market improves fundamentally,” he added.

The analyst has the stock as a ‘sell’ with a fair value of 275p, significantly below the 328p level the share price currently sits at.

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