logo-loader

Break up of Kingfisher “cannot be ruled out” if transformation fails, says analyst

Published: 16:24 19 Sep 2018 BST

Castorama store
The firm's French business, Castorama, would likely be first on the disposal chopping block

DIY retailer and B&Q owner Kingfisher PLC (LON:KGF) could be facing down an activist investor-backed breakup if its transformation strategy fails, says Hargreaves Lansdown equity analyst George Salmon.

Speaking to Proactive, Salmon said “disposals and spin-offs cannot be ruled out” if the firm fails to unify under its five-year turnaround strategy spearheaded by chief executive Veronique Laury, which despite reaching the halfway mark, has little to show for it. 

READ: B&Q owner Kingfisher dragged down by French business once again in first half

“The challenge is unifying the group, and if you can’t pull it off then there is an argument for a break-up” Salmon adds, with the FTSE 100 company already suffering the wrath of the market after yet another period of growth in the UK was offset by its struggling French business.

The group saw around £321mln wiped off its value just before the close on Wednesday as Castorama, its French arm, saw profits plunge by a third in the first half, dragging the rest of the business down with it as group profits shrank by nearly 20% overall.

Analysts at RBC are also noting the departure of the chief offer & supply chain officer Arja Taaveniku today, saying the top-level movement will “raise further concerns” about the ability of Kingfisher to deliver on its transformation strategy.

Salmon said the change in management doesn’t send the best signal, adding that the move would be unlikely to fill investors with hope for the company’s prospects.

Time to say au revoir?

The continuing weight of the French business hasn’t escaped notice, with commentators again postulating that the company would be doing better if it severed its link across the English Channel.

And it seems those calls will continue to grow louder as once again, the Screwfix business in the UK propped up its performance and is currently the star among a fairly dim constellation.

However, the weakness of the French business has been noted by analysts since at least March of last year, with the company showing little to no desire to offload it despite the issues.

Although Castorama isn’t the only issue …

While it seems that all of Kingfisher’s problems could be solved with a pair of (metaphorical) scissors to hive off the French division, the UK business isn’t exactly sitting comfortably.

Despite reporting a 1.2% rise in profits, B&Q sales fell in spite of the long UK heatwave, which usually bodes well for sales of its BBQ kits, lawnmowers and outdoor furniture.

This weak performance is also unusual following the decision by one of B&Q’s main competitors, Homebase, to shutter 42 of its 255 UK stores in August following financial difficulties.

The group’s other European markets, which include Russia, Germany, and Poland, are also sluggish, which suggests that the problems may not just be confined to the French market.

Online cannibalisation reaches DIY

In the macro view, the recent troubles with Kingfisher could be yet another symptom of the broader cannibalisation of the high street by online retailers like Amazon (NASDAQ:AMZN).

The trend has already wreaked havoc this year with clothing firms, department stores, and restaurants all buckling under the weight of the new competition.

Online is an area that Kingfisher is focusing on in its transformation plans, however only 6% of its sales are currently through this channel, a share it will have to grow if it wants to remain competitive.

Although with the latest figures proving a brake on its efforts to evolve, this could prove a more difficult strategy than initially envisioned.

HANetf founder and co-CEO discusses shift to active management in ETF market

HANetf founder and co-CEO Hector McNeil tells Proactive's Stephen Gunnion about shifting trends in the exchange-traded fund (ETF) market in the United States, indicating a big move towards active management within ETFs. Despite the European market lagging behind the US by three to five years,...

10 hours, 57 minutes ago