The risks to Kingfisher PLC (LSE:KGF) shares lies to the downside, according to JPMorgan, despite the retailer being a “significantly improved” business.
Ahead of Kingfisher’s full-year results later this month, analysts at the bank forecast full-year profit before tax guidance of £752mln, ahead of consensus and towards the upper end of £730-760mln guidance range.
The bank believes that Kingfisher is a “significantly improved” business relative to before the pandemic, not least due to the quality of the current management team.
However, considering recent housing market trends and the "magnitude of the potential disconnect" with forecasts for the 2024 and 2025 fiscal years in like-for-like sales, JPMorgan believes "the risk to the shares lies to the downside".
The historical correlation between the housing market and Kingfisher sales growth is not as tight as might be expected, analysts said, but it is clear in the UK.
JPMorgan lowered its 2024 and 2025 pre-tax profit forecasts by roughly 5% to £579mln and £618mln, 10% below consensus.
Despite this, the target price was raised by the broker to 230p for January 2025 compared to 210p for July 2024, with the increase driven by a lower assumed discount to history to reflect the improved quality of the underlying business.
Given current declines in housing transactions, the broker believes B&Q’s sales forecasts are at least 7% too high for the fiscal years 2024 and 2025.