Kingfisher PLC (LSE:KGF), the owner of B&Q, Screwfix and other hardware retailers in France, is expected to report a strong end to the financial year when it releases full-year results on Tuesday 21 March, but analysts are lukewarm over the group’s investment potential.
Those at UBS said expectations for 2022/23 are "fairly rational", but the consensus is "too optimistic" on 2023 expected pre-tax profits at £636mln.
"Our concern is predominantly driven by higher costs associated with labour, commodities, and investment into the [Screwfix] rollout in France and Poland."
Underlying profits are predicted to be in the middle of the £730mln-£770mln guidance range, helped by a stronger-than-expected fourth quarter, according to Deutsche Bank.
With UK house prices falling, it has been argued that the subdued housing market is having a knock-on effect on its DIY chains.
Over the last few months, Kingfisher’s brands have faced weaker spending, with customers moving away from home-related purchases, noted Deutsche Bank, which has a target price of 260p for the stock, close to 5% downside.
But a positive outlook from rivals Wickes and a supporting Deutsche Bank market survey indicates that consumer confidence towards the DIY sector appears to be improving.
However, investors remain cautious- Kingfisher is currently the fifth most shorted London stock with a net short position of close to 5%, according to advfn.com.
“The consensus for 2024’s profits before tax has dropped over the last year by more than 20% from £815mln to £640mln,” Deutsche Bank said.
The investment bank believes that management will have little room to offer a “bullish” outlook for the rest of the year.
Things to watch on results day, said UBS, are the expected volume trajectory this year and next, market commentary on industry trends, PBT guidance, an update on the cost environment, and near-term plans on store rollouts.