Kingfisher PLC (LSE:KGF), the home improvement retailer that owns B&Q, has been marked down despite a string of structural advantages that should keep profits climbing.
RBC Capital Markets reckons the shares, now 296p, are attractively priced and maintains its outperform rating with a 350p target.
Several factors are driving gross margin strength at Kingfisher, which owns B&Q and Screwfix in the UK. The company achieved 100 basis points of year-on-year gross margin improvement in the first half, driven by buying and sourcing scale.
Marketplace expansion, retail media and improved inventory and promotional management are all adding to margins. RBC reckons supplier negotiations should become easier now following the imposition of tariffs.
The "improve not move" trend is coming through strongly in the UK. Despite tough seasonal comparisons for 2026, RBC expects core DIY demand to remain robust as consumers look to save money.
B&Q's expanded marketplace and click-and-collect capabilities should drive incremental penetration in trade and online channels.
Poland is set to overtake France this year in profit generation. With only 50% market penetration and recent rate cuts supporting consumer sentiment, Poland now matches France's profitability but with superior growth prospects.
That provides a helpful offset to France's challenging consumer environment, where Kingfisher is a distant number two to market leader Leroy Merlin.
The valuation looks compelling. Trading at 11.7 times forecast earnings for 2026 with projected low double-digit earnings per share growth and a 4% dividend yield, RBC thinks Kingfisher is attractively priced compared to its growth and cash return prospects.
The shares trade on 13.6 times enterprise value to forecast earnings before interest and tax for 2026, below peers like Travis Perkins at 15.2 times and Wickes at 11.6 times.
RBC expects Kingfisher to continue taking share in the UK, driven by its trade and e-commerce growth.
The broker forecasts revenues of £12.9 billion for 2026, up from £12.8 billion this year, with operating profit rising to £653 million from £628 million. By 2028, revenues should reach £13.2 billion with an operating profit of £723 million.
The broker uses an average of discounted cash flow and sum-of-the-parts analysis to arrive at its 350p target. The DCF assumes a 10-year compound annual growth rate in sales of around 2% and a long-run operating margin of 6%.
RBC uses a weighted average cost of capital of 8.5% and a terminal growth rate of 1% to account for Kingfisher's international exposure.