Broker Jefferies has trimmed its price target for DIY goods retailer Kingfisher PLC (LON:KGF), saying the recent period of underperformance is not over yet.
In the UK, where the company trades under the B&Q and Screwfix brands, the housing market looks set to soften and there are few obvious sources of like-for-like (LFL) sales growth.
“Easy wins from Homebase (given Bunnings largely pulling out of homewares and weakening the kitchen offering) [are] set to come to an end,” Jefferies said.
Across La Manche, where the company trades under the Castorama and Brico Dépôt brands, the company will likely to sacrifice profit margins if it wants to stop its market share eroding.
“The [French] business continues to protect profits by de-emphasising promos (we assume +10bps FY 16/17 EBIT margin); however, a more front-foot approach is likely needed from here,” the Jefferies team believes.
“With the upcoming presidentials [elections] likely to further dampen appetite for large project spend, the peak of profit headwinds are likely to be front-end loaded,” the broker said, as it stuck with its ‘hold’ rating.
“Valuation to provide support, but not quite yet; work on ONE continues with 17/18 due to see a big step-up in unified assortment and further progress in IT roll-out (Casto France being first in line). There are no reasons to doubt progress on self-help, but with peer valuation also a drag we see downside momentum prevailing for now,” the broker said in justification of its rating.
The price target was cut to 325p from 335p. The shares currently trade at around 333p.