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B&Q owner Kingfisher in the red as RBC remains cautious on the stock, cuts target price

Published: 11:17 16 Oct 2018 BST

B&Q
RBC reduced its below-consensus estimates for pre-tax profit by a further 2-4%

Shares in B&Q owner, Kingfisher PLC (LON:KGF) dropped on Tuesday as RBC Capital Markets said it remains cautious on the retailer and sees downside risk to consensus earnings forecasts.

RBC maintained a ‘sector perform’ rating on Kingfisher but cut its price target to 275p from 260p. The broker reduced its below-consensus estimates for pre-tax profit by a further 2-4%.

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

“The UK home improvement market remains challenging and Kingfisher is yet to benefit from potential gradual capacity withdrawal in the sector, from Homebase and possibly Wickes,” it said.

Homebase is closing 42 stores as part of a company voluntary arrangement, a type of insolvency process. Restructuring company Hilco bought the DIY chain for £1 in May from Australia’s Wesfarmers after its failed foray into the UK market.

RBC said it expects B&Q to see a 1-2 percentage point drag on like-for-like sales in the third quarter from stopping home installation of showroom products.

In France, it thinks Kingfisher’s Castorama business is likely to be losing share still to Leroy Merlin.

RBC added that it increasingly looks like the company’s transformation plan will not yield the margin benefits it had planned. “This may lead to more calls for a break-up, but in between, a margin reset may be necessary, in our view,” it said.

“Kingfisher will also now need a new CFO post the departure of Karen Witts to Compass Group last week.”

In late morning trading, Kingfisher’s share fell 1.5% to 248.7p.

RBC prefers Next PLC (LON:NXT) for its online business and cash-returns and WH Smith PLC (LON:SMWH) for its growth in its travel division, which includes stores at airports and train stations. The broker has an ‘outperform’ rating on the two stocks. 

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