Should I Buy Kingfisher?

LONDON -- It's time to go shopping for shares again, but where to start? Fun-packed financial-services flyer Hargreaves Lansdown? Scottish engineer Weir Group? Or recovering bank Royal Bank of Scotland?

There are plenty of tempting stocks to choose from, and I'm enjoying doing some window shopping. So here's the question I'm asking right now: Should I buy Kingfisher (LSE: KGF.L  ) ?

Flyer or flop?
The FTSE 100 flew over the summer, but retail giant Kingfisher came plummeting back to earth. While the FTSE 100 grew more than 5% over the last three months, Kingfisher fell more than 7%.

And that's not a short-term blip: The share price has fallen 14% over the past 18 months. Is that a good reason to have a flutter on Kingfisher?

It never rains...
If the rain ruined your summer, spare a thought for Kingfisher, Europe's largest home-improvement retailer, which owns DIY chains B&Q and Screwfix. Fewer people buy garden furniture and plants when it's coming down, and the rains washed away an estimated 30 million pounds of profit in the U.K. and northern Europe.

At least it did sell more lawnmowers as customers tackled their fast-growing lawns, but pre-tax profit still fell from 438 million pounds to 364 million pounds in the six months to July 28, a drop of nearly 17%. Chief executive Ian Cheshire, who took charge in 2008, called this his "toughest half" so far.

Things were a little better in France, where Kingfisher owns chains Castorama and Brico Depot, even with incoming President Francois Hollande's proposed tax hikes dampening customer demand.

There may be brighter times ahead, though, according to a note from Numis Securities. Kingfisher has been helped by the disappearance of Focus DIY in spring 2011, as well as rival Homebase's growing concentration on home furnishings. Markets forecast a sharp profit rebound from an expected 740 million pounds in the year to Jan. 28, 2013, to 820 million pounds in the subsequent 12 months. That would put it on about 10.5 times earnings for the year.

1,000 B&Qs
In some respects, Kingfisher looks like a company in retreat, at least in the U.K. Cheshire has suggested that it may close up to 10% of its 360 stores when their leases expire and lay off staff in its Southampton office.

But B&Q is expanding elsewhere, having just opened its 1,000th store, in Poland. It is looking to open more stores in markets such as Turkey and Russia.

I'm a little concerned about its customers. Kitchens, bathrooms, sheds, paving, and garden equipment aren't exactly luxury purchases, but they are the type of things people do without when they're feeling the pinch.

On the other hand, if the stagnant housing market means people are improving instead of moving, that should boost sales.

DIY joke
Despite the stormy summer, Kingfisher hiked its interim dividend from 2.47 pence to 3.09 pence for a rise of 25%. The stock currently yields a reasonable 3.3%, covered 2.8 times -- better than you will get on cash.

The recent share price dip is a buying opportunity for anybody who wants to hold Kingfisher for the long term, but I think I'll do my shopping elsewhere. This isn't a stock to DIY for.

Yield to the yield
If Kingfisher doesn't tempt you, there are plenty of other great opportunities out there, including the one U.K. share that Warren Buffett loves, which is in our special in-depth report. This report is completely free and explains exactly why Warren Buffett bought this share. Availability of this report is strictly limited, so if you want to know the name of this company, please download it now.

Further Motley Fool investment opportunities:

Harvey owns shares in RBS. He doesn't own shares in Kingfisher or any other company mentioned in this article. The Motley Fool owns shares in Hargreaves Lansdown. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


Read/Post Comments (0) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2041704, ~/Articles/ArticleHandler.aspx, 11/27/2014 7:26:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement