Earnings

Can an uptick in DIY demand fix Kingfisher’s share price?

Kingfisher’s [KGF] share price took quite a hit when it fell to an intraday low of 118.50p before closing at 124.05p on 17 March this year. The decline represented a year-to-date loss of 42.8% and is the lowest value the stock has held since early 2009.

Although Kingfisher’s share price recovered some of its lost value the following week — it hit an intraday high of 178.15p on 25 March before closing at 170.85p — it was still 22.7% lower than the value it held at the beginning of the year.

Despite the patch of volatility, Kingfisher’s share price has gradually recovered since then and has been consistently trading above its 2020 opening value of 217p since the beginning of July.

Kingfisher’s share price has continued to build pace this month, when it reached a peak of 270.30p on 14 September, marking a year-to-date climb of 24.6%. While impressive, this is still far off its all-time high of 914.63p, which it reached on 5 May 1999.

Will the company’s first-half earnings, due 22 September, be a catalyst for Kingfisher’s share price?

 

 

A DIY makeover for Kingfisher’s share price

When Kingfisher announced its full-year earnings for the fiscal year 2020 ended on 31 January, it reported basic earnings per share of 0.4p. This represented a 95.6% drop when compared to the previous year’s earnings of 9.1p per share.

As for revenue, Kingfisher reported semi-annual 2020 revenues of £6bn, according to the Financial Times. This missed the £6.04bn consensus estimate among two analysts polled by the publication.

Along with initially closing stores across France and the UK, Thierry Garnier, CEO of Kingfisher, has been rapidly adapting the group’s business operations to meet COVID-19 safety measures while also reducing costs and protecting cash.

“Our current cash balance provides us with sufficient financial headroom based on assumptions of a prolonged period of reduced sales,” Garnier said.

“Our current cash balance provides us with sufficient financial headroom based on assumptions of a prolonged period of reduced sales” - Thierry Garnier, CEO of Kingfisher

 

These actions, paired with people taking on more DIY jobs during lockdown, have led to the recent gains Kingfisher’s share price has seen, Paul Summers wrote in The Motley Fool.

“A beneficiary of people having (a lot) more time on their hands lately, Kingfisher recently reported a 21.6% jump in like-for-like sales in the second quarter of its financial year (to 18 July),” he wrote

Summers said that the cost-cutting measures mean the company now believes that adjusted pre-tax profits will be ahead of last year’s.

 

Analysts rate the stock an outperform

If investors had bought the stock “when the world was going to hell in a handcart back in March, you would have doubled your money by now,” Paul said. “That’s a much better return than the 22% achieved by the index.”

RBC Capital Markets reiterated an Outperform rating on Kingfisher’s share price in August and raised its price target to from 325p to 335p. Meanwhile, Morgan Stanley also reaffirmed an Overweight rating on the stock, whilst raising its price target by 290p to 320p.

Kingfisher holds a consensus Outperform rating among 17 analysts polled by the Financial Times. This consists of a majority of five, one a Buy, four rating it a Hold, another four an Underperform and the remaining three a Sell.

The median forecast among 14 analysts offering 12-month projections on Kingfisher’s share price stands at 271p, according to the Financial Times — analysts gave a high estimate of 335p and a low of just 170p.

“Whether this momentum can last, however, is debatable. With restrictions lifted and people slowly returning to work, the shares may begin to lose steam” - Paul Summers

 

Despite the recent rally in Kingfisher’s share price and a somewhat bullish outlook from various analysts, others like Summers remain sceptical.

“ Whether this momentum can last, however, is debatable. With restrictions lifted and people slowly returning to work, the shares may begin to lose steam,” he noted.

“A forecast price-to-earnings ratio of 14 is far from excessive, but with a lot of debt still on the balance sheet, I wouldn’t go chasing the stock from here.”

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