This is why Kingfisher just plunged again

Many metrics and the share price are heading south for the B&Q owner, which explains the rising dividend yield. Richard Hunter, head of markets at interactive investor, gives us the full picture.

Last month’s update seems to have partially masked a deteriorating trading situation, with Kingfisher under particular pressure in its French operations.

The performance at Castorama is weak to the extent that it has stained the overall picture, dragging down gross margins and now needing to be of particular focus to management in the second half, at a time when the transformation of the group in a difficult environment should be the sole objective.

At the same time, general retail malaise is affecting Kingfisher as with others, and many of the metrics make for uncomfortable reading – retail and group underlying profit, earnings per share, net cash and like-for-like sales are all generally heading south, with the outlook for the remainder of the year “mixed”.

The UK consumer is currently in an uncertain place, and whilst this is out of Kingfisher’s control, it nonetheless adds to the “to do” list whilst driving change through.

All is not lost, however, and where the group has strengths, these are consolidating. The UK, and Screwfix in particular, continues to make a strong contribution, as do operations in Poland. There is an increasing move towards digital – although at 6% of sales there is clearly a long way to go – and operational efficiency is improving despite the various headwinds.

Meanwhile, the dividend yield of 4.1% is of solace and is underpinned by what has been a supportive share buyback programme, whilst the second quarter was rather stronger than the first, as previously guided.

The tenacity of management to see changes to the business through are evident, although it is less clear whether investors will maintain their patience.

Even prior to today’s markdown, the share price had suffered of late, with a 13% drop over the last three months alone contributing to a 10% decline over the last year, as compared to a marginal 0.3% gain for the wider FTSE 100over that period.

The question now is whether the pockets of visible progress are enough to maintain the generally positive market view of the stock as a recovery play, where the consensus stands at a ‘buy’ for the moment.



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