The Kingfisher share price has had a torrid year of it up until recently. If you were holding Kingfisher shares last November at 369, you would have seen it shed a lot of that in May. Much of the blame for the decline is being laid at the door of Veronique Laury, the company’s CEO, who has implemented a strategy of centralised buying of product ranges for distribution via its various high street chains.
B&Q, Kingfisher’s chain of hardware stores, is beginning to face competition from European discount retailers that are trying to break into the UK market, but we don’t see that as much of a threat to the Kingfisher share price. Screwfix, the chain of hardware stores used by the British building trade is doing particularly well, however, and analysts reckon this could be a major beneficiary of any uptick in UK house building.
Breaking up is hard to do?
The problem is that Kingfisher may be tempted to sell Screwfix, which could make around £200 million in earnings before interest and tax this year, according to Whitman Howard. There could even be a wider break up of Kingfisher on the cards. Morgan Stanley reckons the company could be worth £9.6 billion, which works out at 425 pence a share, still well north of the current Kingfisher share price.
From a valuation perspective, Kingfisher is lagging US competitors, including Lowe’s and Home Depot. Investors would like to see a better P/E ratio than they are currently getting. The P/E is well south of where it has been historically – it was 16.21 in February 2014.
“France remains the sore spot as Castorama and Bricot Depot continue to underperform the market,” says Neil Wilson, Senior Market Analyst with ETX Capital. “Kingfisher could well be advised to spin off its French division, while there remains talk of whether Screwfix is better off on its own. Common sourcing savings, which are targeted at £500 million per year by 2021, may be the reason not to go down this route.”
Analysis of Kingfisher share price
Worries persist about the prospects for the UK property market and house builders, particularly in the wake of the UK base rate hike. But Kingfisher shares received a buy rating from Goldman Sachs on 30 October, despite more negative broker sentiment swirling darkly around the likes of Barratt Developments.
Look at the shorter term view for the Kingfisher share price and there is a little more optimism: the share price was at 289 on 15 September, climbing to 317 on 3 November. Looking at the 20 day Moving Average and even the 50 day, there is a definite uptrend here. The MACD also supports this. Based purely on the technicals, we wouldn’t expect the Kingfisher share price to drop below 300 and envisage a short term trading range of 299 up to around 318. Anything higher than 320 will be subject to some short term reversion and we saw some heavy selling in Kingfisher shares on 20/21 September when the price was irrationally high and sellers took advantage of that.
The Armchair Trader says:
If you are already holding Kingfisher shares, it is worth keeping them. Rumours persist about possible spin offs of profitable units, but the CEO seems to be against this for the time being. The dividend and dividend yield has also been heading gradually upwards year on year. However, like other UK retailers, inflation could be a problem for Kingfisher in 2018, particularly if the pound stays weak and we see further interest rate hikes in Q1-2. This will lead to a slow down in UK consumer spending, a slow down in demand for new homes, and a tough year for Kingfisher. Short term, over the next three months, there looks to be some upside traders can benefit from.
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