Anyone seized by a sudden urge to erect a shed today can blame it on Easter, Britain’s busiest period for DIY, when queues form at B&Q.
It might, then, seem a strange time to drill a “sell” sign into the DIY chain’s owner, Kingfisher, especially as the FTSE 100 stock has already lost more than a quarter of its value this year, from almost 350p in January to 259p today.
Yet Kingfisher may struggle to soar above this. The Covid boom for the chain, which also owns Screwfix in the UK and Castorama in France, has fizzled out. It is facing the now-familiar storm of soaring costs — higher shipping expenses, inflationary energy and material rates— and the impact of new lockdowns on Chinese manufacturing.
Kingfisher reported a 10 per cent rise in annual revenues last month to £13.2 billion for the year to January, but this year, things look shaky. It won’t be able to pass on all those extra costs to DIYers already struggling with household bills.
Then there is its estate — Kingfisher admits it is still trying to “rightsize” 40 vast stores over the next decade — while its online business still constitutes just 18 per cent of sales (my own recent tedious experience ordering B&Q radiators online leaves me surprised it is that high).
Analysts expect pre-tax profit to drop to £769 million this year, from £949 million before. For the first quarter of this year, when Kingfisher’s customers were still to face the current wallet squeeze, like-for-like sales slipped 8 per cent. Analysts at broker Numis say the shares are changing hands for about ten times forward earnings, and have “concerns that this remains inflated”.
The building trade is booming, though — as anyone who has begged a tradesman to start before 2025 will know — and rival Wickes looks in better shape. The much smaller DIY chain “has always been more value-focused than Kingfisher’s brands, and it will do better in the current environment,” said Danni Hewson, an analyst at investment platform AJ Bell. “The business has ... invested a huge amount in its digital presence, putting it on the front foot when it comes to grabbing market share.”
Wickes’s core customers — older, wealthier homeowners — are better able to weather the financial storm and keen to improve their homes, Sam Cullen at investment bank Peel Hunt added. He declared Wickes to be “one of the most mispriced companies we cover”, with its shares — trading at 201p, about six times expected earnings this year — “simply too cheap”.
Something to do on your phone while queuing to buy paint this week: sell Kingfisher, buy Wickes.
