Property owners deciding to sell up and move on — or use their spare cash to do up their homes during lockdown — has led to a stunning increase in sales at Kingfisher (Miles Costello writes).
To its credit, the owner of the B&Q and Screwfix chains has dramatically raised its game, most notably online, to deal with the surge in demand.
Will it last? Well, amid predictions that the housing market is heading for a renewed slump, particularly if the UK ends up with a no-deal Brexit, the outlook for the DIY business is highly uncertain.
The good news for the retailer and its long-suffering shareholders is that the repair job it has been carrying out under the new chief executive seems to be holding up well.
Kingfisher was established in 1982 in order to buy Woolworths, the high street retail chain that at the time owned B&Q stores. In the UK, the group operates B&Q for consumers and Screwfix for the trade and in France it runs Castorama and Brico Dépôt. There are outlets in Poland, Spain, Portugal and Romania. The company employs about 78,000 staff in approximately 1,370 stores.
The last time this column looked at Kingfisher in June last year, it was in need of some home improvements. Its business in France was haemorrhaging market share and losing senior executives, while in the UK Screwfix was performing reasonably well but B&Q was losing customers.
A turnaround plan under the previous chief executive, Véronique Laury, 55, had failed to bear fruit. So, in September 2019, in came Thierry Garnier, 54, a former regional chief executive at Carrefour, the supermarket retailer, to have his go at turning the business around.
Mr Garnier moved swiftly. He abandoned the centralised approach to ordering stock and handed back control to divisional bosses and store managers, giving them the flexibility to cater to a local audience.
He also invested heavily in improving the online and delivery service, making it easier for consumers and tradespeople to buy products ranging from nuts and bolts to lawnmowers. This was to be a boon during the lockdown months.
Things initially looked a bit wobbly. Early on in the outbreak it had to shut all its stores in the UK and France for a short period to implement social distancing requirements. Some staff were put on furlough and the interim dividend was suspended.
As the weeks progressed, however, it became clear that homeowners in the UK, France and Spain in particular were using the confinement to invest in their houses and gardens. Families were also buying equipment for working from home and schooling children.
The DIY bonanza led Kingfisher this month to report double-digit sales increases across all its international businesses, the most impressive of which was B&Q with growth of 23.9 per cent over the three months to the end of October.
Optimists will argue that people have rediscovered their affinity with DIY during the crisis and trading will continue to improve, albeit not at such stellar levels. The bears will point to worries about the near-term outlook for the property market.
Either way, a more dynamic retailer, which has returned its furlough money, has positioned itself well to take advantage of a strong environment and bear up well in a downturn.
The shares, though down 4¼p, or 1.5 per cent, to 270¾p yesterday, have risen by 28 per cent since the column recommended buying them last June. They trade for just 9.8 times Goldman Sachs’s forecast earnings for a prospective yield when the dividend resumes — possibly next year — of 3.6 per cent. They are a bargain.
ADVICE Buy
WHY Much improved retailer under new leadership that has benefited from a renewed interest in DIY
CVS Group
Trading at CVS Group, one of Britain’s biggest veterinary companies, is looking healthier (Alex Ralph writes).
CVS was hurt in the first lockdown when practices shut and about half of its employees were put on furlough. The second lockdown in England has been less disruptive, allowing all of its practices to remain open.
This was reflected in CVS’s update for the four months to the end of October, issued yesterday ahead of its annual shareholder meeting.
Total sales rose 6.3 per cent and 5.1 per cent on a like-for-like basis compared with the same period a year ago. This was despite CVS deferring annual price increases in July until next month. Trading has been aided by growth in clinical work in its core practices business as well as increased appetite for its Animed Direct online pharmacy and retail business.
The stronger topline boosted the bottom line, with its group earnings before interest, tax, depreciation and amortisation (Ebitda) margin improving to 18.7 per cent from 18.2 per cent year-on-year.
The better sales and cash performance has in turn pushed down debt and leverage. Net debt fell to £40.9 million at the end of last month from £62.1 million at the end of June, reducing its leverage to less than 1.0x.
The headroom gives CVS scope for more bolt-on deals as well as protection against the impact of more severe Covid-19 restrictions.
Acquisitions have helped CVS expand to own 480 veterinary practices across the UK, its main market, the Netherlands and the Republic of Ireland, where it employs about 7,000 people. CVS’s integrated business model spans laboratories, which provide diagnostic services, crematoria, buying groups and Animed Direct.
Investor interest in the industry is set to increase as IVC Evidensia, its larger European, private-equity backed rival, prepares for a potential initial public offering early next year. A £10 billion valuation is being talked about, including debt.
Shares in CVS ended up 79p, or 5.8 per cent, at £14.35, extending gains this year to 25.3 per cent and valuing it at £1 billion.
ADVICE Buy
WHY Recovering from lockdown and benefiting from increasing pet ownership
