Kingfisher - "Home attraction; cyclical upside; cash rewards" (initiation of coverage)
Kingfisher is an industry-leading home improvement retailer that is primed, ready for a recovery in “big-ticket” spending.We review management’s strategy to grow sales and profit margins in the medium term. We believe that Kingfisher’s resilience in the UK is due to the successful execution of its expansion strategy into trade, online and smaller stores (among other things). By serving more customers, in more convenient ways, Kingfisher has grown UK market share and we anticipate the roll out of these initiatives will drive market share gains in France and Poland too.
Over the next three years we forecast c.40% growth in Adj. PBT and our upside scenario analysis suggests 90% potential growth. Whilst investors wait for this, we forecast a 10%+ FCF yield and substantial cash returns. Hence, trading on only c.10x cal 2026 PER, we see scope for a significant re-rating from this point in the economic cycle.
We initiate coverage with a 340p Fair Value based on 12.5x cal 2026 PER and c.3.5% dividend yield.
Kingfisher supplies home improvement products and services through a network of retail stores and other channels, located mainly in the U.K. and continental Europe. As of Jan 31 2017, Co. had nearly 1,200 stores in 10 countries across Europe.
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