Morningstar | Inconsistent Results Persist at No-Moat Kingfisher; Shares Undervalued
No-moat Kingfisher’s fiscal 2020 first-quarter sales update revealed disparate performance across regions, with strength in the U.K., but struggles in France. Overall sales for the first quarter grew 0.3%, ahead of our full - year forecast for a 5% decline (which includes locations set to be closed accounting for 6% of 2019 sales). While the sales update did not provide explicit detail on margins, we expect to hear further insights on new store formats at its innovation day but believe these might only provide modest gains ahead given the competitive landscape across the home improvement industry (we forecast an average gross margin of 37.6% versus 37% in 2019). As a result, we do not plan any changes to our long-term profit assumptions (average operating margin around 6%) or our GBX 300 fair value estimate ($9.57 for U.S. shares) and view shares as undervalued.With cooperative weather, the U.K. delivered solid results, with B&Q (43% of 2019 sales) posting 3% growth, ahead of the 2% declines we had modeled for the full year given uncertainty surrounding Brexit. Screwfix slowed from its double-digit growth trajectory, posting a 9.6% increase driven by the opening of four new outlets (we model 7% for the year). Overall, U.K. sales for the first quarter grew 5% despite Brexit uncertainty, tracking ahead of our expectation of 1% growth for the year.
Offsetting U.K. gains, France sales slowed (37% of 2019 sales), with first-quarter declines of 4% at Castorama hurt by transformation related activity and a 6% shortfall at Brico Depot hindered by promotional activity. We expect some of these headwinds to level off over the rest of the year, represented in our flattish sales outlook for the French segment in 2019. Other international revenue growth increased 1% in the first quarter, weighed down by declines in Spain (2%) and Russia (9%), which are set to be shuttered. Going concern region growth was healthy, with Poland posting a 3% and Romania clocking a 6% sales gain.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.