Stock pick of the week: Kingfisher
Published 01/11/2011 | 11:50
Kingfisher is the clear leading European home improvement retailer with scale advantage and geographical diversification. Kingfisher dominates the category in the UK with its B&Q unit.
B&Q has a material scale advantage (with more than 25pc of the market and about 2.5 times the size of its nearest competitor).
Underpinned by property: Kingfisher’s real estate market value is an estimated £3.2bn or about 60pc of Enterprise Value.
Turning around B&Q China from loss making to breakeven point could materialise earlier than expected.
A combination of improved sourcing, cost cutting and store refurbishment could lead to 200bps margin expansion over the next three years. On current estimates, the shares are trading on a PER (f) of 10x, well below historical average of 15x.
The stock also yields over 3.3pc.
The group had net cash at the FY stage which could translate into a step up in returns to shareholders.
Given the self-help opportunities in the UK, double-digit earnings growth (10pc EPS CAGR 2010-2013), property backing, scope for margin expansion and the longer-term prospects of a cyclical recovery in UK DIY, the shares look undervalued.
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