Wednesday 24 May 2017

Stock pick of the week: Kingfisher

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.













Independent.ie stock picks are not explicit or implicit recommendations to buy or sell the shares mentioned, under the Market Abuse Regulations 2005. Merrion Stockbrokers may be corporate adviser to some of the shares chosen.

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