B&Q owner Kingfisher dragged down by French DIY business

Shares took a tumble following the lacklustre results.

Article updated: 19 September 2018 11:00am Author: Graham Spooner

  • The shares are now down over 25% year to date, trading at a 5-year low
  • The group continues to be hindered by Castorama as half-year underlying profits tumble by 14.8%
  • We maintain a 'hold' recommendation for medium risk investors seeking a balanced portfolio

Home improvement retailer Kingfisher reported its interim results this morning to which the shares responded negatively with a 6% tumble in the share price in early morning trading. The shares are now down over 25% year to date and are trading at a 5-year low. Revenue rose by 1.2%, but underlying profit fell 14.8% to £375 million.

The outlook by country is mixed; while the group reported a solid performance in the UK and Poland, the ongoing problems with its French operations, especially Castorama, show no signs of abating. Profits in France plunged 29.8% in the period, on weaker sales affected by weather, as well as higher costs.

While the dividend was maintained at 3.33 pence, unfortunately the group’s outlook was rather cautious as it stated that the trading environment in its main markets is making its transformation plan more difficult than hoped. The group are halfway through its restructuring, which is attempting to cut costs, unify back office systems, improve margins and sales and improve the supply chain.

Based on the CEO’s comments it looks like long-suffering investors are going to have to be more patient and with the huge changes being experienced by the retail sector, question marks over their plans will have grown.

While the company has potential in the UK and Poland, the consistently poor performance of the French business, concerns over the fall in profit margins and disruption from the transformation plan mean the shares are no better than a ‘hold’.

All information given including prices, yields and our opinion is correct at the time of publication. Our opinions on investments can change at any time and for our latest view please go to www.share.com. To understand how our Investment research team arrive at their views please read our Investment Research Policy.

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Graham Spooner

Investment Research Analyst

Graham started out as a fully authorised dealer on the Stock Exchange trading floor and for various banks, before becoming an FCA-approved investment adviser. Now a respected voice in the media, Graham’s share tips and comments on the markets are frequently sought by the national press.