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Kingfisher stock rises amid hopes loss-making Chinese stores will be sold

After 13 years of losses, could Kingfisher be ready to abandon China?

Kingfisher rose 1 per cent to 402.9p on Wednesday amid hopes that it would sell its lossmaking Chinese stores and return cash to shareholders.

China accounts for about a tenth of the B&Q owner’s freehold property portfolio but contributes just 4 per cent of group revenue.

Kingfisher entered China in 1999 and grew rapidly to capitalise on a housing boom. But was caught out by government moves to curb property speculation and sales have been in decline since 2008.

Chief executive Ian Cheshire take direct control of the territory in October as part of a management shake-up.

According to Merrill Lynch, Kingfisher’s remaining 39 Chinese stores could be worth about £400m.
While profit remains elusive, exiting and using the proceeds for share buybacks would boost 2015 earnings per share by 4 per cent, it said.

“A lack of a DIY culture among Chinese consumers remains a key headwind for growth,” said Merrill. “We expect Kingfisher to break even in China in 2015 but profitability should remain subdued in the near to medium term.”

Kingfisher’s Chinese operations are structured as local joint ventures so an exit would be complex and cash might take several years to repatriate.

In the meantime, improved trading in the UK and Poland would give Kingfisher enough stability to return between £200m and £250m to investors this year, Merrill forecast.

The wider market dropped for a fourth straight day, with the FTSE 100 down 1 per cent, or 64.62 points, to a one-month low of 6,620.90.

Source : Bryce Elder - Financial Times
www.ft.com

12 March 2014
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