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Shares drop as analysts question if Kingfisher can deliver on profit boosting plan

B&Q Reading 725 x 500

Kingfisher has unveiled a new five-year plan for growth but investors appeared less than impressed, despite proposals for a big cash return, as its blue chip shares remained firmly in the red in afternoon trading.

The owner of DIY chain B&Q announced a push to increase annual pre-tax profits by £500million within five years and return £600million to shareholders - but shares have dropped off 6.1 per cent (see here for original announcement)

Chief executive Véronique Laury said the aim was to 'leverage the scale of the business by becoming a single, unified company,' adding that 'with a clear roadmap now in place alongside clear long term targets, the size of the five-year opportunity is significant. '

That translates to a further push for online sales and cost-saving across the business but the DIY giant should face renewed competition from a refreshed Homebase, which is being bought out by an Australian DIY store-owner.

Kingfisher estimated that its plan, which entails improving its operational and online capabilities and driving efficiencies, would cost £800million and hit its profits in the first year by about £50million and in the second year by about £70-100million.

Kingfisher also announced today that that Rakhi Parekh, a former Amazon UK executive, had been appointed a non-executive director of the group.

Laury said Parekh's extensive experience in digital and multichannel retailing would be vital to the company's plans.

The company added that a key part of the plan would be to ramp up its digital operation and open more trade-focused Screwfix stores across Europe

The group's new plan comes in the wake of the £340million sale by rival Home Retail Group of Homebase to Australian giant Wesfarmers. Kingfisher's UK chains, B&Q and Screwfix are likely to face stiffer competition following the deal.

Wesfarmers has said it plans to rebrand the Homebase chain as Bunnings, the same name as its successful Australian business, and revamp the portfolio of UK DIY stores.

But analysts questioned whether such ambitious targets are possible given that current expectations for its last financial year are only for a profit of around £670million.

Tony Shiret at Haitong Research, said: 'The issue here is the credibility of the plan and the market's view of the likelihood of successful execution. We remain sellers because we do not believe that Kingfisher will deliver this plan.'

Independent retail analyst Nick Bubb, continued: 'The aim that the '5 year transformation will deliver £500million sustainable, incremental annual pre-tax profit uplift by the end of year 5' looks quite punchy, off a base of £675million last year.'

He added: 'The benefits aren't as clear-cut as you might think, although the news that Kingfisher also intend to return £600million of capital to shareholders over the next 3 years (via share buybacks) will provide some comfort.'

Investec Securities repeated a sell rating on Kingfisher shares and placed its target price and forecasts under downwards review.

Anlayst Kate Calvert said: 'There are a lot of moving parts and no guarantee that all the cost will fall out and the profits come through.'

She added: 'Shareholders are being offered a capital return of £600million over the next 3 years (equivalent yield 2.5 per cent p.a.) in addition to DPS yield of c3 per cent. We see an equivalent return of 5.5 per cent as insufficient, given the execution risk.'

Kingfisher shares on the FTSE 100 index have shed 6.1 per cent, or 21.5p to 323.5p this session.

Jonathan Pritchard, analyst at broker Peel Hunt, said: 'We will watch the roadmap closely, because this is not the first time that we have heard that Kingfisher would be a strong player if it was unified, and a number of CEOs have tried and failed to bring common product and buying to the group.'

In March last year, new boss Laury detailed plans to reshape Kingfisher, including closing 60 B&Q stores while expanding the number of Screwfix outlets, cutting the number of product lines, merging the garden and bathroom businesses and revitalising its big stores across Europe.

In November, Kingfisher revealed that its profit for the 13 weeks to 1 November fell 11.8 per cent to £225million, with total sales down 3.6 per cent.

In France, where the firm owns DIY chains including Castorama, sales slid by 9.3 per cent, but that poor performance was partially offset by a 4.8 per cent rise in the UK business.

Prior to today's update, analysts were on average forecasting a 2015-16 pre-tax profit from Kingfisher of £667million, down from £675million pounds in the previous year.

Source : Mark Shapland -

25 January 2016

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