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‘Throwing in the trowel’: Deutsche Bank cuts Kingfisher rating

B&Q owner Kingfisher is under pressure on concerns about weak consumer demand, amid talk that people are falling out of love with DIY.

Last month Homebase announced the closure of a quarter of its stores, and now Deutsche Bank has turned more negative on Kingfisher. Cutting the bank’s recommendation from buy to hold in a note entitled (wait for it) Throwing in the trowel, analyst Warwick Okines said:

“Kingfisher reports its third quarter on 25 November. Weak end markets and negative currency continue to weight on earnings and we expect third quarter retail profit of £227m, an 11% decline compared with last year. Moreover the comparison base gets progressively more challenging in the fourth quarter and the first quarter [next year], with no obvious respite from the consumer. We lower current year forecasts by 3.4% and sit 5% below consensus. There are self-help opportunities ahead but also challenges, and while earnings momentum remains negative we downgrade to hold.”

Kingfisher shares are unchanged from its B&Q investor day [in October], and we have taken time to reflect on what we learnt. Under a new chief executive we hope for a reinvigorated sourcing and gross margin drive, potential China exit, and continued share buyback. B&Q is on the right strategic path and the Mr Bricolage acquisition [in France] should represent 15% of profit growth next year. Yet it will not be until the end of March that we hear more and in the meantime see macro risks from the consumer and currency. The stock trades on 2015 PE of 12 times which is not demanding but we see limited positive catalysts in the coming months.”

Kingfisher is currently one of the biggest fallers in the FTSE 100, down 5.1p to 288.2p.

But it is not all downbeat in the building supplies sector. Howden Joinery, which supplies kitchen and joinery products to trade builders through 580 depots, has said it expects full year profits to be above market expectations of £161m to £172m after a strong performance in the second half of the year, particularly in October. Total revenue in the second half rose by 16.2%, and margins were in line with expectations. Peel Hunt said:

“We have upgraded our pretax profit forecasts for 2014 to 16 by 5%-7%. Cash generation remains strong and we expect special dividends to match ordinary dividend payments over our forecast period. We maintain our buy recommendation and increase our target price to 405p.”

Howden is currently up 23.6p to 366.5p.

Source : Nick Fletcher – The Guardian

05 November 2014

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