No-moat Kingfisher reported a disappointing third-quarter trading update. Organic revenue declined 1.1% year over year, missing company-compiled consensus.
To make matters worse, proposed regulations in the UK and France are expected to hit profitability in 2025 due to higher wage costs and taxes. The combination of bad news sent shares 15% lower on Nov. 25. We’ve lowered our fair value estimate by 8% to £2.67 per share to reflect lower profitability in the short- and medium term. Shares appear fairly valued.
Sales from big-ticket items remained soft during the third quarter, declining 4% year over year, albeit with some signs of improvement. Average selling prices are flat year on year with improved volume trends versus the second quarter, which should support profitability at similar levels to the first quarter. Geographically, performance in France remains weak, declining 4% year over year in constant currency. Poor consumer sentiment in the region is likely to keep the outlook depressed.
Management expects a £31 million headwind in financial 2025/26 due to the hit from higher employers’ National Insurance contributions detailed in the UK Budget before any mitigation measures. In France, amendments to the social tax are expected to have a £14 million hit during the same period, which will place further pressure on the group’s poor profitability.
The upper end of Kingfisher’s profit-before-tax guidance was lowered by £10 million to between £510 million and £540 million, which falls within our £540 million estimate for financial 2024/25.
Key Morningstar Metrics For Kingfisher KGF
• Economic Moat: None
• Morningstar Rating: 3 stars
• Fair Value Estimate: £2.67
• Morningstar Uncertainty Rating: Medium
• Sector: Consumer Cyclical
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
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