Why FTSE 100 dividend stock Kingfisher plc could be a great buy after today’s results

The Kingfisher plc (LON:KGF) share price is falling. Is this time to buy this FTSE 100 (INDEXFTSE:UKX) firm?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Hedge shaped as the pound symbol inside a glass piggy bank

Image source: Getty Images.

Shares in B&Q and Screwfix owner Kingfisher (LSE: KGF) fell by 8% when markets opened this morning after the group said adjusted pre-tax profit fell by 8.1% to £683m.

In fairness, the FTSE 100 group’s profits were expected to fall this year. Indeed, on the face of it the results were slightly ahead of expectations.

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Kingfisher reported underlying earnings per share of 25.5p, versus consensus forecasts of 23.7p. The dividend was increased by 4% to 10.8p per share, ahead of a predicted payout of 10.6p. So why are the shares falling?

Uncertain consumer spending

Kingfisher’s total sales rose by 3.8% to £11,655m last year, but fell by 0.3% when exchange rate movements were excluded. Like-for-like sales were 0.7% lower on the same basis.

I believe that weaker sales are the main reason for today’s sell-off. In my view, these results have flagged up two areas of concern that could put pressure on profits this year.

The first is that UK sales appear to be worsening. They rose by 0.6% on a like-for-like (LFL) basis last year, as a 2.3% drop in B&Q like-for-like sales was offset by 10.1% growth at Screwfix. However, the final three months of the year saw sales slow at both outlets as customers steered clear of expensive items like kitchens. If this trend continues, sales could fall below expectations this year.

The second area of concern is France, where like-for-like sales fell by 3.5% at the firm’s Castorama and Brico Dépôt DIY chains. Worryingly, this reflected “weaker performance versus the market” as well as the impact of the group’s ongoing transformation programme.

This could be the answer

Chief executive Veronique Laury is pinning her hopes on the five-year ONE Kingfisher plan she launched after landing the top job in 2014. Ms Laury’s goal is to unify much of the product sold across the firm’s four main brands. This should cut costs, create unique product ranges and increase internet sales.

Progress so far is said to be on track, with 23% of product ranges unified by cost. Sales of the new products are outperforming those of older ranges and gross margins on the unified ranges are said to be up by 1.8%.

A new, unified IT platform now handles more than 50% of group sales, and the proportion of goods sold over the internet rose from 4% to 6% last year.

Should you buy?

I think Kingfisher is a good business that’s doing the right things. It also has very little real competition in the UK. But I am concerned about consumer demand, which seems uncertain.

Today’s results referred to “a mixed picture” for sales in 2018/19. Cost savings are expected to total £30m this year and management expect profit margins to improve, as more unified ranges are rolled out.

Analysts’ forecasts before today’s results were for earnings to rise by 4% to 26.5p per share this year. The dividend is expected to climb 8% to 11.7p.

These forecasts put the stock on a forecast P/E of 11.7, with a prospective yield of 3.8%. Although I’m concerned about consumer demand, I think the shares rate as a long-term buy while they’re close to 300p.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Satellite on planet background
Investing Articles

£3.3bn raid sends the Vodafone share price up. Here’s what I’d do

The Vodafone (LON:VOD) share price opened higher on Monday, as news of a big buy from a major investor was…

Read more »

Happy woman with excess weight smiling and dancing alone in sports clothes
Investing Articles

Top British growth stocks for May

We asked our freelance writers to share the top growth stocks they’d buy in May, which included miners and musical…

Read more »

Electric cars charging at a charging station
Investing Articles

A cheap UK share I’d buy for the electric vehicle revolution

This cheap UK share has collapsed in value since I bought last year. But here's why I'm thinking of buying…

Read more »

Stack of British pound coins falling on list of share prices
Investing Articles

3 distressed stocks with huge potential that I’m considering for my portfolio!

These three distressed stocks have performed badly in 2022, but that doesn't mean they won't recover. Here's why I'm considering…

Read more »

Luxury inside of NIO car
Investing Articles

Here’s why I’ve just bought NIO shares!

I've recently bought NIO shares, despite the stock being down nearly 80% over the past year. Here's why!

Read more »

Mature people enjoying time together during road trip
Investing Articles

Is now the time to buy Tesla shares?

Tesla's share price has fallen in 2022 and so has its valuation. Edward Sheldon looks at whether this is a…

Read more »

A graph made of neon tubes in a room
Investing Articles

Are Woodbois shares worth me buying at 4.7p?

Jon Smith considers the recent surge in price for Woodbois shares, and wonders if the move lower last week represents…

Read more »

Shot of a senior man drinking coffee and looking thoughtfully out of a window
Investing Articles

How I’d generate a passive income for life with just £20 a week

Dividend shares can be an excellent way to earn a passive income for life. Our writer discusses a plan to…

Read more »