It’s been a bit of a flat week for the FTSE 100 but the same can’t be said for some of the shares inside the index. While there are plenty on the rise, the opposite is also true. With that in mind, let’s explore some of this week’s underperformers.
- Kingfisher (-11.1%)
- Flutter Entertainment (-7.9%)
- Ocado Group (-7.2%)
- CRH (-6.9%)
- Coca-Cola HBC (-6.4%).
Most of this downward momentum can be attributed to general market volatility. But in the case of Kingfisher (LSE:KGF) and Flutter Entertainment (LSE:FLTR), there are some justifiable reasons behind the decline. Let’s take a closer look at these FTSE 100 shares.
Solid earnings weak guidance
As a quick reminder, Kingfisher is a home improvements business that operates under several better-known brands like B&Q and Screwfix. Management recently published its full-year results, which, despite the stock’s downward trajectory, were quite encouraging. At least, I thought so.
Total sales grew by a respectable 9.7% on a constant currency basis. But thanks to expanding margins courtesy of Covid-19 loosening its grip on operations, pre-tax profits jumped by 33%, hitting a record £1bn. And with surging profitability, shareholder dividends also enjoyed a substantial boost, growing from 8.25p per share to 12.4p.
That’s obviously positive news for the shares of this FTSE 100 business. But while 2021 may have delivered record-breaking numbers, 2022 may not be as good. Why? Because management issued pre-tax profit guidance of only £769m – a 23% drop.
With inflation triggering a reduction in consumer spending power, the firm seems to be acting conservatively with its expectations. So, I’m not surprised to see the stock suffer as a result. For now, I’m going to sit on the sidelines and see what happens in the coming months.
Another straggler
The next business should be no stranger for those who enjoy a trip to the bookies. Flutter Entertainment is the gambling company behind brands like Paddy Power and Betfair. In 2020, the group was able to deliver some fairly impressive growth. With everyone stuck in lockdown, online poker became a popular pastime worldwide. And with the legalisation of sports betting in the US, shares of this FTSE 100 company enjoyed several tailwinds.
Unfortunately, this momentum doesn’t seem to have lasted. While management has used the increase in cash flows to facilitate new acquisitions to fuel growth, some emerging headwinds are slowing progress down. New gambling regulations in the UK, Germany and the Netherlands are having a tangible impact on revenue. What’s more, despite the rapid growth in America, this part of the business has yet to contribute anything to the bottom line.
With more European nations looking to clamp down on gambling, the future seems uncertain for Flutter Entertainment. And consequently, many investors are taking their capital elsewhere, resulting in a steady decline over the past week and the last 12 months. So, I’ll be keeping this stock on my watchlist as well.
