Why Kingfisher’s DIY empire could mean it’s a recession-proof stock

Kingfisher’s stock has been pummelled in recent months, but historically DIY stores have done well during recessions.

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B&Q and Screwfix owner Kingfisher (LSE:KGF)’s stock enjoyed a massive rally during the pandemic, as investors bet big on locked-down Brits spending more time on home improvement projects. From January 2020 to July 2021, Kingfisher’s share price increased by 71%.

But the multinational home improvement giant has stalled since the summer of 2021, with its share price plummeting by roughly a third to the present day.

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While Kingfisher may have been catapulted too high during the pandemic as investors put narrative before fundamentals, I think the company is now in oversold territory – its stock trading at around 75% of book value.

Tighten your utility belts

Kingfisher’s retail-centric business model is unfairly attracting investors’ scorn, as rampant inflation and the spectre of an impending recession spook the market.

In fact, a weaker consumer has historically been a boon for the DIY ethos. Doing routine maintenance yourself and repairing what you own rather than replacing it is an obvious cost-cutting strategy. During the 2008 recession, US home and garden improvement retailers Tractor Supply Co. and Sherwin-Williams Co. performed strongly for precisely this reason.

While investors have been flocking to healthcare, utilities and discount retailers looking for shelter from a possible recession, I believe DIY stores are presently an overlooked haven.

A boom in home improvement

Official data from the ONS show UK councils granted almost 4,500 applications every week to people wanting to carry out major work on their homes last year — a massive 33% increase from 2020, taking the total to levels not seen since 2007. The applications include works that need planning permission, such as loft extensions, garages, swimming pools and conservatories.

People are increasingly choosing to have their own homes done up, rather than selling up and buying a better property. That spells good news for Kingfisher’s Screwfix, which is the UK’s largest retailer of trade tools, accessories and hardware products.

Hammering home the point

In the year ending January 2022, Kingfisher reported an increase in earnings per share of 43%. The company has shown it is committed to delivering value to its shareholders, returning £300m through a buyback on 28 April.

Meanwhile, its growth story is not over, with 80 new Screwfix stores on the way in the UK and Ireland, and its balance sheet looking healthy with a positive net cash position.

Analysts expect a considerable decline in like-for-like sales across Kingfisher’s main markets in 2022/23 as the stay-at-home DIY boom softens. A 7.3% fall is forecast in the UK and Ireland, while in France a smaller decline of 2.9% is predicted.

The year-on-year contraction forecast for 2022/23 does not put a spanner in the works for me, however, as it is a natural artefact of a once-in-generation DIY boom fuelled by the whole world being confined indoors during the pandemic.

With Kingfisher well positioned to capture growth in both the DIY and DIFM (do-it-for-me) sectors across multiple European markets and its share price looking seriously depressed, I consider it an attractive buy for my portfolio.

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Mark Tovey 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.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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