August hasn’t been a great month for many FTSE 100 shares and there’s always a chance things will get worse as we hobble into September. This is particularly the case for companies due to update the market next month.
Here are two top-tier businesses that could be in for a rough ride.
Tough market
With further rate rises on the cards, full-year results from Barratt Developments (LSE: BDEV) on 6 September will be required reading for me. The outlook statement from management will be particularly important.
I doubt it will be pretty. Higher mortgage rates coupled with an enduring cost-of-living crisis tend not to result in a flood of buyers.
In line with this, property portal Rightmove reported on Monday that the average asking price for homes dropped 1.9% this month. That’s the largest fall in August in five years.
Clearly, it’s going to take time for business — and Barratt’s share price — to fully recover. The question is how much of this pain is baked in?
Already priced in?
I’m inclined to say “quite a lot“. Barratt’s stock trades on a price-to-book ratio of 0.75. This suggests expectations are already appropriately low.
In addition to this, it’s worth highlighting that Barratt and most of its peers are in far better shape than they were during the Financial Crisis.
And while we don’t know when exactly this will happen, there will inevitably come a time when interest rates stop rising. This is why I think having some exposure to housebuilders makes sense for a long-term investor like me, especially given the ongoing shortage of quality homes.
If I didn’t already own FTSE 100 peer Persimmon, I’d consider buying here, but perhaps only after those results are delivered.
Wash out
Another blue-chip business that could have a troubling September is B&Q owner Kingfisher (LSE: KGF). Its share price has also declined in the last 12 months.
Yes, it’s still to hit the 52-low seen in November of 2022 following that disastrous mini-budget. And, yes, the 3% or so decline in 2023 is in line with the return of the index.
However, I suspect half-year results on 19 September might contain a few nasties.
A (very) wet July will surely have held back sales of gardening equipment and furniture. Surveys are also suggesting that people with limited discretionary income are prioritising holidays over things like home improvement.
One further, ominous sign for me is that the company is the most shorted stock on the UK market. In other words, a not-insignificant number of traders are betting that the Kingfisher share price has further to fall.
Bargain FTSE 100 share or value trap?
Again, it’s worth asking how much of this is reflected in the stock’s valuation?
Kingfisher shares currently change hands for nine times forecast earnings. That’s cheap, relative to the Consumer Cyclicals sector and to the market in general.
The shares also boast a dividend yield of 5.3%, covered twice by expected profit.
Nevertheless, a 20% fall in five years (not including dividends) is pretty poor considering the company enjoyed a huge tailwind in the form of multiple UK lockdowns during the pandemic.
So that low price tag looks fairly justified. And I reckon things are about to get worse before they get better.
