I’m casting around for the best share to buy for my self-invested personal pension (SIPP) this month, but I’ve only got £500 at my disposal right now.
I usually invest bigger sums in individual stocks but I’m a bit short of cash unless I sell something, which I don’t want to do in today’s volatile market. However, I could use my £500 to test the waters, and buy more when I have a bit more cash.
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The stock I’m looking at is FTSE 100 home improvement retailer Kingfisher Group (LSE:KGF). I’ve kept tabs on it for years. Now I think events may be moving back in its favour.
FTSE 100 recovery play
Kingfisher manages more 1,300 stores in nine European countries, including B&Q, Screwfix, Castorama, Brico Dépôt and TradePoint. Inevitably, it’s been knocked by the cost-of-living crisis, which hit consumer spending while rising mortgage rates dented property sales. People spend more doing up their homes after they’ve just bought one.
I last looked at the stock on 14 March, when I said it looked ripe for a recovery as “inflation peaks, interest rates fall, consumers have more to spend and the housing market recovers”.
That process is now under way, with yesterday’s Bank of England base rate cut another step in the right direction. Since I wrote that, the Kingfisher share price has jumped 21.73%, from 225.9p per share to today’s (2 August) 275p.
So well done me, but there’s a problem. I didn’t actually follow my own advice and buy it. That means I’ve missed out on that growth. In March, Kingfisher traded at 7.7 times trailing earnings. Today the shares are more expensive at 12.85 times earnings. Plus the yield has fallen slightly, from around 5.25% to 4.85%. So have I missed my chance?
Income and growth
I’ll rephrase that. Obviously, I’ve missed one key chance, but is there still is a recovery opportunity here?
Q1 sales showed it’s not out of the woods yet, with total sales dipping 0.3% to £3.26bn on a reported basis. France is doing particularly badly and judging by recent events, that could take time to reverse. Kingfisher’s other markets weren’t doing that well either, including the UK & Ireland.
The board expects adjusted pre-tax profit to range from £490m to £550m for the year to 31 January 2025. That’s down from £568m the year before. A housing recovery won’t deliver an instant boost. Home improvement demand tends to lag, as the board has pointed out, so we may not see much impact until next year.
Despite all of that, Deutsche Bank upgraded Kingfisher to Buy with a target price of 310p on 9 July. That’s up 12.7% on today. The board is also pressing on with a £300m share buyback.
I’m sorry, but I hoped for more. Kingfisher is a solid long-term buy-and-hold, but I can find more exciting prospects for my £500 on the FTSE. The search continues.
