Home improvement group Kingfisher (LSE: KGF) was one of the FTSE 100 success stories in September. And I’m seeing reasons to think there could be more to come, in October and beyond.
The Kingfisher share price jumped 15% on 23 September on the back of first-half results. And then it carried on up in the following week. At the time of writing on 30 September, the stock looks like posting a one-month gain of 19%.
Profit and cash gains
Kingfisher posted a 10.2% rise in adjusted pre-tax profit with adjusted earnings per share up 16.5%. And adjusted free cash flow jumped 13.5% to reach £478m. One of the things I first look for is a company’s net debt or cash position. In this case, Kingfisher has net debt of £1,726m at 31 July. But with £2,255m of lease liabilities, I’m not seeing a problem.
While saying the company is “mindful of mixed consumer sentiment and political uncertainty“, CEO Thierry Garnier said the results provide “the confidence to upgrade our full year profit and free cash flow guidance and to accelerate our share buyback programme“.
We should now expect profit before tax at the upper end of £480m to £540m, with free cash flow between £480m and £520m. A further £300m is being returned to shareholders by way of an extra buyback, and that should help future per-share measures.
Time to buy?
I’ve looked at Kingfisher a number of times with a view to a possible investment. I’ve always seen it as being reasonably defensive in tougher times. With its B&Q and Screwfix brands, it commands a good chunk of the UK home improvements, tools, hardware, and materials markets.
The thing that’s always kept me back is the stock valuation, which has never looked attractive enough to draw me away from better FTSE 100 bargains. But then, defensive resilience does come at a price — and lower valuations often mean higher risk.
Forecasts will presumably be upgraded now. But, as they stand, they suggest a forward price-to-earnings (P/E) ratio of 14. Predicted earnings growth could drop that to 10.5 by 2028. And I reckon that could be a tempting undervaluation.
The dividend should be modestly on the rise too, yielding around 4.2% by 2028. That’s nowhere near the biggest on the Footsie. But brokers expect it to be more than twice covered by earnings.
Tempted again
I confess I’m tempted by Kingfisher again. And it’s not just because subsidiary Screwfix is the first place I look for power tools and DIY consumables. This set of results, coupled with forecast valuations, makes me think the stock is probably better value today than it’s been for some years.
I’m just a bit concerned over whether the outlook is more to do with cost control than actual revenue growth. Total first-half sales grew by only a modest 0.8%. And the retail outlook is still a bit tight.
I definitely rate Kingfisher as a stock to consider buying, but I think I’ll wait until we see full-year results.
