FTSE 100 home improvement retailer Kingfisher (LSE: KGF) has risen 23% from 23 September. I am not surprised, given its excellent H1 2025 results released on that day.
The owner of the UK’s B&Q and Screwfix, France’s Castorama, and Brico Depot across Europe, posted a £368m pre-tax profit.
This was up 10.2% year on year, on a 1.3% like-for-like (LFL) rise in sales to £6.811bn. LFL sales measure a retail business’s growth from its existing stores and space, excluding new store openings or closures.
Adjusted earnings per share jumped 16.5% over the period to 15.3p, while free cash flow surged 13.5% to £478m. And it is earnings growth that ultimately powers any firm’s share price and dividends.
A risk here is a surge in the cost of living that could cause customers to reduce discretionary spending.
However, consensus analysts’ forecasts are that Kingfisher’s earnings will grow by a whopping 15.8% a year to end-2027.
The core business
The analysts’ projections align with upgraded forecasts and development from the firm.
It now expects to deliver a full-year pre-tax profit at the upper end of the previous £480m-£540m guidance. It also raised its full-year free cash flow guidance to £480m-£520m, from the previous £420m-£480m.
The firm is focused on three key strategic areas to drive growth going forward. One is to develop business with trade customers through new services and loyalty programmes. In H1, this segment’s sales grew 11.9% to £1.9bn.
Another is to expand its e-commerce operations with greater choice and speed of order fulfilment. Sales in this segment increased 11.1% in H1, to £1.4bn.
And the final one is to build on its different branded operations. H1 saw the rollout of eight new B&Q stores from former Homebase sites and the expansion of Screwfix stores across the UK and Ireland. A further 25 Screwfix stores will open in the two regions in H2, and another five in France.
So what about the share price?
Just because a stock has risen significantly in price does not mean it is without value now, as the two things are not the same.
Value reflects the fundamental worth of the underlying business, while price is just whatever the market will pay at any given moment.
The best way I have found to ascertain any stock’s true value is the discounted cash flow (DCF) model. In Kingfisher’s case, the DCF shows the shares are 21% undervalued at their current £3.09 price.
Therefore, their fair value is £3.91.
My investment view
I am over 50 now, so in the later part of my investment cycle, which means two things to me.
First, I focus on stocks with dividend yields of over 7%. This is because I want to increasingly live off these while continuing to reduce my working commitments. Kingfisher’s current dividend yield is 4.1%.
Second, I do not want to wait for any stock to recover from a market shock again. In just the past five years, I did so as a result of Covid and then after former Prime Minister Liz Truss’s mini-budget. In this context, I am far from confident in the UK’s current economic trajectory.
However, for those younger — and more optimistic — than I, Kingfisher is well worth considering for the long term, in my view.
