The FTSE 100 is full of stocks that appear to offer strong value. One such stock is Kingfisher (LSE: KGF), which owns both B&Q and Screwfix, as well as a number of other home improvement stores in Europe, Russia, and Turkey. Right now, KGF shares can be picked up on a low forward-looking P/E ratio of just 11.4 and an attractive dividend yield of 3.9%. Do those metrics make the stock a ‘buy’? I’m not so sure.
Weather boost
Second-quarter results released today don’t look too bad, with like-for-like constant currency sales for the quarter ending 31 July rising 1.6%. That’s certainly an improvement from first-quarter results, which saw like-for-like constant currency sales drop by 4% as a result of “exceptionally harsh weather conditions.”
This quarter’s positive performance was boosted by strong weather-related sales (the recent heatwave boosted demand for outdoor goods) at the group’s UK & Ireland division, with quarterly sales at B&Q and Screwfix rising 3.6% and 5.5% respectively. However, the group’s performance was still impacted negatively by poor sales in France (which makes up over a third of sales), with sales declining 1%. CEO Veronique Laury stated: “The performance of Castorama France has been more difficult and as a result we have put additional actions in place to support our full-year performance in France with the benefits expected to come through in H2.”
While today’s results show improvement, I’d like to see more evidence of a turnaround before buying the shares. The stock certainly looks cheap right now on a P/E of 11.4, however, sales are forecast to rise only 1.1% this year and analysts are still downgrading their forecasts for FY2019 and FY2020. I wouldn’t be surprised if the stock remains cheap for a while, so I don’t believe there’s a rush to buy.
A better buy?
One FTSE 100 company I’d be more inclined to buy is international packaging and paper specialist Mondi (LSE: MNDI). Its shares aren’t that much more expensive than Kingfisher’s, trading on a forward P/E of 13.7, but the company appears to have considerable momentum at present.
Mondi released half-year results at the start of August and the numbers looked solid. Group revenue was up 4%, while underlying profit before tax surged 25% and basic underlying earnings per share jumped 26%.
Looking ahead, the outlook for Mondi seems bright. Analysts are upgrading their forecasts and currently expect full-year sales growth of 7.3% this year, along with 25% growth in net profit. A dividend of €0.72 (prospective yield of 3.1%) is expected for the year, up from €0.62 last year, which would represent nine consecutive dividend increases.
The shares have pulled back by around 7% over the last week or so, and as such, I believe now could be a good time to take a closer look at the stock. Independent research house CFRA upped its price target for the stock to 2,450p this week, which is around 18% above the current share price.
