With a dividend yield of over 4% and a share price up 22% in the last year, the stock looks attractive at first glance. But on closer inspection, we find a share price lower today than it was when Terry Venables was manager of the England football team. So which is it? Is this a bargain hiding in plain sight? Or one for investors to avoid?

Good news

Let’s start with the reason the shares jumped so much. The 7% increase – adding around £400m in market cap in a single day – came on the back of a second straight outlook hike. In other words, the firm’s future earnings are expected to come in higher than had previously been thought.

There are a few reasons that cause guidance to be upgraded. Sometimes it’s a sign of strong fundamentals, a good company firing on all cylinders. Other times it’s changes in the market, like higher consumer demand. Either way, it’s a very good thing for a company and therefore its stock.

Two of the best stocks to own in recent years have been US chipmaker Nvidia and British engineering firm Rolls-Royce. Both stocks are up over 10 times in value. What do they have in common? One answer: a recent history of beating their own (and analyst) predictions on earnings. Perhaps a similar bull run is coming for Kingfisher shares too?

To buy or not to buy…

It’s worth looking at the risks here as well. I’d say the plight of the UK economy is one potential threat. While it has operations overseas, its stores in Poland and France only make up around 20% of the total number.

Economic growth in Britain has been very weak since 2008. That is one reason the FTSE 100 has been eclipsed by its American counterpart the S&P 500. Actually, the problem is even more serious when looking at statistics on a ‘per head’ basis. Much of the meagre economic growth has been because of immigration. This could curtail the prospects of Kingfisher if politicians succeed in their stated aim of curbing this.

That said, the future is a hard thing to predict. I think we’re all crossing our fingers for a bit of a turnaround in the UK economy and, you know, it might even come. The recent good news for Kingfisher is cause to be buoyant about the stock too. I’d say it’s worth considering.

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The company now expects to report adjusted profit before tax of between £540m and £570m. And that’s a significant improvement on previous guidance for something near the top end of £480m to £540m.

The owner of B&Q and Screwfix also says it’s on track to complete its £300m share buyback programme by March 2026. It’s already returned £175m by that route so far.

CEO Thierry Garnier praised “performance in core and ‘big-ticket’ categories“, adding: “B&Q, Screwfix and Iberia continue to strongly outperform their markets.”

Kingfisher shares are now up 23% so far in 2025.

Mixed European bag

The UK and Ireland made up the bulk of the quarter’s revenue gains, up 4%. France and Poland, the company’s next two largest markets, saw revenue dips of 2.6% and 1.2%, respectively.

Overall, revenue was pretty much flat. It seems the rise in profit guidance is, at least in part, down to “being disciplined on margin and costs“. And that’s also led to the board maintaining its free cash flow target of £480m to £520m.

Careful cost management can only take a company so far. And long-term future growth ultimately has to come from growing sales and revenue. So what do forecasts look like?

Strong analyst outlook

Forecasts do in fact suggest healthy growth over the next few years. They show earnings per share set to rise a further 30% by 2028, from the solid earnings expected this year.

Kingfisher’s historic price-to-earnings (P/E) ratio looks a bit toppy, at 25 based on 2024/25 full-year results. And we’re looking at a forecast multiple of 14 for the current year. That’s close to the long-term FTSE 100 average, and might not exactly make the stock look like a screaming buy.

But if forecasts come off, we’d see the P/E drop to around 10.5 by 2028. Couple that with an expected dividend yield of 4.2%, and I can see a stock worth considering for long-term growth here.

Uncertain economics

The biggest danger right now is possibly the still-shaky economic outlook across the UK, Ireland and Europe. And I suspect that might be why analysts have a Hold consensus on the stock with a price target only around the current level. A couple of them, however, have started to sound a bit more upbeat.

There’s also the cyclical nature of Kingfisher’s business, being tied strongly to the disposable income in people’s pockets. Some of the products it sells are generally among the easiest to forego when times are hard.

On balance, I’m optimistic. If the economy strengthens, if interest rates fall, if the home improvement business picks up, and if forecasts come good… it would make four ifs. But I see a decent chance of them all happening. Kingfisher is on my list of Stocks and Shares ISA candidates.

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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.

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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.

The post This overlooked FTSE 100 stock jumped in September. Are we too late to get in? appeared first on The Motley Fool UK.

What I am focused on, however, is the H1 update that caused the share price to surge. Because I think it could be a very positive sign for a stock I’m much more interested in. 

Kingfisher Group

Kingfisher is the company that owns home improvement stores like B&Q and Screwfix. And the firm reported like-for-like revenue growth of 1.9%.

This isn’t particularly exciting, but adjusted pre-tax profits were up 10% as a result of better cost controls. And management expects the firm to generate at least £480m in free cash flow this year.

That makes the stock look ridiculously cheap at an enterprise value of £4.7bn, so the company is accelerating its share buyback programme. And that’s a move I wholeheartedly approve of.

Despite all this, I’m still not that interested in buying Kingfisher shares right now. Before I say why, let me point out something that did catch my attention.

UK growth

Kingfisher’s like-for-like sales growth might only have been 1.9% overall, but UK revenues came in 3.9% higher. And there were several reasons for this. 

One was an increase in demand for seasonal (garden) products during unusually warm summer weather. People might not have wanted Greggs sausage rolls in the heat, but they did want barbecues.

Another important reason was high demand for big-ticket items, such as kitchens and bathrooms and a third was strong growth in trade sales. And it’s these that stand out to me.  

Both are signs of UK consumer spending being relatively resilient. But this points me in the direction of another FTSE 100 company that might be a beneficiary.

Howden Joinery Group

Shares in Howden Joinery Group (LSE:HWDN) climbed around 3% after Kingfisher’s report. But I think it’s in a much better position to benefit from the increase in UK demand. 

Unlike Kingfisher, Howden gets substantially all of its revenues from the UK trade industry. That kind of concentration can be a risk, but it could be an advantage at times like this one.

Inflation is also a risk that investors shouldn’t overlook. But on a price-to-book (P/B) basis (the metric I prefer to use for companies with cyclical earnings) the stock is near its Covid-19 lows.

Given this, I think the prospect of a revenue boost is very interesting. And there are also reasons to like the business from a long-term perspective as well. 

Long-term investing

Howden Joinery Group has a unique business model that involves selling out of warehouses, rather than expensive retail stores. And that gives it a number of natural advantages.

These include lower costs (which lead to higher margins) and more revenue stability (as a result of its focus on trade). That’s why I like the stock more, despite Kingfisher’s impressive recent results.

Kingfisher is doing an impressive job of protecting its margins in an inflationary environment. But I’m sceptical of the idea that managing costs can offset weak sales growth over the long term.

Howden’s next scheduled trading update isn’t until 6 November, so I’ve got time to work out what to do. But positive signs from a FTSE 100 rival have got me thinking carefully about buying.

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At 289.1p per share, the DIY retailer soared 15% on Tuesday (23 September) after lifting its full-year forecasts. It’s now risen 17% in the year to date, beating the FTSE‘s broader 12% rise.

But with weak consumer sentiment persisting in its markets, can Kingfisher shares continue rising? And should I consider adding the retailer to my portfolio?

The numbers

Thanks to higher volumes and improved pricing — and more specifically, strength at its UK and Irish units — Kingfisher’s like-for-like sales rose 1.3% between February and July, it announced yesterday.

The retailer described trading in its core home market as “resilient,” reflecting the impact of favourable weather conditions, real wage growth and improvements in the housing market.

With margins also up, Kingfisher’s adjusted pre-tax profit rose 10.2% year on year to £368m. As a consequence, the retailer now expects to record profits at the “upper end” of its £480m-£540m forecast.

Adding an extra sweetener, Kingfisher tipped full-year free cash flow of £480m-£520m, up from a prior estimate of £420m-£480m. It consequently announced plans to complete its £300m share repurchase programme by March, ahead of previous plans.

Reasons for concern

There’s no doubting the impressiveness of Kingfisher’s numbers amid broader weakness in consumer spending.

Market share gains across the UK, France and Spain underline the strength of its brands like B&Q and Screwfix. Investment in the digital and trade channels are also paying off handsomely. Those first-half numbers also show the company’s got a tight grip on costs, resulting in a 100-basis-point rise in gross margins over the half year (to 37.7%).

But while the market has clearly been excited by this, Tuesday’s update also underlined some ongoing causes for concern. While UK and Irish like-for-like sales rose 3.9% over the period, these dropped 2.1% in France during February-July. They fell by the same percentage in Poland, reflecting in part rising political uncertainty on the continent.

It is also facing headwinds in the UK, noting that “we remain mindful of early signs of softness in the labour market, uncertainty ahead of the Autumn Budget, and rising inflation.” Cost pressures are another significant threat (operating costs spiked 7.5% in the first half).

Should I buy Kingfisher shares?

There’s no doubting the retailer’s excellent operational resilience in what remain difficult conditions. But the outlook remains highly uncertain, and I feel that isn’t reflected in Tuesday’s share price jump.

As an investor myself, I’m also mindful of the high premium Kingfisher shares now command. It’s forward price-to-earnings (P/E) ratio now sits at 15.5 times, some way above the FTSE 100’s broader average of 12.4 times. If trading does deteriorate as I fear, this could prompt a sharp share price correction.

On balance, then, Kingfisher shares still carry too much risk for my liking. I’d rather find other UK shares to buy for my portfolio.

The post Kingfisher’s share price is soaring! Is now the time to buy? appeared first on The Motley Fool UK.

These three have taken a bit of a beating but are suddenly cheaper as a result, while their dividend yields have climbed too.

NatWest share price bargain

The NatWest Group (LSE: NWG) share price has enjoyed a blistering run but that came to a juddering halt on Friday, when it was rumoured that the government may slap windfall taxes on the big banks in the autumn Budget.

The NatWest share price has slumped 9.3% over the last week, one of the biggest fallers on the index, but long-term investors can hardly complain. It’s up 48% over 12 months, and 350% over five years.

As with every stock, there are risks. Higher interest rates have boosted margins, and these may be squeezed when rates are finally cut. On the other hand, lower rates would get the economy moving again, cutting customer debt impairments and boosting mortgage business.

I don’t know what will come in the Budget. But I do know that NatWest looks decent value with a price-to-earnings ratio of 9.5, well below the 15 seen as long-term value.

And with the stock forecast to yield 5.85% in 2025, and 6.52% in 2026, there’s income here too. I think it’s well worth considering today.

Legal & General, dividend hero

I’m more cautious about the next beaten-down stock, even though I hold it myself. Insurer Legal & General Group (LSE: LGEN) fell 8% in the last week, but that brings one positive. The trailing dividend yield is now an eye-popping 9.15%.

That’s a simply staggering rate of income, but I have two concerns. First, the Legal & General share price has idled for ages. It’s up a modest 5% in the last year, and 13% over five years.

Second, the yield is so high we have to start asking whether it’s sustainable. The board has suggested it is, and plans to increase shareholder payouts by 2% a year. However, last month JP Morgan noted that Legal & General’s net profit, dividends and buybacks aren’t covered by free cash flow.

It also warned of rising competition in the bulk annuity market, a key potential growth area. Investors dazzled by the yield should explore these risks first.

Kingfisher yield climbs

B&Q owner Kingfisher (LSE: KGF) is another big recent faller, down 7.5% in the last week. This isn’t a one-off. It’s down 12% over a year and 8% over five.

Like many retailers, it’s been hit hard by the cost-of-living crisis, which has squeezed consumers, and driven up the cost of labour and materials. Sadly, we don’t appear to be out of the woods yet.

Kingfisher has operations in France and Poland, which have been struggling. It’s actually the UK segment that has been holding up, despite concerns over here.

The Kingfisher share price looks decent value trading at 12 times earnings, while the trailing yield has climbed to almost 5%. Bargain hunters might consider taking a chance on this one, but performance could be bumpy for a while yet.

The post 1 beaten-down FTSE 100 stock to consider before markets rebound, and 2 I’m shunning for now appeared first on The Motley Fool UK.

But some of its members aren’t faring quite so well. And there’s one stock in particular that could be in for a rough ride next month.

Not looking good

B&Q and Screwfix owner Kingfisher (LSE: KGF) is down to report its latest set of half-year numbers on 23 September. Personally, I’m a bit cautious about what the market might make of them.

Shares in the £5bn cap business have been pretty volatile of late. Positive momentum in the first half of the year — helped by some encouraging Q1 figures in May — has been lost. Much of this may be down to analysts getting (even more) pessimistic about the UK economy and speculating that cyclical sectors like DIY could suffer as real wage growth slows and unemployment concerns increase.

Perhaps this helps to explain the current popularity of this company among short-sellers — those betting a stock will fall in value.

All in the price?

Of course, no one knows for sure where share prices are going. If Kingfisher’s results are even slightly better than anticipated, the share price should rise, especially as the valuation isn’t exactly excessive. Anyone buying today would pay the equivalent of 12 times forecast earnings — a little below the average in the UK stock market’s top tier.

As things stand, there’s a 4.7% dividend yield too. That’s pretty chunky.

However, the lack of hikes to the total payout in the last few years takes some of the shine off. This, when combined with cost pressures and the rather gloomy outlook, forces me to regard this business as one of the less attractive options in the retail space.

Even if the the shares don’t actually ‘crash’ next month, Kingfisher is not on my wishlist.

A far better FTSE 100 stock to buy?

Another company reporting in a few weeks is bellwether Next (LSE: NXT). Interim results are due on 18 September.

In contrast to its FTSE 100 peer, the clothing and homewares seller’s share price has been going great guns this year, delivering double the gain of the index. But that rise is also justified given better-than-expected sales and multiple upgrades to guidance on full-year profit.

It doesn’t stop there. Those buying since the start of the year will have enjoyed a 158p dividend hitting their accounts at the start of August.

Throw in an extended period of warm weather in the UK — and the possibility of more shorts and t-shirts flying out of stores — and I wouldn’t blame shareholders from feeling quietly confident.

No sure thing

The only problem is that Next shares already change hands at a price-to-earnings (P/E) ratio of 17. That’s above the company’s average over the last five years (13).

The fact that this is a high-quality company — based on numerous financial metrics — still doesn’t shield it from a drop in consumer confidence either. We could easily see some volatility if inflation continues to climb.

Notwithstanding this, the £15bn cap has clearly been the better buy over the long term. Whatever happens in September, I struggle to see how that will change.

I think this warrants far more consideration.

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Kingfisher struggles to fly

Shares in B&Q owner Kingfisher (LSE: KGF) have struggled for years. They’re up just 3% over the past year and 5% across five.

That compares with increases of 10% and 50% across the FTSE 100 over the same time periods, so that’s a sizeable underperformance. None of these figures include dividends.

The cost-of-living crisis continues to take its toll on the DIY retailier. It hasn’t just squeezed consumers, but driven up the cost of labour and materials. Lingering post-Covid supply-chain snarl-ups haven’t helped.

While Kingfisher’s UK arm has shown some resilience, its French and Polish operations are still feeling the strain.

In the group’s Q1 update, published 28 May, the board reaffirmed full-year guidance for adjusted pre-tax profit of £480m to £540m. That holds out the prospect of a big drop on last year’s £528m. Any other performance would lift the share price though.

Unsurprisingly given its troubles, the shares look modestly valued on a price-to-earnings ratio of 13.3. The dividend yield has edged up to 4.5%, which sits ahead of the index average. 

But I’m not convinced and neither are analysts. Only two out of 15 think Kingfisher is a Buy. Eight say Hold and five advise selling. 

There may be hope yet if wider economic challenges ease, but I don’t see a compelling reason to consider buying Kingfisher today.

GSK struggles on

Pharmaceuticals giant GSK (LSE: GSK) is a stock I hold myself but being honest, I wish I didn’t. The shares have declined 10% over one year and 12% over five. 

The yield has crept to around 4.5% but that’s down to the falling share price rather than generosity from the board.

The dividend was frozen at 80p per share way back in 2014 and stayed there until 2021, only to be cut to 57.75p in 2022. It crept up to 61p in 2024, but it’s still a poor showing.

CEO Emma Walmsley is battling to replenish the drugs pipeline while fending off the usual pharma sector threats such as US class action litigation and blockbuster drugs coming off patent. She’s had to do it while watching FTSE 100 rival AstraZeneca growing at speed. 

Throw in Donald Trump’s war on big pharma, and the path ahead is unclear. On a P/E of 8.75, GSK looks cheap. Yet despite the yield and valuation, I wouldn’t say investors should consider buying it today.

Solid income, growth concerns

Both names offer generous payouts, which may look even more attractive as interest rates are cut. Kingfisher shows clearer potential if conditions improve, but it needs the economic backdrop to change. GSK is cheap but is under a political shadow.

At the moment, neither feels worthy of being snapped up. But when clarity returns, both could jump back into favour. Investors hate these stocks today, and I’m not too keen either. I’ll keep an eye on them, but I can see far more exciting opportunities across the FTSE 100 today.

The post Investors hate these 2 FTSE income stocks! Is this an opportunity? appeared first on The Motley Fool UK.

International exposure

I still feel that some people get confused by assigning too much importance on how the economy is performing when it comes to the FTSE 100. Most of the large-cap stocks within the index are international. They choose to be headquartered in the UK, or listed here. This doesn’t mean that the UK market is the largest for the company, or even that it generates any meaningful revenue on our shores.

Although I’m not particularly optimistic about the UK economy going forward, I remain upbeat globally. The US is performing very well, despite concerns about tariffs. China is showing signs of recovery. The European Central Bank committee is nearing completion of its interest rate cuts, as it believes inflation is now under control. This bodes well for international companies to grow their earnings this year. It should filter down to higher share prices, driving the index up.

On the other hand, a weakening UK economy should cause the British pound to depreciate. It could trade down to 1.20 against the US dollar, which would reflect an 11% fall. Given that most FTSE 100 companies are net exporters, this would provide a boost of a similar amount to their earnings when they are repatriated back to the UK. In theory, an 11% increase in the earnings for the index could push the price up. An 11% move would tally 10,000 points.

Valuation metrics

The current price-to-earnings (P/E) ratio for the FTSE 100 is 16.5. When I compare this to the S&P 500 at 29.9, it appears to be a bargain. If I assume the aggregate earnings per share for the FTSE 100 remains the same but the P/E ratio rises by 11% to 18.3, this would put the index at 10,000 points. Even at that level, it still would be valued lower than the US, so I don’t feel it’s an unrealistic expectation.

At a stock level, there are undervalued companies that could shine and act to help push the index higher. For example, Kingfisher (LSE:KGF) has experienced a modest 3% share price rally in the past year. Yet, with a price-to-earnings ratio of 13.55, it’s below the index average. The retailing, DIY, and home improvement stock is also a way off its 52-week highs. However, quarterly results from May showed strong UK and Ireland revenue growth of 6.1% compared to the same period last year.

I think the stock can climb over the coming year. Further interest rate cuts are expected to lead to higher demand for properties, driven by lower mortgage rates. By extension, this creates more demand for home improvement projects.

One risk is France, where stores have been underperforming. The business can’t just rely on the UK market to cover the shortfall going forward. Yet on balance, I think it’s a stock to consider as part of a broader move higher in the FTSE 100.

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