Kingfisher plan on track

It appears Veronique Laury's plan to overhaul retail giant Kingfisher (KGF) is off and away. Fourteen B&Q stores have already closed their doors (Ms Laury previously outlined plans to cut 60 B&Q outlets from the estate) and the group has sold its 70 per cent controlling stake in B&Q China to the tune of £140m in sale proceeds. That cash is likely to find its way back to shareholders. Around £88m has been returned via a share buy-back since January, making up part of the £200m already promised to investors during the 2015-16 financial year.

A stellar performance from the Screwfix outlets helped drive a 10 per cent improvement in UK sales in the first quarter. The brand opened its 400th store during the period and increased like-for-like sales by more than 15 per cent.

France is still a weak spot for Kingfisher. A "soft" market pulled like-for-like sales down 1.2 per cent as gross margins fell 80 basis points as a result of higher promotional activity. A slow housebuilding market meant like-for-like sales at Brico Dépôt - the French equivalent of B&Q - dipped 1.9 per cent, while sales at the Castorama chain remained flat.

But some of the group's other international stores did well - particularly in Russia where strong consumer spending on durable goods drove like-for-like sales up nearly a third. A robust performance in Poland offset sluggish sales growth in Spain, leaving international sales up 7.5 per cent at constant currencies.

Overall, group retail profit rose 3.1 per cent at constant currencies to £157m.

Investec says…

Sell. Kingfisher scored a minor victory as first-quarter retail profits in the UK were slightly ahead of expectations. Notwithstanding foreign exchange pressures, soft markets and promotional activity only allowed for a small improvement in constant currency retail profits, highlighting the tough backdrop Kingfisher is trading against. Although some progress has been made on the 'ONE' Kingfisher strategy, the long-term benefits will take years to materialise in our view. We acknowledge that there is some degree of cash flow and yield support for the shares, but see better value elsewhere in the sector.

Cantor Fitzgerald says…

Hold. We see little reason to change our recommendation because of the limited growth prospects in Kingfisher's two core markets: the UK and France. The company has a relatively strong balance sheet, however, following the disposal of its holding in Hornbach and its stake in the Chinese business. This should enable it to buy back shares over the medium term, accelerate dividend growth over the next three years and restructure the UK property portfolio. There should also be some bounceback in the French business, which accounts for roughly 45 per cent of total profits. We're retaining our pre-tax profit forecast of £720m for the current financial year, giving EPS of 22.6p.