If there’s one FTSE 100 share that’s done rather well out of the multiple UK lockdowns, it’s B&Q owner Kingfisher (LSE: KGF). With nowhere to go and few people to see, it was understandable that many of us would find relief in hastily-brought-forward DIY projects and opportunistic gardening. However, with restrictions scheduled to lift completely by July, is it time for investors to take profits and run? Here’s my take.
“A stronger business”
No doubt about it, today’s results from the top-tier member were something for existing shareholders to celebrate.
Sales rose 7.2% on a reported basis to £12.3bn over the 12 months to the end of January. As a sign of just how important it was for firms to have a quality e-commerce offering these days, almost a fifth of these were online transactions (including Click & Collect). Adjusted pre-tax profit rose 44% to £786m.
Naturally, this was great news for Kingfisher’s finances. Free cash flow jumped almost 400% to £938m, helping the company to reduce its burden and resume paying dividends. A total payout of 8.25p per share for the last financial year has now been proposed.
Commenting on today’s numbers, CEO Thierry Garnier said that Kingfisher was emerging from the pandemic as “a stronger business, with an improved competitive position in all key markets, strong new customer growth and a step change in digital adoption”.
As one might expect, the market has lapped this up. Taking into account today’s 6% rise, Kingfisher’s share price is now roughly 160% higher than where it was back in March 2020. That’s a spectacular result for anyone who had the courage to buy when the pandemic first hit.
The question is whether this form can continue.
Time to sell this FTSE 100 share?
I think there are arguments for and against staying invested in Kingfisher.
On the one hand, the FTSE 100 stock’s outlook on earnings is encouraging. Today, the £7bn cap stated that it had made a “good start” to its new financial year with demand in the UK and France remaining strong. With the popularity of working from home likely to continue after the pandemic has passed, Kingfisher’s purple patch may just continue. On top of this, I’d also argue that a frothy housing market is likely to have priced some people out of their dream homes. This could make the option of renovating their existing abode more attractive.
Notwithstanding the above, we need to consider that many people simply can’t wait to get outdoors and spend their money on other things. In such a scenario, it’s travel and leisure-related stocks that will benefit, less so those relating to home improvement. Confirmation that Kingfisher had such a storming 2020 also means that the firm faces tough year-on-year comparables going forward. Throw in some obligatory economic uncertainty as the full impact of the pandemic becomes clear and further significant share price gains look unlikely, in my view.
All told, I’m inclined to think the ‘easy money’ may have already been made with Kingfisher. A P/E of just 13 times forecast earnings suggests that the FTSE 100 member is far from a screaming ‘sell’, but I do think expectations need to be tempered with realism. As such, I’d feel more comfortable investing my money elsewhere in the top tier.
