The Kingfisher (LSE: KGF) share price has risen 16% since the beginning of the year and 110% in 12 months. That looks good. But of course, past performance isn’t an indication of future results.
I wrote about the stock back in November and was bullish then. I’d buy Kingfisher shares today, even at the higher price, as I feel they can carry on rising. The DIY retailer released its full-year results on Monday and I think it’s worth looking at the investment case again.
The results
The share price reacted positively on the release of the full-year results. It was pleasing to see an overall set of good numbers.
Total revenue for 2020 increased by 6.8% to £12.3bn on a constant currency basis. I’m not surprised by this as working from home during Covid-19 has encouraged many, including myself, to carry out home improvements.
I guess this DIY boom has meant that Kingfisher has emerged from the pandemic stronger. Its cash position has improved and as a consequence, the company’s net debt has fallen significantly, to £1.4bn from £2.5bn.
During the coronavirus crisis, Kingfisher, like many other companies, suspended its dividend in order to preserve cash. I think the fact that it has resumed its dividend highlights the strength of its financial position.
Kingfisher has proposed a total dividend per share of 8.25p for the 2020/21 financial year. The reinstatement of the incomes payments is one of the reasons why I’m bullish on the Kingfisher share price.
‘Powered by Kingfisher’
Thierry Garnier, the new CEO who joined the retailer in September 2019, announced his ‘Powered by Kingfisher’ strategy in June 2020. I think this plan is key to driving the business forward.
What is ‘Powered by Kingfisher’? Well, it’s a strategic plan that includes measures such as accelerating e-commerce initiatives. I like that the company is focusing on its own exclusive brands (OEB) including new kitchen and indoor lighting ranges. OEBs typically have higher margins than third-party brands. This should boost Kingfisher’s profitability in the long term and thus the share price.
So far, the strategic plan seems to be working. The new strategy and leadership teams are now in place. E-commerce sales were up 158% and now account for 18% of total revenue. I expect this to continue as consumers are now becoming comfortable with ordering home items online.
Click & collect sales increased 226% over the year. To me, this highlights that Kingfisher’s multi-channel approach has been delivering, especially during the pandemic.
The risks
I think working from home has allowed many consumers to save money and focus on improving their homes. This may have been a catalyst for Kingfisher’s success, but the ‘Powered by Kingfisher’ plan may not be successful in a world after Covid-19.
Even Kingfisher itself has warned that demand may fall due to the vaccine rollout and fewer restrictions. Increasing unemployment could mean consumers have less to spend on DIY projects too.
Strategic drivers
I’d buy Kingfisher shares due to the long-term growth drivers. I reckon stable home ownership, ageing houses and the gradual trend of urbanisation could help the share price.
During the pandemic, Kingfisher has seen the emergence of a younger generation of DIY-ers. This trend is still emerging and I feel the company could capitalise on this demographic. I see Kingfisher as being on the right path and I’d buy the stock.
