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It would be unfair to say that Kingfisher has stood still over the past decade. The owner of the B&Q DIY brand has been through a fair few renovations itself, as a series of new leaders have moved into and out of various territories.
For long-term holders, however, it must feel as though the company has been treading water.
Its revenue has grown at a compound rate of just 2 per cent, its operating profit has been flat and the total return enjoyed by shareholders has amounted to a 20 per cent loss, according to FactSet. Its share price peaked in 2014.
It has had its moments since, particularly in the wake of the pandemic, when travel and other restrictions prompted those with excess savings to embark on a DIY frenzy, although soaring inflation and the accompanying hit to disposable incomes meant this momentum eventually fizzled out.
And despite a decent first-quarter trading update in May, analysts see few signs of it picking up. Panmure Gordon expects earnings per share to decline by 18 per cent this year. Its analysts argue the company “is not really developing a material breakout strategy to offset the drag effects” of its legacy store network on longer-term growth prospects.
Kingfisher shares trade at below nine times earnings, well below their five-year average. The company presumably thinks they are too cheap, given that it has spent the best part of £600mn on buybacks over the past two years. So too does non-executive Bill Lennie, who spent almost £160,000 on them last week.
Whether buybacks have been the most constructive use of the company’s funds is open to question. Since they began in September 2021, Kingfisher’s share price has fallen by a third and the shares remain among the most heavily shorted on the London market.
Kitwave insiders offload shares
Kitwave shares have doubled in value since they floated on the Alternative Investment Market (Aim) in May 2021, so it was no surprise that some of the food and drink wholesaler’s executive directors have taken advantage of the end of a second 12-month lock-up period to book some gains.
On July 4, chief financial officer David Brind and the spouse of chief operating officer Ben Maxted sold £1.62mn-worth and £487,000-worth of shares respectively. They each now hold less than 1 per cent of Kitwave shares. Meanwhile, the spouses of three other members of the company’s management disposed of shares with a combined value of £1.23mn.
The transactions happened on the same day as the release of Kitwave’s interim results, which revealed strong revenue and profit growth. The board also raised full-year guidance above market expectations.
The top line climbed by 23 per cent to £275mn in the half-year to 30 April as the company, which has a network of 29 depots and over 42,000 customers, put up prices and enjoyed resilient volumes. Operational efficiencies as well as price inflation helped the company to increase its gross margin by 180 basis points to 21.6 per cent, while statutory pre-tax earnings rose by almost half to £8.3mn.
Elsewhere, the £28mn acquisition of wholesaler WestCountry in the period boosted the company’s trading footprint in south-west England. But another consequence of the purchase is an increase in debt, with Kitwave’s leverage ratio rising to 1.9 times at the balance sheet date. Management pointed to “strong” cash generation, but this fell by £5.4mn year-on-year.
House broker Canaccord Genuity expects “continued execution of the buy-and-build strategy through the addition of further targeted acquisitions, in what remains a largely fragmented market”. The shares trade on 11 times forward earnings, according to the analyst consensus on FactSet, slightly more expensive than the historic average of 10 times.
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