What a ride!
I’ve been stubbornly holding Kingfisher (LSE: KGF) since July 2014 buying in at 361p a share.
Last Friday the share closed above this level for the first time since holding closing at 365p.
It vindicates both the value method and my stubbornness especially in the face of a 21.5% decrease in price to 283p in November 2014:
What’s annoying about this chart is the fact that I did not have the guts to buy more when it reached 300p because at that price it had reached a multiyear low and there was a serious amount of institutional sponsorship.
My original investment thesis relied on the fact that Kingfisher’s GBP217 million acquisition of Mr Bricolage – a French home improvement retailer – would not negatively impact the cash position due to a disposal of a 21.2% stake in Hornbach netting GBP195m.
Moreover Kingfisher had announced a multi-year share buyback program of GBP200 million.
Since July 2014 when I first looked at this stock we’ve had:
- A new CEO
- Declining sales
- A repetitive mention of ‘adverse foreign exchange movements’ impacting profits
- Another disposal to the tune of £190 million of the B&Q China business to Wumei Holdings Inc
- A £50 million share buyback programme ending 30 April 2015 and,
- An underweight rating from Barclays who ‘do not share the bulls’ optimism about a QE-led French housing-market improvement…At the same time, in the U.K., competitive pressure intensifies as B&Q remains overspaced with an inflexible cost structure
“Trading conditions in our largest and most significant market, France, were particularly difficult and deteriorated across the quarter, impacted by the weak economic backdrop. In the UK however, where conditions have been more favourable, we have delivered LFL growth with Screwfix performing particularly well, delivering a 25% increase in sales on top of very strong growth last year. Overall, we remain cautious on the outlook, especially in France, and continue to focus on margin and cost initiatives to support our performance.
Sir Ian Cheshire, Kingfisher Group Chief Executive, 25 November 2015
Considering margins are being eroded one has to be mindful of margins moving forward to see if the new CEO can deliver on these promises
3rd Quarter Results
One also has to wonder how much more assets KGF have left to sell and cash to spend on share buybacks to keep things ticking over as they will soon run out of cash or assets and investors will run out of patience.
I’ll hold this position for now and re-evaluate if/when Kingfisher gets to 400p