Ever since FTSE 100 home improvement retailer Kingfisher Plc (LSE: KGF) published their Q1 results on 24 May the shares have steadily plummeted by just under 20% on the back of like for like revenue declining by a whopping 0.6%.
It’s not as if Kingfisher at group level are losing money.
CEO Véronique Laury puts the revenue decline down to ‘weaker sales in France and some business disruption from our ONE Kingfisher plan’
The ONE Kingfisher plan can be accessed from the Kingfisher corporate website but in a nutshell the management team conducted a review of both the the business and the needs of their customers and is based on ‘creating a unified, unique and leading home improvement offer; driving our digital capability; and optimising our operational efficiency’
This five year transformation plan aims to deliver £500 million of sustainable annual profit uplift by year five, over and above ‘business as usual’. By this we mean that without the transformation we would expect performance to be broadly in line with the macroeconomic backdrop in our respective markets. Until we have unified our customer offer, we will have limited expansion, the focus of which, in the medium-term, will be Screwfix UK and Europe.
Current pre-tax profits for the group are £760 million so even if management were able to achieve half of their target by the end of the ONE Kingfisher plan it would equate to over £1 billion in annual profits.
It’s a bold move and Laury has placed the future of Kingfisher the business into the ONE Kingfisher plan which has caused some disruption to the numbers:
we are experiencing some business disruption given the volume of change, as we clear old ranges, re-merchandise new ranges and continue the roll out of our unified IT platform
Nevertheless the confidence in her and her team’s ability to revitalise business operations is plain:
We remain confident in the size of the prize and our ability to deliver our long term plan, both the financial benefits of the transformation and the benefits to customers, supported by the continued expertise and energy of our colleagues
As always time will tell.
From an investment perspective I’m buying a large cap/FTSE 100 stock for my SIPP on a PE ratio of 11 and dividend yield of 3.
The balance sheet shows slight weakness with a current ratio of 1.3 but total debt to equity excluding those mystical assets called intangibles is a paltry 0.18.
Long term earnings growth rates over 3, 5 and 10 years have not been stellar but they have been positive and at year end on 31 January diluted earnings rose to 27p from 17.8p a year earlier.
I see this as yet another long term holding since the ONE Kingfisher plan will take some years to bed in and make a difference to the bottom line – this I am totally comfortable with since I’m investing for retirement and have no need to dive in and out of stocks generating commissions and worrying at night time whether my stop loss is going to be hit.
I don’t actually have a stop loss and will instead review the quarterly reports as and when they are published and make a buy/sell/hold decision based on what the business and it’s board is doing and not what the stock price is doing.