Kingfisher well placed for future

Mixed weather over the Easter holiday probably meant a mixed start to the season for DIY groups.

The big retailers all splashed out on marketing in the run-up to their golden period in a bid to draw shoppers. But this year Easter is just one battle, albeit an important one, in a longer war of attrition that many believe will end in consolidation.

Barely any of the top chains, whether it be Kingfisher-owned B&Q, Home Retail-controlled Homebase, or Focus, are in the pink.

Certainly Kingfisher met analysts’ expectations when it posted prelims last month – but profits and margins remain a fraction of their former totals. Homebase has never really done the business for Home Retail and Focus is constantly having to fight for space at the table.

But the money must be on Kingfisher to maintain and enhance its market-leading position. That’s one of the messages from the share price, up strongly since the start of the year. Not all analysts are enamoured of the stock, but even some of the bearish have upgraded – albeit with reservations.

Investec has moved from sell to hold and suggests that B&Q’s first quarter like-for-like performance could pleasantly surprise when the numbers are issued in June, while Panmure Gordon upped its price target from 160p to 180p.

One of Kingfisher’s problems is that a step forward often seems to be accompanied by one back. However, it is now showing signs of improvement under boss Ian Cheshire, who has come good so far on his strategy of putting the business back on track with new management, better use of capital and focus on higher returns.

Kingfisher’s heritage, continued strength and evidence that Cheshire can successfully address the problems means that it should retain its leadership. If it does, once the downturn is over, that much-anticipated deal with one of the global giants such as Home Depot – assuming it can sort out its own problems – might once again be on the cards.