Barclays initiates Kingfisher as 'underweight' on macro headwinds in UK, France

Analysts at Barclays initiated B&Q and Screwfix owner Kingfisher as ‘underweight’ as it expects macroeconomic headwinds in both Britain and France.

The bank said the FTSE 100 company is facing difficult macro and market share losses in France that are unlikely to be resolved quickly and so initiated an ‘underweight’ rating and a target price of 300p.

Although it does believe that Kingfisher’s five-year plan to turnaround its prospects “makes sense”, but it could disrupt operations in the short term and negatively impact its financial results.

During the first year of its turnaround plan Kingfisher unified 4% of its products across its different chains, but included what Barclays believes are “low hanging fruit”, as the company is also planning to increase its unified ranges to 20%, which may result in “excessive inventory that will need to be discounted, potentially unwanted new items and a cultural clash with divisions that have been used to more autonomy”.

Barclays believes that Kingfisher will find it difficult to grow sales over the next year as its French subsidiaries have experienced a continued decline in profitability since 212 when the gap between UK-based B&Q’s sales and that of Brico Depot and Castorama peaked.

Despite trading slightly below its five-year average price-to-earnings ratio, Barclays said that its stock is already pricing in some improvements and that company-collected consensus is too high.

The biggest risk to Barclays' forecast is "faster than expected benefits from the current turnaround plan".

It said that it was possible that a "unified range" will be popular with consumers and simplify operations, but this is unlikely, while macro improvement in France and Britain could surprise the market on the upside.

Shares in Kingfisher were down 0.155 to 325p at 0926 BST.