Goldman downgrades Kingfisher on Castorama woes
Declining sales at Castorama will limit near-term growth at Kingfisher, Goldman Sachs said, as it cut the stock to 'neutral' from 'buy' and chopped the price target to 270p from 350p.
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"We believe consistently declining profitability at Castorama will offset any incremental gross margin uplift at the other formats," GS said.
It said that while better online capabilities and differentiated products/attractive price should provide a sustainable competitive position for Kingfisher across multiple markets, earnings growth in the near term will remain unattractive.
The bank reduced its underlying pre-tax profit estimates by 4%/10%/13% for FY19/20/21E, reflecting lower like-for-like sales growth and continued margin pressure in France.
It estimated that retail margin in France will decline from 9.5% in 2013 to around 5% by end of FY19. GS pointed out that LFL growth at Castorama has been declining for the last five years and said it reckons Castorama might be close to EBIT break-even if adjusted for rental expense.
Goldman noted that since being added to the 'buy' list in October 2017, the shares are down 23% versus the FTSE World Europe’s 9% decline.
Back in September, Kingfisher posted a 30% drop in first-half profit as problems in France overshadowed its UK business.
At 1245 GMT, the shares were up 0.7% to 238.20p.