Analyst believes Screwfix will make more money than Homebase this year

A day trip to Stoke may not be everyone's idea of fun, but a group of analysts who visited Kingfisher's Screwfix operations on Friday seem to have enjoyed themselves.

At least that's the conclusion to be drawn from some positive notes on the visit, and a subsequent 2% rise in the retailer's shares. Caroline Gulliver at Espirito Santo said the retailer had fixed its basic problems and was now able to focus on improving its service to customers, including its online system for Screwfix. She said:

We were impressed with what we saw, particularly the multi-channel developments at Screwfix and B&Q's steps to becoming the UK's most "helpful home improvement company". There are macro-economic concerns for the group in France and Poland but we remain convinced that Kingfisher is well positioned to gain market share and grow profits, thus with the stock trading on 11 times our 2013 earnings per share estimate we remain buyers.

B&Q's website is due to be relaunched in the third quarter of next year, and Gulliver said:

Although DIY is one retail sector that is relatively protected from the "online threat", the internet does bring price transparency and competition in some categories from the likes of Amazon and www.my-tool-shed.co.uk. Kingfisher is well positioned with competitive prices, a suite of own brands, including the new Titan and Site brands, and superior availability and service (at least, that is what they are aiming for). Ultimately though, B&Q intends to reduce the size of its stores on a 5-10 year basis as opportunities arise during the renewal of its existing leases.

Our final key takeaway from the trip was that Kingfisher, as market leader, has gone about creating a consortium of global market leaders so that they can be ready for the implementation of the government's various "Eco" programs. We think the government is being highly ambitious in expecting 14m households (around 30% of the UK) to have made their homes energy efficient by 2020. Nevertheless, Kingfisher has only invested £20m in this project and the idea of offering a complete package, with its own iQe range of products, is currently unrivalled in the market.

Philip Dorgan at Panmure Gordon also issued a buy note:

Kingfisher's investor day provided interesting insights into the growth outlook at B&Q and Screwfix. The former is relatively mature and will benefit from group scale in common ranging and direct sourcing, while the latter still has significant organic growth opportunity and is leading the group's multichannel strategy. While there are some headwinds to overcome, we believe that Kingfisher's long term growth prospects mean that the current valuation of 11.8 times trough earnings is a good entry point.

On Screwfix, Dorgan said:

Screwfix currently has 240 stores in the UK and believes that it has scope for 420. It targets the small tradesman, where convenience is the prime shopping driver. We found Screwfix's multichannel offer to be particularly appealing – indeed it is being used as the platform for the group's multichannel strategy – as it offers multiple buying and fulfilment options.

Indeed, a trader can order online and collect in three minutes, which means that his cup of tea doesn't go cold as he waits in the car park. We estimate that Screwfix will make more money this year than Homebase (£40m versus £14m).

Source : Nick Fletcher – The Guardian
www.guardian.co.uk/business/marketforceslive/2012/oct/15/kingfisher-analyst-visit