Analysts positive on Kingfisher after Polish visit

Analysts have returned enthused from a two day trip to Poland last week to visit Kingfisher's operations in the country.

The company, which owns B&Q in the UK but uses the Castorama brand in Poland, was pointing up the strength of its overseas business at a time when British retail spending is under pressure. Nick Bubb at Arden compared Kingfisher to Homebase and Argos owner Home Retail, up 1.7p at 167.2p, and said:

There is something to be said for having all your eggs in one basket, but now is not a good time to be fully exposed to the fading demand for "big ticket" household goods in the UK and Home Retail are suffering from their grievous lack of overseas diversification. Fortunately Kingfisher is predominantly an overseas business these days and, to reinforce the point, Kingfisher take analysts every summer to look at one their overseas outposts.

This year it was the turn of Poland and sunny Krakow, via a well-organised trip on Thursday and Friday last week. Castorama is the DIY market leader in Poland, with around 55 stores and sales of just over £1bn last year and the business there is very profitable, which is why it will make nearly as much money as the whole of Home Retail this year (despite Home being over five times as big in terms of sales). Maintaining the margin at that level in Poland will be a challenge, with wage costs rising, but the aim is to offset that with better labour productivity and improved gross margin, through more own-label and direct sourcing. Despite Carpetright's strange inability to find enough sites for their ill-fated business in Poland, Castorama Poland is confident of getting to its target of 105 stores within six or seven years, so the business in Poland looks in good shape. Overall, we still see Kingfisher as a well-managed group with a strong balance sheet and we still think the rating is surprisingly modest (we target 315p).

Over at Liberum, the analysts were equally positive, putting a buy note on Kingfisher:

The abiding impression of the trip to see Kingfisher's business in Poland last week was of a strong business within a market that was recovering well. With self help from the group level ramping up, Poland (17% of group earnings before interest and tax) should remain a key source of growth for several years. While we are not changing forecasts or our 350p target price, we do believe that the visit has served to remind the market that most of Kingfisher's non-UK operations are in good shape both operationally and in terms of market dynamics. It remains our only UK large cap buy in retail.

Investors seem less convinced, with Kingfisher's shares currently down 0.7p at 266.8p.

Source : Market Forces Blog - Guardian.co.uk
www.guardian.co.uk/business/marketforceslive/2011/jun/13/kingfisher-visit-to-poland