Nomura downgrades Kingfisher rating over potential strategy implementation costs

Nomura has today downgraded Kingfisher from ‘neutral’ to ‘reduce’, citing the potential implementation costs of its new strategy as the reason.

“we have no issues with Kingfisher’s proposed unifying strategy as a means of offering differentiated home improvement products at low prices to customers. We think it will drive long-term market share. We are unclear at this juncture as to the programme’s capital and revenue costs. It seems likely that the requirements of a major supply chain change, refitted store estate over time and employee costs of implementing the programme will put pressure on shareholder returns (and the buy-back in 2016). As such, we have cut our estimates for some added costs and capex and no buy-back. Our view may prove short-lived, but we think the risks warrant trimming positions.”

Nomura added:

“With continued employment and average earnings growth, we expect disposable income to grow around 3.5% in 2016 despite fiscal austerity. With staples inflation low, this points to another year of mid-single-digit discretionary consumption growth in the UK. Real wages are growing across Europe. We expect non-food retail to continue to grow below discretionary consumption as consumers prioritise cars and holidays over ‘stuff’. Within the sector, discounters, online and speciality retailers will likely continue to flourish at the expense of the big box.”

Source : Insight DIY Team