I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

I’d focus on Kingfisher now after the Q1 report leaves the share price unmoved

Person holding magnifying glass over important document, reading the small print

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Today’s first-quarter results from FTSE 100 retailer Kingfisher (LSE: KGF) are reassuringly boring! But boring may be good. At 262p, the share price has barely moved this morning (21 May).

In the three months to 30 April 2024, total constant currency like-for-like sales declined by 0.9% compared to a year ago – yawn.

Passive income and recovery potential

I’m looking at the results through glass-half-full spectacles – at least there were no negative surprises in the B&Q and Screwfix owner’s report.

The company is a potentially decent play on general economic recovery. But it also has the advantage of paying a chunky dividend. The forward-looking yield for next year is running at almost 4.6%. I’d like to have passive income like that flowing into my share account.

Apart from a plunge in the pandemic year, the dividend record has been steady since 2018. I see that outcome as a sign the underlying business has some resilience. After all, the past few years have not been easy for cyclical outfits like this one.

Even now, the cyclicality in the general retail sector is one of the biggest risks for shareholders in Kingfisher. We’re always just another general economic crisis away from potentially plunging revenue, profit, cash flow and dividends.

Nevertheless, I’m optimistic about the outlook for the economy and believe that Kingfisher has decent recovery potential now.

Chief executive Thierry Garnier said trading in the first quarter was in line with the directors’ expectations – so far, so steady.

Gaining market share

There was ongoing resilience in the firm’s core categories with weaker sales for big-ticket items, “reflecting the broader market”. But the business is gaining market share in the UK, Garnier said.

Meanwhile, in Poland, the company is seeing “encouraging” sales trends, and in France, trading reflects the “weak overall retail market”.

That all sounds to me like a general European retail market that’s bumping along the bottom. So there’s potential for things to improve in the coming months and years.

Looking ahead, Garnier said the directors are cautious about the overall outlook for 2024 — there’s likely to be a lag between housing demand and home improvement demand.

But the company is focused on growing ahead of its markets, we’re told. On top of that, the directors have identified an additional £120m of cost reductions and productivity gains for this year.

An undemanding valuation

Guidance remains unchanged. City analysts expect full-year normalised earnings to ease back by about 13.5% this year before bouncing back (and then some) next year.

Meanwhile, the dividend will likely drop by just under 5% this year before rising to about 12p a share the year after.

With a forward-looking earnings multiple for next year just below 11, I don’t think the valuation looks excessive. It compares to the price-to-earnings (P/E) rating of the FTSE All-Share index just below 13.

I admit Kingfisher will probably never set the pulse racing with its spectacular growth. But I think the stock is worth deeper research and consideration for inclusion in a diversified portfolio focused on dividends.

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