Mindful Money’s weekly shares watch: Kingfisher, Wolseley & Compass Group

24th November 2014


B&Q owner Kingfisher is set to report its third quarter trading update on Tuesday and investors will be hoping for some positive news on its European operations.

The business, which has endured a 26% share price dip over the past six months, has witnessed a wide divergence in the fortunes of its UK and French businesses.

Sheridan Admans, investment research manager at The Share Centre highlights that while the former division has been improving steadily, the latter has suffered due to the poor economic backdrop in France.

Admans, who has Kingfisher on his ‘hold’ list, says: “The current performance of both, alongside management’s expectations for the rest of the year, will be one of the main points of interest in this trading update. Investors will be viewing these results in the context of the recent decision of Homebase, the great rival to Kingfisher’s B&Q chain, to close 25% of its stores.”

Keith Bowman, equity analyst at Hargreaves Lansdown Stockbrokers notes that any continuation of the improvement highlighted in August’s interim results will be sought, while for its UK business, further positive momentum for its Screwfix arm could be underlined.

Bowman said: “Elsewhere and against a backdrop of economic uncertainty, management’s gauge of conditions for both its Chinese and Russian businesses is likely to prove of interest.”

While Deutsche and UBS have both very recently reiterated ‘buy’ recommendations on the shares, Bowman points out that with statutory pre-tax profit down by 6.5% as of the half-year results, the analyst consensus opinion currently points towards a ‘hold’, albeit a strong one.

FTSE 100 plumbing giant Wolseley follows on Wednesday with its latest interim management statement. The firm is in favour among analysts given it has enjoyed a 9% share price rise in the past three months alone and notably last week UBS upgraded its recommendation to a ‘buy’. The focus at the business according to Admans remains on “improving customer service, maintaining market share and margins, cutting costs and cash generation”.

Admans, who for is part rates it a ‘hold’ adds: “The group are highly geared to a pick-up in the US housing sector which accounts for around 50% of revenue. Recent updates have highlighted continuing improvement in the US and bulls of the stock will be hoping that margins in the region have continued to  improve, helped by cost cutting and bigger market share. The performance of its European operations, which has been mixed, will be of further interest. As will an update on restructuring costs in the region.”

Wednesday also sees the world’s largest contract caterer Compass Group, up 17% over the past 12-months, update the market with its full-year results. The market is expecting a slight tick up in full-year earnings but is confident of a 5% increase in the overall dividend for the year. Bowman expects that growth at the company’s North American business is likely to headline, whilst the improving organic revenue trend previously reported for its Europe and Japanese business may be further underlined.

Admans says: “Investors will be keen to see if the company is still experiencing good growth in emerging markets and the US. News on trading in Japan and Europe, where there has been steady improvement in 2014, will also be worth noting. There will also be some interest in whether the lower food and fuel prices seen in the UK this year are feeding through to Compass’ bottom line and whether it is considering any further acquisitions at present. We currently rate Compass as a ‘hold’.”

A reduced currency headwind is also likely to feature in its report adds Bowman. He says: “Less favourably, and with a slowdown in the Australian offshore and remote sector slowing previously reported fourth quarter organic revenue growth for its Fast Growing & Emerging business, any accompanying related management outlook comments will be closely watched for. Pre-tax profit for the full year is forecast to prove virtually flat year-over-year, with analyst consensus opinion currently signifying a ‘strong hold’.”

Leave a Reply

Your email address will not be published. Required fields are marked *