Berenberg keeps Kingfisher at 'hold' as mixed conditions continue

(Sharecast News) - Berenberg has reiterated a 'hold' rating on Kingfisher ahead of the DIY retailer's third-quarter update next month, highlighting concerns about profit margins amid a mixed market backdrop.

While home-related retail sales trends look supportive in the UK - which accounts for more than half of Kingfisher's revenues - trading across France and Poland has been "more challenging" in recent months, Berenberg said.

The broker has pencilled in 2.2% like-for-like sales growth in the UK for the three months to 31 October, countered by a 4.5% decline in France and a 2.0% drop in Poland. As a result, group LFL sales are expected to have fallen by 0.3% over last year.

Berenberg has lowered its profit estimates, due to a "slightly less enthusiastic approach to the margin trajectory", dampened by tough conditions in France and Poland, along with rising employee cost pressures. However, the broker still estimates that the full-year adjusted pre-tax profit will be �548m, up 4% over last year at above the top end of company guidance.

In addition, Berenberg said that while Kingfisher's recent launches of ecommerce marketplaces across its major markets could be positive for profitability, "margins remain low in absolute terms, along with sales densities and ROIC".

The shares trade at 11 times earnings, which the broker said "looks undemanding". Nevertheless, the 331p target price for the stock suggests very little upside to Friday morning's price of 311p, down 0.7% on the day.