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Warning over risks to B&Q despite expected profit boost for Kingfisher

Published 18/09/2016

Analysts have pencilled in a 14% rise in underlying profits at B&Q owner Kingfisher
Analysts have pencilled in a 14% rise in underlying profits at B&Q owner Kingfisher

B&Q owner Kingfisher is expected to report a healthy rise in half year profits next week, but experts are warning that the retailer faces a number of risks over the coming months.

Analysts at Jefferies have pencilled in a 14% rise in underlying profits to £436 million for the first six months of the year as the chain, which also owns Screwfix, continues its turnaround under chief executive Veronique Laury.

However, the broker's analyst James Grzinic flagged that the DIY specialist could be hit by worsening economic conditions in the UK.

"Our concerns are that the wider industry context could deteriorate in the UK in the months ahead. Macro risks have worsened.

"Our view is that a hit to job creation and disposable incomes - via accelerating inflation - are risks to the UK consumption outlook."

In August, Kingfisher said there had been "no clear evidence" of falling demand following the Brexit vote after it notched up a 3% rise in like-for-like sales to £3 billion in the second quarter.

But Mr Grzinic added that the prospect of a resurgent Homebase could also hurt B&Q's prospects.

Wesfarmers, the Australian firm that acquired Homebase earlier this year, has embarked on a rebrand and revamped the chain's online strategy as it attempts to gain market share.

Homebase will be rebranded Bunnings, and Mr Grzinic said the firm's renaissance poses a threat to B&Q.

"Bunnings is more of a concern. Bunnings recently reported a 7.5% increase in like-for-like transactions at Homebase since March."

Kingfisher has also flagged challenging times in France, where it trades as Castorama and has been hit by industrial action and wet weather.

Like-for-like sales fell 3.2% in the country in the second quarter and Graham Spooner, investment research analyst at the Share Centre, said: "Sales in France remain a concern and there were some signs of pressure on profit margins.

"Investors will be hoping to hear from the company that building trade retailer Screwfix is still enjoying strong growth, and there will also be a focus on any comments about the outlook for the second half given the fairly cautious tone struck by management in recent updates. A progress report on the longer term unification strategy is also expected."

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