Kingfisher back on top but investors should look ahead

Investment Column

After the disasters of 1994, when Kingfisher's shares almost halved from 772p to 389p, chairman Sir Geoff Mulcahy will be forgiven a smug smile over the recovery at the Woolworths and B&Q group. The shares have been rising steadily for the past two years and jumped another 22.5p to 697p yesterday on the announcement of record sales and profits which hit pounds 388m in the year to last month.

Every division apart from Darty, the French electrical retailer, posted record profits, with B&Q, Comet and Woolworths the star performers. B&Q benefited from the improving housing market, better cost control and lower levels of shoplifting. Comet rode on the back of strong sales of multimedia PCs. Woolworths' 29 per cent increase in profits to pounds 84m was helped by lower costs and strong growth in toys and housewares. Its own labels such as Chad Valley toys and Ladybird children's clothing also did well.

It was clearly a bumper set of figures, but investors need to look forward and the picture from now on may not be quite so rosy. Kingfisher broke with tradition last year and included a trading update in its annual figures, largely because the like-for-like sales numbers were very good. There were no figures this time which may mean that the growth is not so good as the 7.4 per cent achieved during 1996.

One of the main problems is Darty, which has struggled in a difficult French market and was further wounded by the strength of sterling.

As Kingfisher also owns a 26 per cent stake in But, another French retailer, France accounts for 30 per cent of group profits.

The French electricals market fell last year and is predicted to be tough again this year. Like-for-like sales increased by just 2.2 per cent and profits were flat at pounds 113m. Because of the way Kingfisher accounts for currency fluctuations any improvement this time could be wiped out by the strong pound.

With the domestic businesses moving along smoothly Kingfisher is now starting to look for new markets overseas. The first is Taiwan. One B&Q opened there last year and a further two will be opened this year. The opening of other formats such as Woolworths and Comet is being considered while expansion into other European markets is also likely.

On the acquisitions front, a Wickes deal looks to be on the back-burner while interest in the Littlewoods stores might be confined to a few sites.

With NatWest forecasting profits of pounds 430m this year the shares trade on a forward rating of 15.

That represents a small premium to the market and, after a strong run, the shares now look to have travelled far enough.

Chubb bid key to Williams

Williams made a forecast of yesterday's 1996 profit figures a month ago when it announced its pounds 1.3bn agreed bid for Chubb, so there were no surprises in the results. They were none the less good figures, showing a 15 per cent increase in underlying operating profits which were further boosted by disposal profits on the sale of the group's electronics and UK building products companies to give pre-tax profits up 49 per cent to pounds 340m (pounds 228m).

Earnings per share last year of 39.1p were equally distorted by the disposal proceeds, but the underlying picture showed an 8 per cent increase from 22.3p to 24.1p. The total dividend rose from 14.25p to 15.05p.

So far so good but, in the context of the proposed bid for Chubb, last year's figures are really only a side-show.

Worries about the deal include the likelihood of an MMC reference, the apparent departure from a previous strategy of small infill acquisitions, the steep price being paid, the danger that not underwriting the deal opens Williams up to seeing the value of its offer fall, which might attract a counter bidder, and the probability that in the short term at least it will destroy shareholder value.

They are real concerns, but should not distract from the fact Chubb represents a one-off opportunity for Williams to complete the transition from unfocused conglomerate to genuinely global specialist manufacturer of security and fire protection products. It will gain a real toe-hold in the fast-growing economies of the Far East.

At yesterday's close of 334.5p, up 5p, the shares have recovered almost all the ground they lost after the City's churlish initial reaction to the deal and now trade on a prospective price-earnings ratio of 14.2 on the basis of forecast underlying profits of pounds 301m. Once the benefits of the Chubb deal kick in during the following two years, that rating falls to 12.1 and 10.3 while the gross yield on the shares moves ahead from 6.0 per cent this year to 6.3 per cent and then 6.7 per cent. That is good value.

UniChem's second half stagnant

UniChem is now in third place among UK chemists chains since Gehe pipped it in January in the year-long marathon bid battle for Lloyds Chemists. But despite having to write off a chunky pounds 13.2m for the cost of the battle, it was probably wise to walk away from Lloyds, where the Germans are going to have to work hard to justify their pounds 684m bid.

That said, UniChem will need to be equally energetic in convincing the City it has an exciting replacement strategy up its sleeve. Excluding the bid costs, pre-tax profits rose an unexceptional 8.3 per cent to pounds 53.5m in the year to December, bang in line with the forecast made two months ago, while "clean" earnings, up 6.3 per cent to 20.2p, seem to have stagnated in the second half.

The core drugs wholesaling operation seems to have been particularly badly affected. Underlying the 5 per cent profits growth to pounds 40.9m was a flat 3.1 per cent operating margin, the first time anyone can remember returns not growing.

High-margin toiletry sales continue to be creamed off by the supermarkets, leaving the running to be taken up by low value-added hospital supplies. But last year's sub-market growth of 7 per cent in medicines, the mainstay of the business, has accelerated to 10 per cent in the first two months of 1997. UniChem is suggesting it is ready to expand the wholesaling business into Europe.

Even so, the Moss Chemists chain looks more exciting, turning in half the growth in group operating profits last year. The target is to spend up to pounds 50m raising the current chain of 459 by around 100 this year - still less than half the size of Gehe in the UK. Beyond that, the survival of the health bill means UniChem can push ahead with plans to link up with doctors' surgeries.

The group is, naturally, unworried by the Gehe threat and Collins Stewart is looking for profits of pounds 61m this year, putting the shares, up 12.5p at 260.5p, on a lowly forward multiple of 12. Unexciting even so.

Arts & Entertainment
Shaun Evans as Endeavour interviews a prisoner as he tries to get to the bottom of a police cover up
tvReview: Second series comes to close with startling tale of police corruption and child abuse
Arts & Entertainment
A stranger calls: Martin Freeman in ‘Fargo’
Review: New 10-part series brims with characters and stories

Arts & Entertainment
Schwarzenegger winning Mr. Universe 1969
arts + entsCan you guess the celebrity from these British Pathe News clips?
Sport
Raheem Sterling and Luis Suarez celebrate during Liverpool's game with Norwich
football Another hurdle is out of the way for Brendan Rodgers' side
VIDEO
Arts & Entertainment
The star of the sitcom ‘Miranda’ is hugely popular with mainstream audiences
TVMiranda Hart lined up for ‘Generation Game’ revival
News
Portrait of Queen Elizabeth-II by David Bailey which has been released to mark her 88th birthday
peoplePortrait released to mark monarch's 88th birthday
Life & Style
The writer, Gerda Saunders, with her mother, who also suffered with dementia before her death
healthGerda Saunders on the most formidable effect of her dementia
Sport
Manchester United manager David Moyes looks on during his side's defeat to Everton
footballBaines and Mirallas score against United as Everton keep alive hopes of a top-four finish
Sport
Tour de France 2014Sir Rodney Walker on organising the UK stages of this year’s race
Arts & Entertainment
Jessica Brown Findlay as Mary Yellan in ‘Jamaica Inn’
TVJessica Brown Findlay on playing the spirited heroine of Jamaica Inn
News
YouTube clocks up more than a billion users a month
mediaEuropean rival Dailymotion certainly thinks so
Arts & Entertainment
The original design with Charles' face clearly visible, which is on display around the capital
arts + ents The ad shows Prince Charles attired for his coronation in a crown and fur mantle with his mouth covered by a criss-cross of white duct tape
Arts & Entertainment
‘Self-Portrait Worshipping Christ’ (c943-57) by St Dunstan
books How British artists perfected the art of the self-portrait
Sport
Luis Suarez celebrates after scoring in Liverpool's 3-2 win over Norwich
Football Vine shows Suarez writhing in pain before launching counter attack
News
People White House officials refuse to make comment on 275,000 signatures that want Justin Bieber's US visa revoked
News
Sir Cliff Richard is to release his hundredth album at age 72
PEOPLE
Sport
Lukas Podolski celebrates one of his two goals in Arsenal's win over Hull
football
Arts & Entertainment
Quentin Tarantino, director
film
News
The speeding train nearly hit this US politican during a lecture on rail safety
news As the saying goes, you have to practice what you preach
Sport
Mercedes Formula One driver Lewis Hamilton of Britain (front) drives ahead of Red Bull Formula One driver Daniel Ricciardo of Australia during the Chinese F1 Grand Prix at the Shanghai International circuit
sport
Arts & Entertainment
Billie Jean King, who won the women’s Wimbledon title in 1967, when the first colour pictures were broadcast
tv
News
Snow has no plans to step back or reduce his workload
mediaIt's 25 years since Jon Snow first presented Channel 4 News, and his drive shows no sign of diminishing
Life & Style
food + drinkWhat’s not to like?
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Database Team Lead ( Leadership, Sybase, Computer Science)

Negotiable: Harrington Starr: Database Team Lead ( Leadership, Sybase, Compute...

C#.NET Delphi SQL Developer (C#,DELPHI,SQL)

£40000 - £50000 per annum + Bonus+Benefits+Package: Harrington Starr: C#.NET D...

VB.NET SQL Junior-Mid Level Developer (VB.NET,SQL,Excellent com

£25000 - £35000 per annum + Bonus+Benefits+Package: Harrington Starr: VB.NET S...

Trade Support, Application Support, Operations Analyst, CRM MS

£45000 - £55000 per annum + Bonus and Benefits: Harrington Starr: Trade Suppor...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit