The Investment Column: Kingfisher beats expectations

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The Independent Online
IT IS one of the ironies of the City that attendances at companies' results meetings are often in inverse proportion to the quality of financial performance. Two or three years ago, when Kingfisher was struggling, the Woolworths and B&Q retailer had to hold its meetings in a large conference hall to accommodate all the ambulance chasers. Now a small room is sufficient and only half a dozen turn up.

None of this will bother Sir Geoff Mulcahy, Kingfisher's lugubrious chief executive who has worked wonders with this group, having almost lost his grip on it back in 1995. It is firing on all cylinders and the share price has reached new highs. Having dipped to a low of 389p in early 1995, the shares have been reaching skyward ever since and a 25 per cent surge this year alone has taken them to a record high of 1,096p, up 59p yesterday.

The reason is that with each set of results and quarterly sales updates, analysts have to keep upgrading forecasts. Yesterday's full-year figures were a case in point, exceeding all expectations with a 34 per cent rise to pounds 520.5m.

Like-for-like sales across the group were 8.3 per cent ahead of last year with B&Q leading the way with a thumping 12.6 per cent gain. Of course, if a DIY retailer was not raking in it last year, with rising house prices and negative equity disappearing, then they never will. But B&Q has increased its market share from 17 to 19 per cent in a year and its Warehouse format of larger stores are performing strongly. With 30 outlets now, it plans a further seven this year and sees scope for a total of 75.

Woolworths is working well with the introduction of electronic point of sales helping margins, which rose from 5.5 per cent to 6.3 per cent. Superdrug profits dipped due to investment in the portfolio and Darty is starting to see an improvement in the tough French electricals market.

The key question with Kingfisher now is can Kingfisher continue its terrific run? Sir Geoff Mulcahy made a point of warning that the five hikes in interest rates could be affecting consumer confidence. Sales at Comet are starting to slow down and, as the company admits, it was electrical retailers that were lead indicators of the last recession.

On increased forecasts of pounds 572m, the shares trade on a forward rating of 19. This is only in line with the retail sector and analysts are confident about prospects. But with a tougher year on the high street ahead, this may look like the top in six months time. It could be time to lock in profits.

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