Kingfisher Starts Returning Cash as Confidence in Outlook Grows
Kingfisher Plc (KGF), Europe’s largest home-improvement retailer, said its main markets are set to rebound this year, giving it confidence to expand into new areas and start a program of cash returns to shareholders.
The owner of Castorama stores in France and B&Q in the U.K. is set to benefit from a recovery in consumer spending as Europe’s economies return to growth, Chief Executive Officer Ian Cheshire said today. Prospects “remain bright,” he said.
Kingfisher shares rose as much as 6.3 percent after the company also reported full-year earnings that beat estimates and said it will give 200 million pounds ($330 million) back to shareholders in fiscal 2015. The retailer said it will sell its entire 21.2 percent holding in German do-it-yourself chain Hornbach for about 195 million pounds to the controlling family.
Europe’s recovery from the sovereign-debt crisis is gaining impetus, improving prospects for consumer spending. Growth in euro-area manufacturing and services stayed close to the fastest since 2011 in March, a survey showed yesterday.
“We’re seeing signs of stability in France for the first time after a really difficult year last year,” Cheshire said, noting that the country accounts for about 45 percent of Kingfisher’s profit. “But’s it’s still really uncertain, with the key question being consumer confidence.”
The shares rose as much as 25.6 pence to 432.1 pence in London, the highest intraday price since Aug. 1, 2000. They traded at 430.5 pence as of 10:26 a.m., up 5.9 percent.
“The stock has benefited from a broader confidence in the outlook both in the U.K. and Europe,” Freddie George, an analyst at Cantor Fitzgerald Europe, said in a note.
The decision to exit Hornbach follows last year’s purchase of 15 Bricostore outlets in Romania and preparations to take the Screwfix brand to Germany this year, bringing it into direct competition with the German company for the first time.
Kingfisher first bought a stake in Hornbach in November 2001 and increased it to 21.2 percent in October 2002, spurring speculation at the time that it planned to make a full bid.
In addition to taking Screwfix to Germany through the opening of four stores there, Kingfisher plans to enter Portugal with the addition of two Brico Depot outlets.
The company also said today it is seeking a partner for B&Q China, following a similar path to U.K. grocer Tesco Plc, which last year paid to combine its 134 outlets and mall business in the country with China Resources Enterprise Ltd. U.S. competitor Home Depot Inc. closed its stores in China in 2012.
The “reality is we need a partner to make the business even more Chinese than it is today to really succeed,” CEO Cheshire said on a call today. “It’s a mixture of local expertise with international retail that will be the key.”
In the U.K., there are signs that the market for Kingfisher’s products are improving as Britons invest again in housing amid a pick-up in the domestic economy, Cheshire said.
“We’re now seeing a more general move in the existing home market, which is really more the DIY market,” he said.
A brighter outlook and a stronger balance sheet put the company in a stronger position to return cash to shareholders, which will probably be through a combination of share buybacks and special dividends, Cheshire said.
Kingfisher will be “tuning our capital returns to market conditions,” he said. “There will be times when it will be more appropriate to use one mechanism over the other.”
The company has yet to set an overall capital target for the program, which will run “more than one year, less than five,” according to Cheshire.
Kingfisher raised the annual dividend 4.7 percent to 9.9 pence a share, with the final payment of 6.78 pence representing an increase of 6.4 percent on the prior year.
Adjusted annual pretax profit rose 4.1 percent to 744 million pounds, compared with the 730.2 million-pound average estimate of analysts compiled by Bloomberg.
“Today’s results were good all round, good numbers and good news on the cash returns and the Hornbach exit,” said Jamie Merriman, an analyst at Sanford C. Bernstein in London. “Encouragingly for next year, we’re seeing early signs of improvement in the U.K. and real benefits from self-help.”
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