RBC upgrades Kingfisher to “outperform,” sees UK and Poland driving growth

Investing.com -- RBC Capital Markets upgraded Kingfisher plc to “outperform” from “sector perform” and raised its price target to 350p from 320p, pointing to further space growth opportunities and a stronger gross margin outlook. 

The brokerage said the shares’ valuation at 12x CY26e P/E appeared “undemanding given KGF’s strong EPS growth and cash returns.”

“Our store potential analysis suggests further space growth opportunities for KGF in the UK and Poland, with likely further strong trade and ecom growth,” analysts led by Richard Chamberlain said in a note. 

The brokerage said Poland’s recovery “should offset a tough French market,” while the company’s “gross margin looks well underpinned.”

RBC’s data science division, RBC Elements, conducted a geospatial and demographic study across 48,000 locations in the UK, France and Poland.

The analysis identified 93 potential B&Q sites, 276 for Screwfix, 82 for Castorama France, and 34 for Castorama Poland, signaling continued expansion potential despite maturity in the UK market. 

The brokerage said Kingfisher’s “white space opportunity” was concentrated in “infill locations in the UK and Poland,” while in France, the company is expected to focus on “restructuring the store network, improving operating efficiency and growing online sales.”

The analysts reported that Kingfisher achieved a 100bps year-over-year improvement in gross margin in H1, attributing it to “leveraging its scale to manage product cost and retail prices effectively.” 

They added that “marketplace expansion should be margin accretive over time, as should Retail Media and AI initiatives to manage markdowns.” The company’s gross margin stood at 37.9% for FY26e, rising slightly to 38% in FY27e.

Kingfisher’s adjusted diluted EPS is projected to rise from 20.41p in FY25A to 28.98p in FY28E, reflecting “low double-digit EPS growth and a 4% dividend yield.”

RBC raised its FY27 pretax profit forecast to £589 million from £586 million, citing stronger performance in the UK and Poland offsetting France. 

“Poland now as profitable as France,” the brokerage said, adding that “the outlook for Poland looks more encouraging, given recent rate cuts, with only 50% of the population served there..”

The UK business remained “strong, with likely DIY resilience,” the note said, describing the country as a “dominant position in UK home improvement.”

It cited “increased Trade penetration and its improving e-commerce offer, with B&Q’s marketplace providing customers with a much wider range, plus the convenience of click and collect.”

On valuation, RBC used the average of a discounted cash flow and a sum-of-the-parts approach.

Its DCF model assumed a 10-year CAGR in sales of about 2% and a long-run EBIT margin of 6%, compared with 5.1% currently, resulting in an implied value of 340p per share.

The sum-of-the-parts model valued Kingfisher UK at 6.9x EV/EBITDAR, France at 4.5x, and Castorama Poland at 5.5x.

The report added that Kingfisher’s “share price history is uninspiring” but said stronger EPS growth, trade and e-commerce expansion, and “further strong cash returns owing to Kingfisher’s strong FCF generation” should improve performance going forward.