Kingfisher Plc. in the UK

pocketdooz

Does anyone know why the stock price of Kingfisher Plc. in the UK is holding up so well - they are still trading at around 7x LTM EBITDA, even though sales are shot, margins are down and they are spewing out money on CAPEX (about £2.0 billion in the last 4 years).

They operate in the DIY and construction retail space :eek: (They own B&Q here in Ireland and in the UK) in the UK and France (80% of revenues) , other Europe and Asia. They are priced way above their peers and I think their stock is due for a major correction. Does anyone know anything about them, JOC, DaveIRL, anyone else?

They have about £250mm of cash and another c.£500mm coming from the sale of their Italian unit and they have about £1.7 billion in debt. But revenue and EBITDA are due to fall off a cliff with the collapse of discretionary spending and home sales I would have thought. I think they should be trading at 4x-5x which would bring the TEV down to under £3.4bn meaning a stock price decline to under 82p from the current 137p.

Any thoughts ? Possible short trade for 2009 ?



.

woodseb

don't have much of an opinion on the stock but had a quick look at a few broker reports that have revenue and EBIT remaining relatively stable over the next couple of years and the balance sheet will look a lot better after they pay down debt from the italy sale

pocketdooz

woodseb wrote: »

don't have much of an opinion on the stock but had a quick look at a few broker reports that have revenue and EBIT remaining relatively stable over the next couple of years and the balance sheet will look a lot better after they pay down debt from the italy sale

That's sort of what I'm getting at - how can all the analysts be pointing to steady revenue and EBIT when margins have been falling every year for the past 5 years (2005 @ 11%, now at 7%). Their ROE has to be crap cos they are pumping billions into capex with no return visible and their most recent news release says Like for Like sales in China are down 30%, UK down 9.2% and France down 1%.

Also, they are operating in the construction retail market which has to be one of the very worst markets to be in right now and likely getting worse . . .

I must be missing something - doing some more digging now but it looks like I'll be shorting this or looking at the Options out on it.


.

woodseb

there's quite a bit of short interest in the stock already so it mightn't be too bad an idea, MS downgraded it last week saying it looks 'particulary expensive'

pocketdooz

Yeah - it looks like they had a sell rating on it at 126 a week ago.

Another interesting move would be to buy the notes. The notes due 10/10 are trading at 91.30. They just got €600mm in cash in the door today (check company website for details) from the sale of Castorama, Italy and this has been allocated to pay down debt. I assume they will pay down the near-term maturity bonds first, being the £150mm due 03/10 and the €500mm due 10/10. Buy in at 91.30 and get taken out at par in the next couple of months = 9.53% return in a few months.


.