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Trader’s Corner; Quick Fix for DIY Group? 22-11-19

DIY group, Kingfisher looks like it needs some serious fixing as it became one of the FTSE 100’s biggest faller’s this week.  Kingfisher, which owns DIY superstores B & Q and Screwfix saw its share price plummet seven per cent to 197.50p at the time of writing. Its new CEO, Thierry Garnier, was forced to admit he had ‘much to do’ as like-for-like sales declined by 3.7 per cent over the third quarter of the year. Sales were down across every region, and in the UK, B&Q’s sales had dropped by 3.5 per cent to £820 mn although this was slightly offset by an eight per cent jump for Screwfix. There was trouble across the Channel though with French brands Castoroma and Brico Depot contributing to French revenue sinking to £1bn. So, is Kingfisher falling apart or is Garnier the man to pull off a serious renovation? It has only been eight weeks since Garnier took over the helm but the group is currently showing signs of disarray – the transformation plan dreamt up by his predecessor, One Kingfisher, which involves streamlining buying, operations and IT, is too much to do in one go according to Garnier. He wants to focus on specific regions, starting with fixing IT and supply issues in France and stemming sales decay. Analysts are pessimistic though, pointing out that even before this week shares had plummeted 19 per cent, with some suggesting that this latest drop could threaten the firm’s position as a blue-chip stock. There are some however who have placed their faith in Garnier and believe he could get the company back on the road to growth, but this is the minority opinion at the moment.

Its more bad news for Royal Mail, as reports of delays in its highly vaunted turnaround plan caused its shares to plummet 18 per cent to 198.45p. The postal service firm reported an increase in pre-tax profits to £173m for the first half of the year but investors were disheartened by the news that the turnaround plan is not on track and the planned strike action by union members could still be on the table. Although Royal Mail won an injunction to stop workers striking in December and disrupting Christmas deliveries, the Communication Workers Union has now launched a High Court Appeal against the injunction. So, can Royal Mail deliver on its ambitious transformation plans or have they been stamped to the ground? Despite the pick-up in profits, and the boost of postal propaganda for the General Election, the group has warned that the UK business could make a loss in the 2020-21 financial year. Analysts remain very cautious at the moment, pointing out that Royal Mail’s business offering needs to change rapidly to keep up in an increasingly competitive marketplace but its ‘heavily unionised’ workforce could be a barrier against the move to automation.

It was better news for British Gas owner, Centrica, this week as a reassuring trading statement sent share prices up nine per cent to a four-month high of 79.32p. After repeated profit warnings over the past two years, this has to be good news for the loyal investors who have stayed with the group, and it boosts its chances of retaining its FTSE 100 spot in the next quarterly reshuffle. British Gas’s energy supply customers are still leaving in droves, but this has been offset by an upturn in services and home solutions, and Centrica has also made £150 million of savings in capital expenditure and efficiencies. Analysts are generally heartened – many have issued a ‘buy’ rating and Jefferies have a target price of 90p, describing it as a ‘first step forward.’ Some analysts raised concerns about the absence of an update on earnings per share or the lack of information about a successor for CEO Iain Conn, who leaves next May, but generally the outlook was upbeat. Could this be the start of better times for Centrica after a turbulent couple of years?

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