Portfolio

Jefferies reaffirms 'buy' rating on Kingfisher following Wesfarmers UK exit

By Iain Gilbert

Date: Friday 25 May 2018

Jefferies reaffirms 'buy' rating on Kingfisher following Wesfarmers UK exit

(Sharecast News) - Following the sale of Homebase by Australia's Wesfarmers, analysts at Jefferies saw "materially supportive" consequences for not only B&Q and Kingfisher but the British DIY market as a whole.
Jefferies welcomed Wesfarmers move to sell its Homebase/Bunnings UK unit to turnaround specialist Hilco for £1, confirmed overnight, which will see the removal of the Bunnings brand from the UK.

Wesfarmers' most recent updates detailed a mid-teens decline in like-for-like sales at, and a contraction in its operating margins of close to 20%, after the Australian group "significantly weakened" its presence in the showroom categories in favour of aggressively pursuing the harder end of the DIY market.

Jefferies said that, ultimately, the major risk had been that Wesfarmers would be "irrational" and back a significant investment to rebrand Homebase stores into Bunnings. However, Friday's news should see B&Q's biggest competitor, and arguably the "only alternative" to retail customers in the UK large-sheds DIY market, become much more sensitive to short, and mid-term, margin and cash flow challenges.

All in all, Jefferies reiterated its price target and 'buy' rating on the UK firm.

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