Heat gives Kingfisher wings

Published on Tuesday 2 June 2009 20:28

Scrutineer

Kingfisher

190.7p +6.9p

Barclays

273.5p -42.75p

KINGFISHER's latest results are as sparkling as the spring weather. For a company that seemed to be losing its way a couple of years ago, you could do a lot worse than a 40 per cent surge in retail profits to 128 million in the quarter to 2 May, when the City was expecting only about 94m.

Kingfisher, which owns B&Q, the DIY leader in Britain, and Castorama, its counterpart in France, said Britons have flocked to their gardens in the warm spring sunshine that has not abated since its reporting period ended.

We had a fantastic Bank Holiday weekend last week, and most of Britain is bathed in sunshine – and a resulting swipe of credit cards is on the wing.

Analysts said the latest results showed the benefits of Kingfisher's turn-round plan under chief executive Ian Cheshire, which has involved cost-cutting, store refurbs and supply chain improvements.

Those improvements had driven Kingfisher's shares up by a third this year, and after jumping another 11 per cent at one stage yesterday, they closed up 3.6 per cent.

Cheshire did not get carried away yesterday. He still believes weak consumer sentiment, allied to fear of unemployment, will lead to a subdued market as we go through the year.

This caution was borne out by like-for-like sales at Kingfisher down 1.7 per cent.

That performance was flattered by a 3.2 per cent jump in quarterly sales at B&Q.

That, in turn, was driven by a 30 per cent surge in sales of outdoor products in the fine weather, helped by gloomy comparators in the spring of 2008 when the weather was poor.

Meanwhile, B&Q's margins lifted 80 basis points, helped by fewer markdowns (this is catching on among retailers from Marks & Spencer and Sainsbury downwards) and the supply chain improvements mentioned before.

Cheshire is right. We should wait until weather returns to normal in Britain (ie, toss-a-coin for the anorak) before we make a judgment on Kingfisher's underlying progress.

But yesterday's cheering news was a step in the right direction.

WHEN Barclays turned to Middle Eastern promise to avoid taking the UK taxpayer shilling last year, some investor and political fears were raised.

Was it a good move allowing foreign sovereign wealth funds to take big stakes in the financial infrastructure of the country?

Could British bank lending policy come to be unduly influenced by overseas interests?

Was it just plain un-British to allow Abu Dhabi, Qatar, Singapore, China and the like to take substantial shareholdings in one of Britain's Big Four banks?

And what was wrong with the colour of UK government money if significant foreign investment and board influence was welcome?

How "Hovis-advertisement" sentimental that view now seems. It turns out the sovereign wealth funds and the like are in it for the cash, just like the rest of shareholders.

And if they can take a profit on a bank's substantial share price rise, it is adios to our new British amigos. And none the worse for that.

Abu Dhabi's decision to offload an effective 11 per cent stake in Barclays, owned in complex convertibles that were due to convert to shares at the end of this month, for an estimated 1.5bn profit, is just good capitalism.

You can hardly blame Abu Dhabi for noticing the substantial difference between Barclays' much-recovered share price in recent months and the much lower conversion price.

Abu Dhabi's International Petroleum Investment Company still has unexercised warrants that could leave it with a stake of 5 or 6 per cent in Barclays. But that is nothing like the potential 16 per cent of a British bank it would have been sitting on.

It brings to mind the political dictum about there being no permanent alliances, just interests. And Abu Dhabi's interest was to make a tidy turn on an investment, for which it is no more to blame than any other institutional investor.

Barclays and its floating investor spoke warmly about each other yesterday and their desire to maintain their strategic and commercial relationship.

As no doubt will the Qataris, China Development Bank and Temasek of Singapore, if they also sell down some of their stakes in Barclays to take advantage of a share price recovery – though yesterday's resulting 13 per cent share price fall means they might have missed the best of the boat.

We should not blame them; rather we should realise that sinister fears about the advance of sovereign wealth funds were overplayed, verging on jingoism. We should remember Dr Johnson's famous saying that few are more innocently employed than in the pursuit of making money.

Nick Duncan of Swip

ONE TO WATCH

Capcom

1,975 +55

Scotsman says BUY

TODAY'S economic quagmire has many of us wistfully remembering the halcyon days of childhood, when times were simpler and Street Fighter II was all the rage down the arcade. It should be somewhat comforting, then, to learn that Capcom – the Japanese company behind the iconic combat video game – has matured into a market-leading developer of home video game software.

The company is about to showcase its wares and allow industry insiders a sneak preview of some of its upcoming titles at this week's E3 Expo in Los Angeles. The invitation-only event attracts the crme de la crme of the gaming industry – and the attention of the world's media.

Capcom's highly anticipated titles will be under the spotlight as it competes for gaming glory. They include Lost Planet 2, Monster Hunter Tri and Dark Void, which are to be released by March 2010. The latter has the potential to become a leading franchise, emulating the success of Capcom's acclaimed Resident Evil series. Meanwhile, the company is likely to delay the release of the keenly awaited Dead Rising 2 until 2011, cannily boosting prospective earnings.

Capcom has a range of products delivered over all of the major gaming platforms: Xbox 360, PlayStation 3 and the Nintendo Wii. Since hardware advances are likely to be another two to three years in development, Capcom has space to profit from its new games releases.

Looking ahead, forays into new areas, such as the role-playing genre, have widened the company's appeal, meaning Capcom should remain competitive and continue generating strong growth, regardless of economic conditions.

&#149 Investment markets and conditions can change rapidly and, as such, the views expressed should not be taken as statements of fact, nor should reliance be placed on these views when making investment decisions. Past performance is not a guide to the future.

Bowleven falters after unenthusiastic response to prospects

SCOTS STOCKS

OIL explorer Bowleven eased slightly yesterday, although analysts at Evolution Securities, long time bears on the West African focused company, grudgingly upped their stance to "add".

The upgrade followed an independent analysis of one of Bowleven's Cameroon prospects released on Monday, which Evolution said was timely and "adds independent weight to management's expectations". The shares closed 1.8 per cent lower at 69.25p.

Venture Production shares also dipped as British Gas owner Centrica, which has said it might bid for the company, announced it was set to buy a stake in a major gas project in Trinidad. Aberdeen-based Venture closed 8.5p lower at 811.5p.

Scotland's largest oil company, Cairn Energy, which rose to an eight-month high on glowing broker comment on Monday, eased slightly yesterday, down 4p to 2,668p.

Optos, the Dunfermline retinal scanning company, climbed an further 4p to 62p It has now risen 82 per cent in six weeks.

AG Barr, the makers of Irn Bru and Tizer, climbed to the highest level since early January, closing 75p higher at 1,325p.

On Aim, the confectionery maker Lees continued to rise after last week's positive outlook statement. The shares rose 4.5p, or 4 per cent, to 117p.

Profitable year leads to expected growth for Penna

SMALL BUT BEAUTIFUL

PENNA, the Aim-listed human resources consultancy group, yesterday said it intends to "maintain a progressive dividend policy" after unveiling a 176 per cent leap in full-year pre-tax profit.

In the year to 31 March, Penna posted a pre-tax profit of 6 million, up from 2.2m in its previous financial year.

Revenue rose by 30 per cent to 63.2m, with net cash standing at 8.9m.

Stephen Rowlinson, chairman of Penna, which has a market cap of about 40m, said: "The group has completed a very successful year and earnings per share grew significantly to 17.1p.

"The new financial year has started well and we have a high level of work in progress. We expect continuing growth and intend to maintain a progressive dividend policy."

For 2009, the group increased its final dividend to 4p, up from 2p in 2008. The increase took the full-year dividend to 6p, compared with 2p in the previous year.

Penna, which has offices in the UK, Europe and Asia, added that it had no bank debt and that its banking facilities, which were negotiated in 2007, remained unused.

In Scotland, Penna has offices in Edinburgh and Glasgow, plus "flexible delivery points" in Aberdeen, Dundee and Inverness, from it can provide services to clients.