Market watch: Kingfisher hit by sell rating

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TWO of the biggest operators in the DIY sector will reveal the impact of poor weather and a subdued housing market this week.

B&Q and Screwfix owner Kingfisher looks set for more disappointing quarterly figures on Thursday, with concerns growing that its poor performance could be about more than just the weather.

Sales of gardening and DIY products this year are likely to have been hit by the prolonged cold spell which extended into March. But analysts are also worried about Kingfisher’s revenues being threatened by a shift from “do-it-yourself” to “do-it-for-me”, while there is concern over possible structural problems in the business.

The latest trading update, covering the period from February to April, is the first since full-year results in March showed annual profits and sales tumbling, with the fall blamed on a wet summer and weak consumer confidence.

Analysts Cantor Fitzgerald forecast operating profits down to £156 million, from £160m, for the same period last year, with like-for-like sales of 1.2 per cent. This includes a weaker performance both in Britain and in Kingfisher’s French businesses Castorama and Brico Depot. The looming threat of a recession in Poland could also hurt its other main market, Cantor said.

Putting a sell rating on the stock, it said stores were too large, hard to shop and not aligned to the new trend for smaller, convenience-style stores.

However, Keith Bowman equity analyst at of Hargreaves Lansdown stockbrokers, said initiatives in the pipeline, including a major revamp of B&Q’s online offering, and a move to reduce store space made it a “cautious buy”.

Topps Tiles, the UK’s largest tile and wood flooring retailer, is expected to report another dent in profits on Wednesday as it unveils half-year figures.

The group, which has 320 stores across the UK, warned earlier this year that it expected to see underlying pre-tax profits for the six months to the end of March fall to around £4.3m, compared with £5.6m for the same period last year. It said like-for-like revenues were expected to have fallen by 0.3 per cent.

The company said it was facing weaker-than-expected demand, but that cost-cutting initiatives would help it meet full-year profit forecasts of £13.3m to £13.8m.

The annual figure fell to £12.8m last year, blamed on the stagnating economy and low level of housing transactions. At the time, it said 18 stores had been given a face lift in the past 12 months with more to come over the year.

Analyst Philip Dorgan retained a hold rating on the shares on the basis that the company was well placed to benefit from an upturn in the housing market – which has been boosted by a series of ­government initiatives.

Delayed orders for currency and intense competition will flatten earnings at banknote printer De La Rue when it publishes its annual results on Thursday.

Last year the group warned a number of significant orders had been pushed into its next financial year, and would lead to annual earnings treading water. That sent shares in the FTSE 250 group lower, ­although they have recovered some ground since February as some of these orders belatedly trickle through.

Analysts expect the Basingstoke-based group to post operating profits of £63m for the year to the end of March, level with a year earlier. The 200-year-old company is battling increased competition in the market for banknote paper, which is holding back prices.

Underlying pre-tax profits are expected to hit £57.1m, a slight dip on £57.7m a year ­earlier.