A variety of global and local lockdown measures have meant shares of retailers in the home-improvement space have been in focus for many investors. Today, we introduce two FTSE companies—Kingfisher (LON:KGF), (OTC:KGFHY) and Howden Joinery Group (LON:HWDN), (OTC:HWDJY)—both based in the UK, that may appeal to a broad range of investors.
Kingfisher
FTSE 100 member Kingfisher is an international home-improvement chain with more than 1,350 stores. It operates in several European countries under local retail banners, including B&Q, Castorama, Brico Dépôt, Screwfix, TradePoint and Koçtaş.
The retailer released Q3 trading updates on Nov. 19. Quarterly sales came in at £3.5 billion (or $4.67 billion), up 17.6% year-on-year (YoY). Management noted there had been:
"Strong performance across all retail banners and categories. In addition, "Q3 Group e-commerce sales [were] up 153%."
Those who have visited a B&Q store in the UK may have noticed the similarity in the store layout and product range between Kingfisher's brand and the Atlanta, Georgia-based Home Depot (NYSE:HD). Their share prices have also shown a similar positive trend in 2020. KGF and HD stocks are up about 28% and 25%, respectively thus far in 2020.
On Nov. 24, KGF stock closed at 277.5p ($7.4 for U.S.-based shares). On the other hand, HD is a bit shy of $275. Both companies have benefitted from the tailwinds supporting do-it-yourself (DIY) and online shopping trends.
In fact, B&Q's e-commerce site operates on www.diy.com and currently offers various Black Friday deals.
Black Friday and Cyber Monday are of course the designations given to the shopping period following Thursday’s Thanksgiving holiday in the U.S. The terms, and the custom have been exported to many other nations, including the UK.
A recent PWC report, titled "Black Friday and Cyber Monday – 2020," highlights, "Black Friday has been a significant event in the retail calendar for some years" in the UK. In 2019, the spending during the period totalled around £7.8 billion (or $10.4 billion).
Forward P/E and P/S ratios for Kingfisher are 12.08 and 0.52, respectively. By comparison, the forward P/E and P/S for Home Depot are 22.12 and 2.33.
We believe there is still room for Kingfisher stock to offer long-term growth. Potential short-term profit-taking of around 5-7% could pressure the shares, offering potential investors a better entry point.
Howden Joinery Group
Our second company under consideration is FTSE 250 member Howden Joinery Group. The London-headquartered business is the country's largest kitchen supply purveyor. Its vast network of about 700 depots sells both kitchens, kitchen appliances and joinery products directly to local businesses and tradespeople.
A large number of Howden's customers are within close driving range of one of its outlets. It also has depots in France and Belgium.
Unlike Kingfisher stock, however, HWDN shares have not had a good 2020. The stock is down about 5% year-to-date. On Nov. 24, it closed at 628.6p. ($35.6 for U.S.-based shares).
On Nov. 2, the group released a trading update for the period June 14 to Oct. 31. Since the release of the half-year results, which covered the period to June 13, management noted that "trading has improved significantly." Investors have been encouraged by the "signs of pent up demand since lockdown and a high level of stock availability."
In addition, "the board will consider recommencing payments of dividends with the announcement of Howden's 2020 full-year results in February 2021." Dividends were suspended earlier in March.
According to Marco Amasanti at Mintel, a leading market intelligence agency:
"COVID-19 will see kitchen furniture sales fall sharply amid a reduced appetite for big-ticket purchases in 2020, store closures, a reluctance to allow tradespeople into the home and a slowdown in the housing market. However, extended periods inside will see an unprecedented rise in kitchen usage across the UK, refocusing consumers on the importance of this space and creating new opportunities for the market moving forward."
Howden stock's forward P/E and P/S ratios are 23.75 and 2.88, respectively. Given the UK's current lockdowns, we believe it may still be too soon to invest in HWDN shares.
However, a potential decline of around 10% would improve the risk/return potential for long-term investors. We agree with Amasanti that the upcoming quarters would possibly bring increase revenue for the group.