Kingfisher's earnings seen at risk, RBC downgrades

RBC Capital Markets downgraded Kingfisher on Monday as the B&Q owner faces and unsupportive domestic outlook and structural and execution issues in France.

RBC downgraded the shares to 'underperform' as the price target was cut to 200p from 240p as analysts think it will take time for price cuts and new ranges to resonate with customers.

The Castorama chain in France has suffered from four factors - that customer perception of the value for money offer, it has a "weak" digital offer, chief executive Veronique Laury's new unified offer across the UK and France offer has "not resonated with customers" and finally that it been "stuck in the middle between more experiential and more convenient offers" from rivals. Analysis by the data science team at RBC suggests a mixed picture demographically for Castorma compared to Leroy Merlin.

Across both France and Britain, the housing backdrop has become less supportive.

The UK, which represents around 50% of profits, B&Q's inability to make many gains from the travails of Homebase "suggests it has structural issues too".

With the share trading for around 11 times forecast earnings after the analysts reduced their forecasts by 4-6% due to the more cautious view on sales for Kingfisher's major businesses, this is in line with peers "but in our view has higher than average earnings risk, hence our relatively cautious stance".