Tuesday newspaper share tips: Not convinced by Kingfisher's transformation plan

Kingfisher’s transformation plan announced on Monday didn’t convince The Times’ Tempus on Tuesday.

The B&Q owner announced a five-year transformation programme on Monday, saying it plans to deliver a £500m sustainable annual profit uplift by the end of the process.

However, it warned that profits were likely to take a take a £50m hit in the first year of the plan and a hit of between £70m and £100m in the second year.

The company said it also plans a capital return of £600m over the next three years - most likely via a share buyback - in addition to the annual ordinary dividend.

In a statement ahead of the group's capital markets day yesterday, chief executive officer Veronique Laury said "we do acknowledge the challenges ahead, however having already made good progress since March last year, and with 80,000 committed colleagues, we feel confident about our plan and look forward to moving on to the first year of our transformation".

Tempus said the market doesn’t believe the plan is achievable or that it will do enough to help the company.

“There were surprisingly negative reactions from some analysts, including at least one comparison with Marc Bolland’s doomed attempt to turn around Marks & Spencer.”

Crunching the numbers, the column said savings will mainly come from the UK and France, which makes up 40% of all sales, and it plans to expand its digital sales offering.

However Tempus said the main concern is the future of Homebase, which is set to be bought by Australian company Wesfarmers.

“The new owner has ambitious plans for the chain, which does not augur well.”

With that in mind, it said markets will continue to be tough with more competition and advised traders ‘avoid for now’.

Meanwhile, in The Telegraph, Questor has warned that Petra Diamonds is a high-risk at a critical juncture.

In a trading update for the six months to the end of December, the company said production was up 2% to 1.63m carats, exceeding its output target of 1.5m carats.

In addition, Petra said it remains on track to achieve full year production guidance of between 3.3m and 3.4m carats for 2016.

However, revenue in the period fell 28% to $154m (£108m) as the number of diamonds sold was down 7% and rough diamond prices slid around 9% on the year.

Chief executive Johan Dippenaar said: "Importantly our expansion programmes remain on track to deliver the first significant input of undiluted ore from the new mining areas in H2 FY 2016, which will lead to improved ROM grades and a better product mix.”

Questor said the company is sinking millions into some of the oldest diamond mines in South Africa, however the commodity cycle is unravelling and diamond prices are falling.

“The vast spending comes after the market turned against Petra,” it said.

“The company is selling fewer diamonds and at lower prices, with 1.3m carats sold in the six months to December, down from 1.4m the year before.”

Questor said the cash outflow is worrying, with levels dropping from $125m to $42m over six months to December, with net debt increasing to $324m.

For that reason, it advised to ‘sell’ shares.