Positive momentum in UK DIY retail: Kingfisher update lifts B&M and Wickes outlook

A bullish trading update from Kingfisher PLC (LSE:KGF) has prompted Panmure Liberum to reiterate its buy ratings on B&M European Value Retail SA (LSE:BME) and Wickes Group PLC (LSE:WIX).

Signs of strengthening demand for seasonal and higher-value home improvement goods were cited.

The note points to encouraging commentary from B&Q, Kingfisher’s UK subsidiary, as a “positive read across” for rivals with similar product ranges.

Kingfisher reported “strong demand for seasonal products” and “a positive performance” in its big-ticket categories.

Panmure argues this sets a favourable backdrop for B&M, which has historically struggled in the first quarter, and for Wickes, where trends in fencing, garden supplies and heavy-duty items are closely tied to seasonal spending.

B&M: upside from low base

B&M shares have fallen sharply over the past year, underperforming the FTSE All-Share by more than 30%, according to Panmure.

But analysts suggest this leaves the stock looking cheap. The retailer trades on a free cash flow yield of 10% and a price-to-earnings multiple of 10, well below its five-year average of 18.2 times earnings.

Panmure forecasts £460 million of pre-tax profit this year, with £320 million of that expected to convert into free cash flow.

That cash supports returns to shareholders of up to £300 million a year, with the potential for buybacks as the company relocates its holding structure out of Luxembourg.

Wickes: recovery in progress

Wickes, which has posted lacklustre results over the past two years, is showing signs of improvement. First-quarter like-for-like sales rose 5.5%, driven by a strong retail performance.

The design and installation division, which handles larger projects such as kitchens and bathrooms, remains in decline but is narrowing losses.

The group converts nearly all of its pre-tax profit, forecast at £50 million, into free cash flow.

That underpins a dividend of £27 million and a share buyback of up to £20 million, supporting a free cash flow yield of more than 10%.

Wickes trades on a forward price-to-earnings ratio of 13.5, above its long-term average, but Panmure argues the improvement in trading warrants the re-rating.

Valuation snapshot

Panmure values B&M shares at 600p against a market price of 337p, and Wickes at 230p versus 222p.

For B&M, projected earnings growth and a normalisation in trading margins could help the shares re-rate. Wickes, though still recovering from a weak run in project-related revenue, is described as “clearly on the road to recovery.”

Sector tailwinds

Panmure has turned more positive on UK domestic-facing retailers this year, citing supportive weather patterns, easier comparisons with last year’s weak trading, and renewed consumer interest in home and garden spending.

Alongside Kingfisher, Dunelm, DFS, Currys and Wickes have all reported better-than-expected updates in 2024.

“The outlook is clearly brightening for the UK’s specialist retail names,” the analysts said, “with valuation support and cash returns starting to drive renewed investor interest.”