The Expert View: Kingfisher, Xaar and 888

Hargreaves Lansdown: things look difficult at Kingfisher

The future is looking difficult at B&Q owner Kingfisher (KGF) as it tries to implement a transformation programme while UK consumers cut spending on big ticket items, says Hargreaves Lansdown.

The group announced full-year sales of £11.7 billion, which is broadly flat on last year, but an extra £70 million of turnaround costs pushed profits down 8.1% to £683 million. The shares fell 10.7% to 301.6p yesterday on the news.

Analyst George Salmon said it was ‘further evidence that Brits are cutting back on big-ticket domestic items’.

‘The main headline of these results is the weakness in the UK. Fourth quarter like-for-like sales slumped at B&Q, while the wheels are also turning that little bit slower at Screwfix, which has so often bailed out the UK business.

‘Kingfisher says the outlook for both businesses is uncertain, so the worry for investors is B&Q trends remain in the red,’ he said.

He added that ‘while progress is being made with these self-help measures, the changes are proving far from simple to implement’ and ‘all told, things look difficult’.

Long-term gains to be made at Xaar, says Jefferies

There are opportunities at commercial inkjet printer market Xaar (XAR) if investors are willing to take a medium to long-term view, says Jefferies.

Analyst Andy Douglas retained his ‘buy’ recommendation and target price of 500p on the stock following full-year results that were slightly ahead of Jefferies’ forecasts. The shares were up 16.7% at 312.6p yesterday.

‘There continues to be a lot going on at Xaar, as it transitions away from its historical reliance on the ceramics market, but there are plenty of opportunities for investors with medium-term/long-term time horizons,’ said Douglas.

‘Although the market’s focus is on the group’s financial progress, we must not lose sight of the fact that there was important strategic progress made in full-year 2017. While the ramp-up of new products did not go to plan, the broadening of the product portfolio has been significant and a positive for the long-term outlook.’

Investors should bet on 888 now, says Peel Hunt

A fall in the share price of 888 Holdings (888) on the back of news that the online gambling company may pull out of Germany is ‘overdone’, says Peel Hunt.

Analyst Ivor Jones retained his ‘buy’ recommendation and target price of 320p after 888 said it may decide to pull out of Germany and reallocate resources elsewhere. The shares are down 8.5% since Tuesday’s announcement.

‘The share price fall was overdone,’ he said. ‘Even if 888 pulls out of Germany entirely in 2018, experience has taught us that the impact will probably get lost in the rounding by the time we get to the 2018 results.

‘Continued investment means the company is well-placed to exploit new market opportunities as they arise.’

He added that with a yield of over 4% and the potential for mergers and acquisitions, the ‘current share price represents an excellent buying opportunity’.

Numis upgrades Wood Group after share price dip

Numis has upgraded Wood Group (WG) on the back of a share price fall as it believes the oil services group will benefit from structural global energy growth.

Analyst James Hubbard upgraded his recommendation from ‘add’ to ‘buy’ with a target price of 740p on the shares, which are down 9.2% since Tuesday’s full-year results.

Hubbard trimmed his forecasts but said the ‘fundamental investment thesis is still firmly on track’.

‘We think the company is very well positioned to benefit from continued structural global energy demand growth and that oil and gas activity in particular has trough and the next multi-year phase is likely to be one of higher global activity,’ he said.

Hollywood Bowl can support cash returns, says Shore Capital

Shore Capital is expecting ‘significant’ returns to shareholders from Hollywood Bowl (BOWL), which it said could support double-digit earnings growth.

Analyst Greg Johnson retained his ‘buy’ recommendation on the shares, which rose 1% to 195.5p yesterday.

‘Hollywood Bowl trades on an attractive 2018 free cashflow yield of 6.9% and we believe its strategy can support broadly double-digit annual earnings growth and continued significant cash returns to shareholders,’ he said.

‘Our cashflow analysis suggests fair value of 220p per share although we expect this to build as further new centres are secured.’

He added that the premium the shares traded on was ‘merited’.