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Kingfisher PLC II – Gearing up for the Future?
- DDL Ltd
- Jul 1
- 2 min read
Updated: Aug 15
Kingfisher PLC, the owner of B&Q and Screwfix, operates in multiple European countries, including the UK, France and Poland. Their stock is the third most shorted in the FTSE 100 with 6.8% of its equity share capital sold short by short sellers.
This is the second in a small series of blogs analysing Kingfisher PLC’s Earnings Call Q&A session for their full year results on 25th March 2025.
Below is another one of the questions raised in the QA session. The question was asked by Adam Cochrane, Research Analyst at Deutsche Bank;
"Three questions, if I can. Firstly, on the cash position, you've guided to the £420m to £480m. But you've got a £228m dividend, a £300m share buyback. You've talked rather cautiously about Poland and France. Why is now the right time to be gearing up the balance sheet given the cautious outlook that you've presented?"
Bhavesh Mistry, CFO, Kingfisher PLC, replied as follows:
"We're not gearing up the balance sheet, Adam. We're at 1.6 times net debt to EBITDA below our targeted 2 times. So, a very, very strong balance sheet. I think the business has done great this year in terms of what it's delivered from a cash perspective. And that underpins a bit of what we're guiding next year. The driver is strong inventory performance, and we expect more from inventory working capital to help, stay disciplined on our CapEx. There's a little bit of timing between creditor payments this year to next year. We had a great year from a cash perspective and expect to continue to deliver next year. But we're not doing that at the expense of driving up our leverage."
This is an excellent question.
The committed outgoings from dividends and share buy-backs exceed cash generation and, therefore, debt is going up.
We would consider whether this is wise is given the cautious trading commentary about France and Poland? The new CFO is disingenuous in stating that the Balance Sheet is not being geared up as debt is increasing.
This is a sensitive subject for him given his negative reference to it. In turn, the CFO lacks commitment, not only in terms of what the business has delivered, ‘from a cash perspective’, which is later repeated further increasing the sensitivity of the topic.
The fact that the debt level is under the target of 2x EBITDA becomes irrelevant, as it is increasing but isn’t acknowledged. The CFO is potentially sensitive to the rate of debt increase and that the 2x target could be breached against a declining sales backdrop given, ‘a great year from a cash perspective’ which is ‘expected’ to continue to deliver.
We would seek to understand how long the ‘little bit of timing’ is between creditor payments.
All blog subjects are identified, validated and written by the DDL Team. See www.ddlltd.com for more on Deception Detection Lab Ltd. Neither DDL nor its employees have any position in Kingfisher PLC.
