Markets improve as investors snap up UK banking shares, Kingfisher outlines new strategy

“The clouds are parting and glimpses of blue sky are giving hope to investors after a chaotic few weeks. With no new troubles in the banking sector for the past 24 hours, markets are hoping that’s a sign the crisis could have peaked,” says Russ Mould, Investment Director at AJ Bell.

“The main indices were up across Europe and most of Asia, while Wall Street had a decent session last night. Beaten up by the chaos around the world, UK banks have been on sale for a few weeks and investors are now happy to go bargain hunting.

“Barclays led the pack on Tuesday with a 3% rise to 140.5p. Other financial stocks including M&G, Prudential and Legal & General were also in demand, with investors lured by the prospect of generous dividends from much of the sector. The fallers were yesterday’s winners – with investors top slicing holdings among gold miners and utility companies.

“The key question is whether this is the calm before the storm. The Federal Reserve’s next interest rate decision tomorrow still has the potential to kick up a fuss if the market thinks it is being too aggressive with rate rises. Investors’ nerves are already frail, and it wouldn’t take much to disturb the peace on the markets seen today.”

Kingfisher

“After the DIY boom during the pandemic, Kingfisher was always going to struggle to sustain growth momentum. That’s evident in its full-year results to January 2023 where profits have dropped, free cash flow has dried up and there is no growth in the dividend for shareholders.

“It’s no wonder these are the key areas for improvement for its new medium-term strategy, focused on growth, cash generation and higher returns to shareholders. They are the bedrock of a successful business and Kingfisher will need to ensure that the past financial year was only a momentary pause, a time to catch its breath, and not the sign of things to come.

“Kingfisher’s business has two key drivers. First is the repair, maintenance and improvement market where existing homeowners want to do up their property. Second is the housing market where lots of people moving home should trigger sales of DIY goods, and here there are concerns that a more muted property market in the UK could dampen demand. That suggests Kingfisher might be only firing on one cylinder for a while.

“The growth strategy will involve having a much bigger chunk of sales derived from e-commerce channels, more use of data and artificial intelligence to support pricing decisions, being a bigger player in the trade market, and rolling out smaller stores.

“It’s good to have ambitions but this sounds like a lot of work to get done, and Kingfisher doesn’t have a good reputation for doing things quickly.

“The success during the pandemic effectively gave Kingfisher a new lease of life following years of struggles. Like many Covid winners, the DIY group will be hoping its recent success lives on and doesn’t fade away. It cannot be accused of sitting on its hands, but equally there is a risk that it has bitten off more than it can chew.”

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