Kingfisher is Leader of Industry in Europe

The strategy to sell common products across its regions will allow Kingfisher to finally exploit its scale and help strengthen its economic moat

Philip Gorham 7 April, 2015 | 11:55AM

There is a lot for medium-term investors to like about Kingfisher (KGF). A decade ago, the company was a multi-category retailer, an ineffective conglomerate of primarily no-moat businesses. Today, it is focused solely on home improvement, and we believe management is building upon some competitive advantages that are likely to sustain the company's excess returns on capital through the major secular challenges that traditional retailers currently face.

We believe the strategy to sell common products across its regions will allow Kingfisher to finally exploit its scale and help strengthen its economic moat as one of the cost leaders of the industry in Europe.

Products will have instructions in several languages and will meet cross-border safety standards in order to be sold in multiple geographies. However, even at its target of 50% common own brands, the company will lag Lowe's and Home Depot in leveraging its scale, and we do not expect the company to achieve the double-digit normalised EBIT margins that we forecast for its U.S. counterparts.

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Philip Gorham  

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