Black Friday bargains: are JD Sports and Kingfisher shares cheap?

After a significant decline in value, investors have been nibbling away at these two FTSE 100 retailers. Graeme Evans investigates whether it’s time to bag a bargain or steer clear.

26th November 2024 15:38

Graeme Evans from interactive investor

The cheapest JD Sports Fashion (LSE:JD.) shares in two years and a Kingfisher (LSE:KGF) price tag down 22% mean the retail sector is in the sights of bargain-hunting investors ahead of peak trading season.

Pre-Budget consumer jitters and industry-wide fears over the impact of much higher labour costs have also knocked Next and Marks & Spencer out of their stride in recent weeks.

Invest with ii: What is a Managed ISA? | Open a Managed ISA | Transfer an ISA

Whereas the high street bellwethers are still up 22% and 34% so far in 2024, JD Sports is down by more than a third and Kingfisher back where it was in July for a year-to-date rise of 5%.

The sight of JD trading below 100p for the first since October 2022 has attracted plenty of interest on the interactive investor platform, with the transatlantic retailer sandwiched between Nvidia and GSK as last week’s third most popular ISA stock.

The buying followed a 14% slide in valuation after JD said on Thursday that mild weather and promotional activity meant it was now unlikely to deliver a £1 billion annual profit.

The run-up to the US election has been another headwind but chief executive Régis Schultz otherwise struck an upbeat tone after telling the City that JD had performed well in the key trading events and was well placed heading into the Black Friday and festive period.

The current quarter accounts for between 35% and 40% of profits, meaning there’s the potential for a short-term rebound should trading deliver on or beat expectations.

UBS said its channel checks pointed to an acceleration in US sales in November whilst recent surveys have shown an upturn in spending intentions in the country.

However, the bank warned it may take longer for JD Sports to return above the 10 times earnings multiple.

It said this was because of the recent failure of JD’s multi-brand model to be more predictable in a volatile environment and the lack of clarity on the timing of the recovery at Nike Inc Class B (NYSE:NKE).

UBS thinks long-term focused investors may hesitate to engage with the stock, despite its low valuation. It adds: “This lack of support is likely to result in increased volatility as short-term focused investors are likely to trade the name around key catalysts.”

The bank has reduced its estimates by up to 7% to reflect lower like-for-like growth expectations and incremental costs in the UK, meaning its new target price is now 155p.

Peel Hunt, which continues to have a 250p target, has reduced its profit forecast for the current financial year to £960 million and to £1.07 billion for next year.

It added: “JD has had a good year of ‘events’ and is well-positioned going into the biggest quarter of all. Investors may vividly recall the fourth quarter last year and note that it is a much easier comparative.

“In order to get to the bottom of the range, on our maths JD has to deliver 2% like-for-like growth in the fourth quarter.

“Given that October was poor, that is not a gimme, but anything resembling a return to the summer’s trading form would put the low end of the £955 million to £1.03 billion range well in reach.”

The shares of B&Q and Castorama business Kingfisher also experienced a double-digit percentage decline after yesterday’s third quarter update showed the impact of consumer uncertainty linked to fiscal events in both the UK and France.

A 1.1% decline in like-for-like sales was below the City’s forecast for a fall of 0.2%, with trading particularly weak in France.

Kingfisher cut the top end of its profit guidance range by £10 million to £540 million, and also highlighted 2025/26 headwinds of £31 million and £14 million respectively in relation to increases in UK national insurance and French social taxes.

Chief executive Thierry Garnier said recent developments have layered incremental uncertainty onto the near-term outlook but that the company is “strongly positioned to benefit from the inflection to come within home improvement”.

Trading at the start of the fourth quarter has offered encouragement following a slight improvement in sales versus the exit rate from the third quarter.

RBC Capital Markets believes shares have the potential to return to 330p, which is where they were in September before their reverse this autumn. It expects DIY trends to be fairly resilient, helped by consumers continuing their focus on saving money.

The bank is also attracted to the growth potential of Screwfix and points out that Kingfisher has developed a stronger digital and trade offer in the UK, which it can look to develop elsewhere.

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox