When Kingfisher (LSE: KGF) (NASDAQOTH: KGFHY.US) updated the market with its second-quarter statement on July 24, the DIY giants shares shed 8% of their value in one day.
That fall has been partially reversed today, after the firm which owns B&Q, Screwfix and the French Castorama and Brico Dpt DIY chains reported a solid set of interim results, and announced the departure of long-serving chief executive, Sir Ian Cheshire.
Why are the shares rising?
After its downbeat second-quarter update, I suspect investors were relieved to see that Kingfisher managed 1.8% growth in like-for-like sales during the first half, even though the groups pre-tax profit remained flat, at 364m.
The firms appointment of Vronique Laury as its next chief executive is also likely to be popular. Ms Laury has been at Kingfisher for 11 years, and knows both the UK and French businesses very well.
Indeed, todays news confirms my view that Kingfisher could be an attractive buy:
1. Strong finances
While the UKs supermarkets have been busy loading up with debt, Kingfisher has been repaying its debt, and now has net cash of 496m, up from 259m at this time last year.
The firms underlying operating margin of 6.3% is extremely attractive for a large retailer, and is at least 50% higher than any of the UKs major supermarkets.
2. Attractive yield
Kingfisher shares currently offer a prospective yield of 3.6% and trade on a P/E of 13.5, inline with the FTSE 100 average.
Although this isnt the highest yield around, its worth noting that last year, Kingfishers dividend payout was covered twice by free cash flow an outstanding measure of affordability and sustainability.
3. Geographical diversity
Kingfisher seems likely to face ongoing headwinds in France, where like-for-like sales have fallen by 3.2% over the last two years, but the firm is benefiting from growing sales elsewhere.
Like-for-like sales rose by 4.4% in the UK during the first half of this year, and by 3.1% in Poland, which is Kingfishers third-largest market, after France and the UK.
Buy Kingfisher?
Kingfishers management are investing in growth and taking a prudent, careful approach to maintain the companys enviable financial strength.
In my view, this DIY giant is a more attractive income buy than any of the UKs supermarkets, at present, and could deliver solid long-term capital gains.
However, if you are looking for major growth or very high yields, there are probably better opportunities elsewhere.
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Roland Head has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
