Focus’s CVA dashes rivals’ hopes of market share gains

Seymour Pierce analyst Freddie George said the rescue deal would put Home Retail-owned Homebase in a more vulnerable position and may prompt market leader Kingfisher to rethink elements of its strategy.

George said that Homebase trades in similar locations and catchments to Focus. He maintained: “A resurgent Focus would expose the weakness of the group and, in our view, dent any prospect of a quick recovery in profitability.

“The Homebase format lacks clarity, having been stocked with a broad Argos-based offer in home furnishings and furniture, and is too reliant on price-promotional activity to stimulate sales.”

George advised clients to take profits in Kingfisher, owner of the market-leading B&Q chain. He said: “One of Kingfisher’s strategic objectives in the UK has, we believe, been to destabilise Focus through heavy discounting, with the objective of taking capacity out of the market.

“It appears not to have worked and we believe is likely to prompt a rethink on strategy and a refocus on improving profitability.”

However, other brokers issued bullish notes on Kingfisher over the past fortnight, making no mention of the impact – positive or negative – of a successful Focus CVA.

Oriel Securities analyst Ramona Tipnis said: “Progress made at B&Q in the UK in recent months is very encouraging. Space is being used more effectively, buying synergies are being extracted
and operating costs are now under control.”

ING analyst Peter Brockwell last week increased his earnings forecast for Kingfisher by 6.5 per cent to £439m.

He said: “A combination of reasonably decent weather, soft comparisons, ongoing gross margin gains and aggressive cost control means we are in a position to put through further B&Q-led profit upgrades.”