Why Home­base sale is such good news for King­fisher

Aussie re­tail con­glom­er­ate’s DIY dis­as­ter is sup­port­ive for King­fisher

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Aus­tralian con­glom­er­ate Wes­farm­ers is sell­ing Home­base for a nom­i­nal £1 to turn­around spe­cial­ist Hilco Cap­i­tal just two years af­ter buy­ing the busi­ness from Home Re­tail for £340m. The Aussie firm wrongly as­sumed it could repli­cate the suc­cess of its Bun­nings brand down un­der in the UK. Wes­farm­ers’s DIY dis­as­ter is sup­port­ive for hard­pressed King­fisher (KGF), the over-spaced owner of the ri­val B&Q chain, whose unloved shares re­acted pos­i­tively to the news (25 May).

Wes­farm­ers’ ill-fated ac­qui­si­tion of Home­base has been bun­gled and Hilco is now tak­ing the 255 store DIY spe­cial­ist off its hands; 24 pi­lot Bun­nings stores will re­vert back to the Home­base brand.

Even if Hilco in­tends to turn round Home­base rather than en­gi­neer a breakup, stores are ex­pected to close, Home­base will now miss Bun­nings’ buy­ing clout in Asia (with im­pli­ca­tions for pric­ing) and sup­port from key branded sup­pli­ers could soften un­der the new own­er­ship struc­ture.

Jef­feries there­fore ar­gues the sale con­sti­tutes ‘very good news for King­fisher. Ul­ti­mately, the risk ahead of to­day was that Wes­farm­ers would be ir­ra­tional and back a sig­nif­i­cant in­vest­ment to re­brand Home­base stores into Bun­nings.

‘To­day’s news should see B&Q’s big­gest com­peti­tor (and ar­guably the only al­ter­na­tive to re­tail cus­tomers in the UK large-sheds DIY mar­ket, given Wickes’ squarely more trade ori­ented of­fer­ing) be­come much more sen­si­tive to short, and mid term, mar­gin and cash­flow chal­lenges.’

The sale comes at a cru­cial time for King­fisher, whose poor first quar­ter fig­ures (24 May) re­flected tough UK and French home im­prove­ment mar­ket con­di­tions and dire weather in Fe­bru­ary and March, with like-for-like sales slump­ing by 4%. (JC)

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