The threat of trading conditions worsening in Britain and overseas make Kingfisher (LSE: KGF) too dicey for savvy investors, in my opinion.
Digital and product improvements at Screwfix have helped keep the wolves from the door at Kingfisherâs UK operations, and helped the retailer book a 5.8% like-for-like sales rise on home shores during August-October.
But the retailerâs plan to resuscutate it its ailing French operations continues to fail, and underlying revenues here slumped 3.6% in the period.
City brokers appear pretty unperturbed by these Gallic troubles, however, and expect Kingfisherâs huge transformation drive to help earnings grow 3% and 17% in the years to March 2018 and 2019 respectively.
But a backcloth of rising inflation could see Kingfisherâs key British growth lever come under pressure in the months ahead, and with it hopes of sustained earnings expansion.
While Kingfisherâs forward P/E ratio of 13.3 times falls below the FTSE 100 average of 15 times, I reckon a reading closer to the bargain-basement benchmark of 10 times would be a fairer indication of the firmâs high risk profile.
Till travails
The same muddy consumer spending picture also makes me less than optimistic concerning Next (LSE: NXT).
Some would argue that the clothing giantâs patchy near-term profits pile is marked in at current levels, however. For the year to January 2018 Next deals on a P/E ratio of 9.4 times, a figure created by an anticipated 7% earnings decline.
But the possibility of earnings pain lasting beyond this period is very real, in my opinion, and the City expects further bottom-line declines to the close of fiscal 2019 at least. And this makes Next a poor selection regardless of its ultra-low multiple, the company battling against rising competition in the mid-tier clothing market as well as souring consumer activity.
Latest Office of National Statistics underlined the steady slide in retail spending, a 0.3% drop in January sales volumes confounding predictions of a 1% rise. And further forecast misses could see Nextâs already-insipid growth forecasts undergo scary revisions in the months ahead.
Commodity clanger?
The scale of speculative buying in commodities markets, allied with the still-uncertain supply and demand outlook in the raw materials space, also leaves BHP Billiton (LSE: BLT) in danger of a sharp share price retracement in my opinion.
The London firm announced last week that improved raw material prices helped underlying earnings surge 65% during July-December, to $9.9bn.
However, BHP Billiton warned that in the iron ore segment alone — a segment responsible for 37% of group earnings — âthe market is likely to come under pressure in the short-term from moderating Chinese steel demand growth, high port inventories and incremental low cost supply.â And the firm also warned of concerns over the fundamental picture for other key commodities like copper.
Sure, the number crunchers expect earnings at BHP Billiton to blast 472% higher in the year to June 2017. But an anticipated 13% fall the following year reflects the fragile picture for the commodities sector.
I believe the risks continue to outweigh the potential rewards at BHP Billiton despite a conventionally-low earnings multiple of 12.6 times for fiscal 2017.