Kingfisher and IQE

“The FTSE 100 dips ahead of the US Federal Reserve’s latest policy decision and chatter that top US trade officials will head to China next week for new trade talks. The blue chip index is also weighed down by various big mining companies whose shares have been hit by a fall in iron ore prices. Vale has cleared a hurdle to restart production at one of its Brazilian mines, which would ease global supply constraints,” says Russ Mould, Investment Director at AJ Bell.

Kingfisher

“The decision to find a new chief executive at Kingfisher should have been made long ago. The struggles of this company are full laid out in its full year results with underlying pre-tax profit down 13% and no growth in the dividend.

“Kingfisher talks about having spent three years building an engine to drive the business. The financial results would suggest it only has the strength of a rubber band-powered motor.

“Theoretically this business should be doing well. People are spending money on doing up their homes and Kingfisher has some of the biggest brands in the home improvement market.

“Sadly its French operations are the big problem. They have suffered from weak footfall to its stores and prices being higher than the market, which still remains the case despite price cuts. Logistics and stock management have also been inefficient.

“Investors will probably be pleased that the hunt is on for a new chief executive given the shares have fallen by 24% since Veronique Laury became CEO on 8 December 2014. But finding the right person is still crucial to putting Kingfisher back on track.

“Whoever gets the top job will walk into a lengthy turnaround programme that hasn’t really yielded the desired results. They may find it easier to rip up the plan and start again rather than make small changes.”

IQE

“Today’s full year results are unlikely to do anything to alter IQE’s status as a marmite stock.

“For its fans, the Cardiff-based company’s expertise in the manufacture of components for semiconductors, which are heavily used in electronic devices such as smartphones, puts it at the cutting edge of a tech-based revolution where microchips are increasingly embedded into everything.

“Those on the other side of the fence argue the company trades on a premium valuation and is just a minor player in a very complex supply chain with limited control over the pricing of its products when faced with a customer base made up of technology giants.

“Apple is not confirmed but is widely believed to be one of those ultimate customers, or in other words it has IQE kit in its devices, and it has a reputation of being pretty hard-nosed with suppliers.

“The 40% fall in operating profit reflects several factors but foremost among them are slowing sales in the smartphone market and more specifically a big drop off in orders from laser sensor maker Lumentum which was revealed late last year.

“Chief executive Drew Nelson says these issues ‘disguise the excellent position and prospects of IQE’. The company’s presence on a list of most shorted UK stocks suggests plenty of people are far from convinced by this argument.”

These articles are for information purposes only and are not a personal recommendation or advice.