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He FTSE 100 Index It's an interesting group to watch right now. The last 12 months have been a mixed bag for many UK players. large cap actions, with Rolls Royce rising 140% while Rentokil It has fallen by 36% in the same period.
The UK economy is also in an interesting place. Inflation appears to have moderated, further interest rate cuts seem likely and there are signs of growth. However, concerns about rising taxes and lingering Brexit issues provide a counterweight.
All of this has me thinking about a possible recession. As a long-term investor, I think it is worth always trying to “protect” my investment portfolio. There is one FTSE 100 stock that I have my eye on in case the economy contracts in 2024.
Home improvement is in fashion
Recessions are characterized by lower spending by consumers who tighten their belts and stretch their budgets even further. One sector that I believe could benefit greatly is home improvement.
Kingfisher (LSE: KGF) is an international home improvement company listed in the FSTE 100 index. The group operates in eight countries across Europe with several brands including B&Q.
The home improvement sector seems to me to be a potentially defensive sector. Like the used car market, it offers an alternative to buying new cars, as people take on the task of doing the renovations themselves.
Kingfisher's share price has soared in recent months. In fact, the FTSE 100 index stock has risen by 31.7% in the past three months and by almost 50% in the past year.
The key to long-term investing is to choose high-quality companies and pay the right price. I needed to see if Kingfisher is still good value for money after its recent positive run.
In numbers
The group generated earnings before interest, tax, depreciation and amortisation (EBITDA) of £1.33bn from £12.98bn in sales in fiscal 2024. I like Kingfisher to be profitable and cash-generative, with net profit of £345m and £514m of free cash flow.
To the delight of yield hunters, the board announced an unchanged total dividend of 12.4p for 2024. The stock currently has a dividend yield of 3.8%, which is nothing to sneeze at.
On the balance sheet side, net debt amounted to £2,116 million, including £2,367 million of total lease liabilities. With net leverage of 1.6 times EBITDA, I think that provides some strength and flexibility going forward.
Valuation
Kingfisher's price-to-earnings (P/E) ratio of 18.4 doesn't seem too high for a potential defensive play. Footsie's P/E ratio is around 20, which gives me some comfort as to its relative value.
Similarly, a price-to-book (P/B) ratio of 0.92 implies a slight discount to net assets on the balance sheet.
Verdict
To me, Kingfisher looks to be in good shape. It is generating cash, has a healthy balance sheet and appears to be reasonably priced.
Of course, risks remain even for companies that can take a more defensive stance. Falling sales, rising costs and supply chain challenges are some of the factors that come to mind when considering whether or not to invest.
All told, if we see the economy heading for a prolonged recession, this FTSE 100 stock would be high on my buy list.
