Kingfisher (KGF) reported strong interim results that demonstrate that our investment thesis is playing out. Currency remains a significant drag on the reported performance, but on a constant currency basis, sales grew 3.5%. These results were very close to our forecasts, and show that our investment thesis and like-for-like sales model are firmly intact.
We are reiterating our £4.30 fair value estimate. Upside remains to the shares, and Kingfisher remains one of our best ideas in the consumer discretionary sector. Our narrow economic moat rating is based upon Kingfisher's structural defences against online competition, and we think this competitive advantage provides investors with greater downside protection in comparison with other brick-and-mortar retailers.
Underlying sales growth remains on track to meet our expectations, although the reported decline of 4% was slightly worse than we had expected due to the weakening euro. In the UK, like-for-like sales growth of 3.3% in the B&Q and Screwfix banners fell just short of our 3.5% projection for the full year. With house price rises accelerating, however, we remain confident in our full-year forecast. France remains sluggish, however, with like-for-like sales down 0.3%.
The first-half operating margin of 7% was solid, and in line with our estimate of Kingfisher's medium-term normalised level of profitability. There may even be upside to this margin, if management can execute on plans to broaden the number of common products across its stores. To this end, the progress reported in this report is encouraging, with 193,000 shop keeping units identified for discontinuation. The rationalisation of Kingfisher's store count is on track, with 30 B&Q closures scheduled for the second half. We anticipate more closures in France than the two already announced.
