The home improvement market is languishing but middle class Britain is still splashing out on kitchens – is this a tasty opportunity or a recipe for disaster for investors?

The housing market is weak. Lavish makeovers have been shelved. But there is one area of the home on which people are willing to splash some cash, and this is the kitchen.

Thierry Garnier, boss of the B&Q and Screwfix group Kingfisher, said this week that this space is ‘becoming a more important part of our lives and a more important room in the house’.

He reported that interest in kitchen upgrades is increasing in Britain, driven by the popularity of its Ashmead Shaker-style kitchen, which can cost around £1,700 when configured with eight units.

But there has also been an upturn in Europe, where Kingfisher owns the Brico Depot and Castorama chains.

Garnier’s observations on the possible early signs of a kitchen boom should be food for thought for investors, since he also unveiled a 10 per cent bounce in Kingfisher’s first-half profits, plus a full-year profit upgrade to between £595million and £653million.

Moreover, other names such as Howden Joinery and Wickes are experiencing the same demand for cost-conscious kitchen renovation and replacement.

Since the home improvement sector has been widely regarded as depressed, the news that householders will commit money to the Ashmead or any other more affordable kitchen comes as a surprise.

But it could be an indication that the gloom has been overdone, especially in the light of analysts’ upbeat views on the major stock market listed players.

Kingfisher and its competitors may be warning Chancellor John Healey not to impose punitive business rate rises in next month’s Budget.

Yet they appear to be quietly adapting to a tougher climate in which consumers may be cautious for a while, but not for ever. This presents a potential opportunity for investors willing to back a recovery. Here’s what’s on the menu.

Home improvement maths

Household budgets are tight, mortgage rates are moving upwards and tax increases appear inevitable in the Budget. 

This means that people will eat out less and dine in more. A kitchen is now regarded as a space for entertaining, as well as for trying to emulate contestants on the latest series of The Great British Bake Off.

Elaborate £100,000 kitchen extensions are off the table for the time being. This may be partly due to reluctance to undertake projects that could raise the value of a property when rumours are circulating that the mansion tax threshold could be lowered from £2million to £1.5million.

But less costly revamps are still being planned. Sam Cullen, analyst at Peel Hunt, says: ‘There may not be much house price growth. But homes are still being bought and sold.’

This creates the need for new decor and repairs. At the same time, as Cullen points out, people who are staying put will invest some money into small jobs like repainting the living room, swapping plastic light fittings for metal ones, or replacing kitchen cabinet doors.

This supports the view that the revival may spread from the kitchen to other parts of the house. 

Richard Knight, manager of the Merchants investment trust, says: ‘I would expect an upgrade cycle to kick in eventually for all sorts of businesses in the field, which currently trade on low valuations, companies like Grafton Group, the building materials firm, Victorian Plumbing and DFS.’

Following results from DFS this week, David Hughes, of brokers Shore Capital, described the sofa company as a ‘coiled spring’ and said it is ‘well placed to deliver in the event of a market recovery’.

On this basis, the shares, which are 16 per cent down this year at 145.5p, are a ‘buy’. But if you want to stay in the kitchen, here are the three names to consider.

Howden

The UK’s largest kitchen supplier, a £4.2billion member of the FTSE 100, holds a 25 per cent slice of the market. Howden manufactures most of its own products, selling them to self-employed kitchen fitters through its 800 or so out-of-town depots, whose managers enjoy a large measure of autonomy.

Karan Singh, UK equity portfolio manager at Fidelity International, says that Howden’s ability to keep marketing and other costs down frees up funds for investment ‘in product quality, service and price’.

He adds: ‘Howden is well positioned to benefit from a recovery, which could drive significant profit growth. But its balance sheet provides resilience if conditions remain subdued.’

Analysts share Singh’s enthusiasm for Howden, rating the shares that stand at 760.5p a ‘buy’ with a target price of 1,008p.

Kingfisher

The ‘stand-out’ performer in the £5.7billion Kingfisher empire is Screwfix, the haunt of electricians, painters and plumbers engaged in kitchen, decorating and construction work. 

The recipe for Screwfix’s success, according to Cullen, is its extensive store network in the UK, France and the Republic of Ireland, and the ease with which customers can check stock availability and proceed to purchase.

Such is Kingfisher’s confidence in the speed of Screwfix’s click-and-collect service that Olympic champion Mo Farah was chosen to star in the advertising campaign.

Following the half-year results, analysts at Bank of America raised their target price for Kingfisher shares to 400p, against the current 339p. 

But since the shares have leapt by 23pc over the past three months, other analysts see them as a ‘hold’. I will wait for a pullback in the share price before buying.

Wickes

The preference for a less expensive kitchen revamp is boosting FTSE 250 firm Wickes, which aims to be cheaper than its rivals.

Earlier this month, boss David Wood said customers were being more cautious, opting for ‘more affordable’ cabinets, but also treating themselves to premium appliances and work surfaces.

Wood also argues that a backlog of kitchen work is building up, as consumers have been delaying work for ‘at least half a decade’.

He says Wickes’ customers will be able to afford projects because they are ‘slightly older and more affluent than the average’.

Deutsche Bank’s Benjamin Yokyong-Zoega approves of Wickes’ focus on value, believing that this should help it gobble up more business in a difficult market. Shares are down 14 per cent this year to 201p. 

At this level, analysts consider them a ‘buy’, with one setting a target price of 329p, which would be a tasty gain.