Shareholders in Kingfisher, who are sitting on a 46 per cent loss year-on-year, may have long suspected that the DIY retailer was better-suited to private ownership. On the evidence of yesterday’s turnaround plans, its new chief executive seems to agree.

The detail that Ian Cheshire added to the company’s recovery strategy yesterday comes straight out of the private equity handbook. Capital expenditure is being cut by 20 per cent, buying is being tightened and working capital cost savings of £100 million are being sought. At B&Q, Mr Cheshire wants to more than double operating margins from 3.3 per cent last year to 7 per cent by 2012. In keeping with such tactics, Kingfisher’s top team stands to pocket private equity-style returns if the turnaround succeeds – roughly £16 million over four years in Mr Cheshire’s case.

None of this is especially new, particularly in retail. Kate Swann took much the same line, to great effect, at WH Smith and, on a smaller scale, Neil Gillis is doing something similar at Blacks Leisure. So, with such schemes having often proved the elusive “inflection point” elsewhere, is now the time to buy back in? The other part of yesterday’s stock exchange announcement – that which covered first-quarter trading – suggests not. Retail profits may have been better than expected, thanks to three percentage points of gross margin gains at B&Q UK, but the wider trajectory remains downwards and Mr Cheshire has become even more cautious in recent months.

Neither do profit forecasts tell the whole tale. Consensus estimates suggest that Kingfisher will make £370 million this year, a modest decline against £386 million last, but that masks the extent to which the bottom line should be boosted by currency movements – to the tune of £50 million from the depreciation of sterling against the euro, in which Castorama and Brico Depot report.

More important, Kingfisher remains highly operationally geared: with operating margins this year heading for 2 per cent, declining sales have a disproportionate effect on earnings. For the incentive scheme to pay out, the company needs to make up to £700 million of pretax profits, which seems a stretch given that B&Q UK should contribute only £75 million this year.

At 135.9p, or 13 times current-year earnings, Kingfisher’s recovery has already been priced in. That seems far too forceful, given the damage that could yet be done by consumer indebtedness. Keep away.

Northumbrian

Northumbrian Water may have secured the goodwill of its customers – it has pledged to raise bills by less than its regulatory allowance – but investors may feel more ambivalent.

Over the past three months its shares have lagged behind Britain’s big four quoted water utilities – despite a 7 per cent gain on the week. After yesterday’s full-year results, that treatment appears harsh. Pretax profits were up an above-forecast 15 per cent, the dividend was raised 7 per cent and the company confirmed that it had secured funding for its capital expenditure programme to 2011. It has also met its leakage targets and its pension fund surplus has more than doubled on the year.

Yet investment is about relative returns and Northumbrian can suffer by comparison with its peers. Its prospective dividend yield, the attraction of regulated utilities, is a none-too-compelling 3.6 per cent. A £2.2 billion debt burden means that unlike United Utilities and, it is forecast, Severn Trent and Pennon, Northumbrian is unlikely to return capital to shareholders before 2010, when the next five-year regulatory period begins.

The other consideration is that, alongside Pennon, Northumbrian has been seen as a takeover candidate. Tight credit markets have taken that prop away for now and the Ontario Teachers Pension Plan, which owns 26 per cent, appears to be in no hurry to sell: it has a mature pension scheme whose demands Northumbrian fits. For a well-run, pure-play water company, 335¾p, or 13 times current-year earnings, is no more than fair value. Hold.

Sportingbet

Yesterday’s third-quarter numbers provide an excellent picture of just how far Sportingbet has come since the American internet gambling ban robbed it of two thirds of its business. In the three months to the end of April, it made almost as much profit as it did in the whole of last year.

Sports betting, which accounts for 63 per cent of profits, was the strongest performer, with volumes in Europe and Australia both up by more than a quarter. Its online casino unit also grew strongly, but poker was down quite sharply as the loss of the biggest poker market in the world continued to have an impact. It seems clear that, unless the US ban is reversed, poker will continue to mark time – although as it accounts for only about 14 per cent of its business, the downside should be subdued.

The main attraction of today’s Sportingbet is that it has learnt the lesson of the US ban and has created a more broadly based business geographically. It aims to have no single country generating more than 20 per cent of net gaming revenues. The arrest of two Turkish employees last week shows the benefits of such a policy. Although the company insists that it will not withdraw from Turkey, it clearly cannot place too much reliance on a country where internet gambling remains a grey area in legal terms.

Financially, Sportingbet, which at 37¼p trades at an enticing seven times next year’s earnings, is doing all the right things, but with so many jurisdictions retaining, at best, an equivocal attitude to internet gambling and with the poker boom having lost its fizz, this stock is only for the brave.

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