B&Q store closures possible, but Credit Suisse sees upside at Kingfisher

3rd Mar 2015 10:47

A potential restructuring of B&Q's property could "surprise on the upside" for owner Kingfisher, according to Credit Suisse which lifted its target price for the DIY group from 360p to 400p.Ahead of Kingfisher's annual results on 31 March, the bank said the major news will be on what new chief executive Véronique Laury will say about the restructuring of B&Q's property portfolio.B&Q's leases will start to run out over the next five years, e-commerce will extend catchment areas, occupancy costs will decline while B&Q's bargaining power should improve, Credit Suisse said.A possible restructuring could include 30 store closures over the next five years; this will give up 5.4% of sales but margins will improve and cash profit should increase 42%, the bank estimated.Credit Suisse said it sees "potential for B&Q's execution to surprise on the upside as the new team deliver on the plan, and Homebase continues with its painful restructuring".As for the stock's valuation - trading on 16 times 12-month forward earnings - it "doesn't look that demanding relative to its history or versus the UK market"."The shares and the retail sector look a little overbought [...] but still offer an 11% return to our new [...] target price of 400p (vs 360p)."The bank maintained an 'outperform' recommendation for the stock, which was trading 0.7% lower at 367.1p by 11:14.