Broker snap: Kingfisher figures surprise

2nd Jun 2009 13:14

The market has responded positively to first quarter figures from Kingfisher but broker Charles Stanley reckons the jury is still out on the prospects of the DIY retailer, despite upgrading its recommendation on the stock.'A further weather related seasonal bounce is unlikely in 2009 and management continues to plan for a particularly tough balance of the year in its major markets. Increased focus on gross margin, costs and cash generation, however, means it believes the group will be well placed when consumer demand improves,' Charles Stanley analyst Sam Hart said. 'We continue to have concerns about overcapacity in the UK DIY market and remain sceptical that B&Q will achieve its 7% EBIT margin target by 2011/12 (2008/9 3.0%). China also remains an issue, with a further £30-40m loss anticipated in 2009/10 and a return to profitability in 2010/11 cannot be guaranteed,' the broker said.Charles Stanley thinks the market will focus on the short and medium term on the improvement in trading and has thus upgraded the stock from 'reduce' to 'hold', reversing a downgrade announced on 12 May. Matthew McEachran at Singer Capital Markets is one analyst looking to upgrade his earnings forecasts after today's trading statement. 'The consensus forecast for B&Q earnings this year was £59m and appears to have material scope for upgrade today,' McEachran believes.McEachran reckons upgrades for Kingfisher as a whole will be of a magnitude close to £30m (8%), while Deutsche Bank's back of an envelope figure is for a 10% uplift to £370m in profit before tax.