Broker snap: Margin trends encouraging at Kingfisher

17th Sep 2010 09:46

While the market gave an enthusiastic reception to Thursday's update from Kingfisher, Nomura Securities suggests the DIY retailer's recovery story is only halfway through, and we don't know the ending yet."The UK and France were in line with consensus expectations, but highlighted ongoing progress on in-store standards, sourcing initiatives and cost control. Management was quick to highlight that the current three-year plan is only half way through, despite high market expectations of delivery ... but what's next?" asks Nomura analyst Christopher Walker.In an attempt to answer his own question Walker suggests "Opportunities in France (through the Brico Depot expansion), further trade initiatives in the UK and further expansion in Poland, combined with options for growth in Spain and China among others, are likely to be the focus. A strong balance sheet and cash generation may help to facilitate these growth initiatives beyond the current January 2012 plan."After the better than expected interim figures Nomura has edged up its full year forecasts by around 2%, due largely to a lower full year interest charge. It is now forecasting profit before tax for the current financial year of £653m.The stock trades at a small premium to the sector, the broker notes. It is maintaining its neutral rating and 300p price target but sees "increasing evidence of continued gross margin improvement through sourcing initiatives."