Broker tips: Kingfisher, Dairy Crest, Enterprise Inns

18th Sep 2009 12:52

The cost environment for 2010 for DIY retailer Kingfisher looks relatively benign, according to broker Nomura Securities, and this should support earnings. The broker reckons increased visibility in respect of Kingfisher’s Polish and Chinese activities indicates ‘the group may be on track for further earnings growth.’ Back in the UK, B&Q is expected to continue to take market share. With the group throwing off cash Nomura reckons Kingfisher even has scope to increase the full year dividend. The broker has upped its fiscal 09/10 estimates, and now expects full-year profit before tax of £496m and earnings per share of 14.6p, but notes bonus payments may limit further upgrades in the short term. Nomura remains neutral on the stock and the sector but has increased its target price for Kingfisher to 220p.Broker KBC Peel Hunt has upped its target price for Dairy Crest after one of its analysts paid a visit to the butter cheese and milk supplier’s cheese packing facility in Nuneaton. Impressive as the highly mechanised facility was, KBC analyst Charles Hall was more impressed with the company’s plans to reverse the long-term decline in the door step business with its delivery service. ‘The number of online customers has risen sharply to 100,000 from 80,000 a month ago and 50,000 in February. The company has now rolled out the service from 30 trial depots to 127 and will shortly start marketing the service aggressively,’ Hall said. Hall notes that the average spend has risen by 36% and milk sales are slightly higher, so there is hope for the British institution of the milkman yet. Hall reckons that doorstep deliveries could turn into a growth area for the company rather than a cumbersome legacy. KBC has maintained its ‘hold’ recommendation for Dairy Crest but upped its target price to 360p from 300p. Rumours of a rights issue at Enterprise Inns refuse to go away, with Seymour Pierce the latest to suggest the cash strapped pubs group will have to bite the bullet and issue shares for cash.The broker thinks a rights issue would be a good thing, however, at least in the long term.‘The Enterprise balance sheet remains stretched. Most significantly the £1bn senior debt facility, up for renewal in May 2011, creates a doubt,’ believes investment analyst Hugh-Guy Lorriman.The broker believes the company’s chances of survival are better now that it has sold 277 pubs for a gross consideration of £84m, and has raised its target price to 100p from 65p, though it retains its ‘sell’ recommendation.