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Credit Suisse maintains 'outperform' forecast for Kingfisher

Results from Kingfisher may have come in well below estimates for the first quarter as the gloomy cold weather kept customers away, but Credit Suisse said it remains upbeat about the business, keeping an ‘outperform’ rating for the stock.

The stock was among the best performers on the FTSE 100 on Thursday, trading 5.86% higher at 347p before the close.

Credit Suisse admitted that the first-quarter figures were “quite disappointing” with a 28% fall in earnings before interest and tax to £114m coming in well below its forecast for £144m.

The broker said that the bulk of this miss was due to a 5.6% like-for-like (LFL) sales decline at B&Q, compared with the 2.0% estimated decrease, due to a bigger-than-expected adverse impact from the weather on seasonal and building materials, while the showroom performance was mixed.

Trading in France, although weak, was in line with forecasts with the Castorama and Brico Depot chains seeing LFL sales fall by 4.1% and 7.3%, respectively.

Nevertheless, Credit Suisse analyst Simon Irwin highlighted that first-quarter trading is relatively “small” in comparison with other periods, representing just 15% of the full-year total.

“Given the high operational leverage on uncertain macro/weather inputs, the full-year (FY) outcome remains uncertain. We do not see material risk to FY [profit] forecasts […] although as with all of our other retail forecasts this does rely on an improving macro and some normal weather against some soft comps,” Irwin said.

“Macro datapoints are turning in UK and France and we still believe that 1Q represents the start of a cyclical recovery. As this becomes clear we expect Kingfisher to return to a premium rating and we reiterate our 410p 12-month target price.”

Source : Benjamin Chiou - ShareCast

31 May 2013
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