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Analysts at JP Morgan say DIY group has scope for share buybacks as cash builds up on balance sheet
Kingfisher, the owner of B&Q in the UK and Castorama in France, could afford to hand around £600m back to shareholders, according to analysts at JP Morgan Cazenove.
Ahead of a company trading update due at the end of the month, the bank issued an overweight recommendation and 361p price target. Analyst Gillian Hilditch said the recent weakness in the shares- and they are down another 3.4p to 281.7p in the current market rout – was due to worries about the effect of the poor weather in the UK and the eurozone’s economic woes. But it presented a buying opportunity, given the prospects for long term growth with a possible 15% annual rise in earnings despite the current uncertainties:
A likely weak first quarter in the UK has been well flagged. Our estimate is -8% like for like sales in B&Q driven by unseasonal weather and tough comparisons. This is likely to be largely offset by better margin and a stronger first quarter in France where DIY has surprised on the upside year to date. More importantly it is likely to reverse in the second quarter when the comparison is 700 basis points easier and Kingfisher is anniversarying the exit of Focus DIY.
There is also the prospect of a share buyback over the next few years. Hilditch said:
Kingfisher has generated £3bn of free cash flow over the last four years and despite an annual space programme of 4%-5% per annum, we expect to see a build up of cash on the balance sheet by 2015. We see scope therefore for a potential return of around £600m of additional cash to shareholders over a three year period (£200m per annum).