Kingfisher rallies as BofA ML highlights reasons to be cheerful

B&Q owner Kingfisher got a boost on Thursday as Bank of America Merrill Lynch upgraded the stock to ‘buy’ from ‘neutral’, with an unchanged 380p price target as it pointed to recent share price weakness.

The bank also said the capital markets day on 25 January could be a positive catalyst shares, adding that it sees around 20% upside.

Merrill expects Kingfisher to update the market on the potential for cost savings from its programme to unify ‘goods not for resale’.

It also reckons the company will update the market on returns of further cash to shareholders and the recovery prospects in France.

It said the balance sheet was strong, with further share buybacks likely.

"We see 19% earnings upside from potential cost/sourcing benefits and share buybacks but this is not in our forecasts at present,” said BofA.

It pointed out that macroeconomic indicators in France – where Kingfisher owns the Castorama and Brico Dépôt chains – such as consumer confidence, disposable income growth and construction related are improving off a low base.

In addition, the bank upped its earnings per share estimates for 2016-2018 thanks to the recent strengthening of the euro and the Polish Zloty, which boosts its revenue and earnings forecasts.

“Kingfisher should benefit from improved housing and real wage trends in the UK, and the closure of excess B&Q space should help improve sales densities and returns, albeit from a low base,” Merrill said.

At 1050 GMT, Kingfisher shares were up 2.6% to 334.20p.