Broker snap: Credit Suisse expects a firmer Q4 from Kingfisher after Q3 miss

Credit Suisse has maintained its 'outperform' rating and 440p target price for Kingfisher despite the DIY retailer's third-quarter results coming in well below forecasts on Thursday.The B&Q and Screwfix owner said that group sales in the 13 weeks ended November 2nd were up 8% at £2,921m, with like-for-like (LFL) sales up 1.4%. Meanwhile, retail profit rose 5.8% to £271m. "Although 3Q results were £12m below our forecasts, we felt that the overall tone of the conference call was slightly more upbeat than we might have expected, and that the main reasons for the miss would not necessarily recur in 4Q or beyond," Credit Suisse said.With comparatives looking softer in the fourth quarter - albeit a "volatile quarter" - the bank expects Kingfisher to deliver a small pick-up in LFL growth to 1.9% and a bigger acceleration in earnings before interest and tax (EBIT) growth to 14%."1Q comps are then extremely soft across the business, providing the weather normalises. So, all things being equal, KGF should get to FY results on March 25th on the back of four quarters of positive LFL and EBIT growth. Unless the macro has deteriorated meaningfully, that should be sufficient to justify the £300m capital return that we forecast for 2014/15."Trading at 14.8 times forward earnings with a 6% free cash-flow yield, "the shares are not expensive relative to UK retail or International peers, given the prospects of several years of low/mid teen earnings per share growth", the bank said.As for concerns about the impact of changes to the Bank of England's Funding for Lending Scheme - now being focused on lending to small business rather than mortgages - Credit Suisse said that it is "unlikely to lead to significant higher mortgage costs or a reduction in housing transactions"."Consequently we are still confident that we are on track to see a recovery in UK DIY demand, after a nine-year downturn."BC