Kingfisher climbs on Chinese sale rumours

Kingfisher shares have been rising on a Merrill Lynch report suggesting it will sell its loss-making Chinese stores and return cash to shareholders, on read-across from Home Retail Group, which announced improved results on Thursday pushing it to lead the FTSE 100 gainers today, and a report by Morningstar saying the company's DIY stores have an inherent competitive advantage.

An early patch of sunshine at the weekend also drove customers to DIY stores and garden centres.

Kingfisher owns B&Q in China and also five other major DIY chains operating across Europe. According to a report in the Financial Times, China accounts for about a tenth of the firm's freehold property portfolio but contributes just 4% of group revenue as there is scarcely any DIY culture in the People's Republic.

Having expanded into China in 1999, the retailer has been stymied by government moves to curb property speculation and sales have disappointed since 2008. According to an analysis by Merrill Lynch, Kingfisher's 39 Chinese stores could be worth about £400 million, but the operation is structured as a local joint venture so an exit would be complicated and lengthy.

Merrill also calculated that improved trading in the UK and Poland would give Kingfisher enough stability to return between £200 and £250 million to investors this year.

Meanwhile, research by Morningstar Select suggests that large format DIY retailers have some inherent competitive advantages that should protect them from online rivals such as Amazon. When equity analyst Philip Gorman compared prices of 1,200 products on B&Q's website DIY.com with Amazon, he discovered that B&Q is competitive on price in categories where it offers no advantage but in more specialised areas such as flooring, kitchens, and heating - large items customers want to see in the flesh - B&Q can command higher prices.

Gormon concluded that Kingfisher's specialist nature, and government commitment to supporting the housing market, suggests further upside in the stock.

The third part of this small perfect storm is the British gardening season has started early, which will also be a boost to garden centres, pub companies, certain food manufacturers and outdoor activity centres such as those run by Tui Travel.

Kingfisher shares have risen 1.8% today to 410.30p, and the results will be announced in two weeks.