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Kingfisher Gains on Earnings Growth Goal, New Store Plans

March 24 (Bloomberg) -- Kingfisher Plc, Europe’s largest home-improvement retailer, rose the most in almost two years in London trading after setting an incentive target that requires earnings to increase more than 50 percent in three years.

The shares rose as much as 22.1 pence, or 9.1 percent, to 265.9 pence, the steepest advance since June 2, 2009. Kingfisher also reported full-year earnings that beat analysts’ estimates.

For senior managers to get the maximum award under a new incentive program, earnings per share must grow by an average of 15 percent in each of the three years through January 2014, London-based Kingfisher said today. Adjusted earnings per share in the final year of the plan would need to be 31.2 pence, compared with the 20.2 pence reported today for fiscal 2011.

“An encouraging earnings-per-share target implies that management believe they can generate consistent growth despite evident macroeconomic pressures,” said Caroline Gulliver, an analyst at Execution Noble with a “buy” rating on the stock.

Kingfisher traded 7.6 percent higher at 262.4 pence as of 12:48 p.m.

Kingfisher said today it plans to open more than 240 stores in the “long term” to increase the total to more than 1,100. Most of the openings will be in Poland and Turkey as well as Screwfix trade outlets in the U.K. this year. Capital expenditure will climb to as much as 450 million pounds ($727 million).

Brazil, India

The retailer also said it will consider new markets such as Brazil, India, Indonesia and eastern Europe, and will assess adding to new formats in China and Russia.

“We can see the potential in the market,” Chief Executive Officer Ian Cheshire said on a call with reporters. “We haven’t yet decided to commit to full expansion, if we felt we couldn’t make money then ultimately you would have to withdraw.” Cheshire said he sees scope for 125 stores in Poland, from 59 today, as well as opportunities in France and the U.K.

The owner of the B&Q chain in the U.K. and Castorama in France updated its strategy today to include a focus on making home-improvement easier. As much as 50 percent of products will be common across all stores, including lighting and garden furniture, compared with 5 percent now.

“The strategy is subtle, lacking big, easily modeled initiatives such as store growth or new markets, but is not necessarily the worse for that,” Simon Irwin, an analyst at Liberum Capital, said in an e-mail. He raised his recommendation on Kingfisher shares to “buy” from “hold.”

U.K. Budget

The retailer reported adjusted pretax profit of 670 million pounds for the fiscal year ended Jan. 29. That was ahead of the 667.9 million-pound average estimate of 22 analysts compiled by Bloomberg.

The move in yesterday’s U.K. budget to cut fuel prices will have a “big direct impact on customers” and the plan to help first-time buyers will help the retailer, Cheshire said.

The U.K. will still be a “bit tricky” in the first half and “slightly better” in the second half, Cheshire said. The executive said price inflation is about 1 percent to 2 percent.

To contact the reporter on this story: Sarah Shannon in London at sshannon4@bloomberg.net.

To contact the editor responsible for this story: Celeste Perri at cperri@bloomberg.net

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