Always held in some regard and a Grade Two winner and Grade One placed over hurdles, the eight-year-old has taken nicely to fences with his only blemish in three starts being when he was pulled up at Wincanton having slipped on the first circuit.
His most recent start was a decisive success over Thyme Hill at Newbury.
"He won at Exeter first time nicely then won the Grade Two very well at Newbury the other day beating Thyme Hill. He jumped fantastically well and we always thought he would be a great chaser," said Nicholls.
"He loves Kempton and won the restaged EBF Final there and the Relkeel Hurdle there. A flat track, right-handed like this, is made for him. The Kauto Star will be a great race for him. He has taken to jumping fences well. He is an exciting horse to run at the meeting.
"He was going to go chasing last season but he had a setback. It was probably the best thing that ever happened to him even though he is eight going on nine.
"This time last season I wouldn't have been confident about him chasing, but those few extra runs over hurdles have done him the world of good. He looks really assured now. When Harry (Cobden) got off him the other day he said that was the best he has ever felt.
"He will be at the top level for two or three seasons and with a bit of luck he might be joining them in the King George next season. We've always thought he might be a King George horse one day and that is what the owners have always dreamed of."
Another Kauto Star option for the champion trainer is Gelino Bello, a Grade One-winning novice hurdler who is two from two over fences.
Nicholls said: "Gelino Bello will have an entry at the five-day stage as well. He is more likely to go to Warwick on January 14 for the Hampton Novices' Chase that Threeunderthrufive won (last year).
"He has jumped better than we thought and he has been very assured and clever."
Other contenders at the Ladbrokes Christmas Festival meeting for Nicholls include recent Listed scorer Miranda in the Long Walk Hurdle, which has been rerouted following the abandonment of Ascot on Saturday.
He added: "We will run Miranda in the Long Walk. She was going to go to the original race at Ascot on Saturday. She won at Kempton very well last time and the flat track there suits her well.
"Rubaud will go for the two-mile novices' hurdle. It will be a tasty race, but we need to find out where we are. He has won two from two and I'm sure Nicky (Henderson) will run a good one and there will be other good ones in it. He is a progressive nice horse and we like him.
"On the first day Ivaldi, and possibly Irish Hill, will run in the two-mile-five handicap hurdle.
"Monmiral will have an entry in the Wayward Lad, but would probably only run there if it is soft. He is more than likely to go for the Dipper over two and a half miles at Cheltenham on New Year's Day. I might stick Solo in that as well.
"There is a nice mares' handicap hurdle on the second day that Sabrina could run in. Danny Kirwan and Kapcorse could run in the good three-mile chase, while there is a two-mile handicap hurdle the second day that Kandoo Kid will run in."