eyeQ: is this FTSE 100 share’s rally overdone?
Experts at eyeQ have used AI and their own smart machine to analyse macro conditions and generate actionable trading signals. It examines an interest-rate sensitive retailer whose shares have rallied.
17th September 2024 11:44
by Huw Roberts from eyeQ
"Our signals are crafted through macro-valuation, trend analysis, and meticulous back-testing. This combination ensures a comprehensive evaluation of an asset's value, market conditions, and historical performance." eyeQ
- Discover: eyeQ analysis explained | eyeQ: our smart machine in action | Glossary
Kingfisher
Macro Relevance: 71%
Model Value: 296.51p
Fair Value Gap: +4.2% premium to model value
Data correct as at 17 September 2024. Please click glossary for explanation of terms. Long-term strategic model.
Shares in Kingfisher (LSE:KGF), who own B&Q and Screwfix, have risen around 7% this morning taking them to highs not seen in two and a half years.
The catalyst was the firm’s interim results, which came in OK, but with the market focusing instead on more positive forward guidance. You have to think yesterday’s upbeat Rightmove survey helped too – asking prices for UK properties surged in September, it reported, becoming the latest bit of evidence to suggest the housing market is enjoying the green shoots of recovery.
That’s backed up by the big-picture outlook too. eyeQ’s model value for Kingfisher is 296.51p. That’s within touching distance of the recent highs on our macro-based model: macro conditions peaked briefly early in August at 297.74p.
Our analysis shows how reliant the stock is on interest rates – lower real rates and lower volatility in bond markets have both been the key driver of this move up in eyeQ model value. Put another way, the Bank of England rate cut, which facilitates lower mortgage rates, are helping Kingfisher sales and hence the share price.
For all you sceptics who still think this stuff is irrelevant, note macro moves DIY activity!
The only bad news in all this is that the market has moved ahead of fundamentals somewhat. Today’s rally takes Kingfisher 4.2% rich to macro conditions. That’s a very modest Fair Value Gap on our metrics, so this is nowhere near a bearish signal. It’s just that, ideally, we’d see a pullback to give optimists still better entry levels.
Source: eyeQ. Past performance is not a guide to future performance.
Useful terminology:
Model value
Where our smart machine calculates that any stock market index, single stock or exchange-traded fund (ETF) should be priced (the fair value) given the overall macroeconomic environment.
Model (macro) relevance
How confident we are in the model value. The higher the number the better! Above 65% means the macro environment is critical, so any valuation signals carry strong weight. Below 65%, we deem that something other than macro is driving the price.
Fair Value Gap (FVG)
The difference between our model value (fair value) and where the price currently is. A positive Fair Value Gap means the security is above the model value, which we refer to as “rich”. A negative FVG means that it's cheap. The bigger the FVG, the bigger the dislocation and therefore a better entry level for trades.
Long Term model
This model looks at share prices over the last 12 months, captures the company’s relationship with growth, inflation, currency shifts, central bank policy etc and calculates our key results - model value, model relevance, Fair Value Gap.
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