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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

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eyeQ stock market rally

"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

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.

eyeQ Kingfisher chart

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.

These third-party research articles are provided by eyeQ (Quant Insight). interactive investor does not make any representation as to the completeness, accuracy or timeliness of the information provided, nor do we accept any liability for any losses, costs, liabilities or expenses that may arise directly or indirectly from your use of, or reliance on, the information (except where we have acted negligently, fraudulently or in wilful default in relation to the production or distribution of the information).

The value of your investments may go down as well as up. You may not get back all the money that you invest.

Equity research is provided for information purposes only. Neither eyeQ (Quant Insight) nor interactive investor have considered your personal circumstances, and the information provided should not be considered a personal recommendation. If you are in any doubt as to the action you should take, please consult an authorised financial adviser. 

Disclosure

We use a combination of fundamental and technical analysis in forming our view as to the valuation and prospects of an investment. Where relevant we have set out those particular matters we think are important in the above article, but further detail can be found here.

Please note that our article on this investment should not be considered to be a regular publication.

Details of all recommendations issued by ii during the previous 12-month period can be found here.

ii adheres to a strict code of conduct.  Contributors may hold shares or have other interests in companies included in these portfolios, which could create a conflict of interests. Contributors intending to write about any financial instruments in which they have an interest are required to disclose such interest to ii and in the article itself. ii will at all times consider whether such interest impairs the objectivity of the recommendation.

In addition, individuals involved in the production of investment articles are subject to a personal account dealing restriction, which prevents them from placing a transaction in the specified instrument(s) for a period before and for five working days after such publication. This is to avoid personal interests conflicting with the interests of the recipients of those investment articles.

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    The Big PictureUK sharesETFs

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