Kingfisher cost plan approaches nervy half-way point

Increased investor wobbles as Kingfisher approaches the halfway point of its 2021 savings plan were always likely. Since May, the stock, long-becalmed by exposure to the UK and variable growth in key European regions, has made its way to slightly below the lower bound of an approximately three-year standard deviation range. That says longstanding unease about the plan is coming to a head.

The group aims to save £500m per annum from the target date, though there is an £800m cost. Visibility on risks to the group successfully meeting its endpoint remains low. A confluence of seasonal effects militated against getting more optimistic in the first half. They made Q2 last year tough to beat whilst persistent sales erosion in France looks more and more structural. Kingfisher's own horizon looks cautious up to the two-year stage. It remains "comfortable with Year 2 consensus underlying EPS expectations". That leaves ample room for full-year 2017 outcomes to marginally skirt already reduced expectations to the downside.

None of that precludes the group happening upon further initiatives like those that produced an unexpected £5m benefit from goods not for sale savings in H1, taking the total to £25m. GNFR releases of around £2m more over the year to 1H 2018 do not seem implausible.

Kingfisher is shaking out weak investor interest as it slowly fixes itself up, though the picture of its painful transition is pretty much complete.

  • We mentioned a standard deviation channel above. It is really another way of expressing a key technical characteristic of the stock: its range bound tendency over the last three years
  • The floor over that period remains around 283p, where KGF bounced in November 2014 and has really never relapsed since, despite a low volume post-Brexit vote spike down to 269p. In fact, absent that extreme, a higher support around 302p had worked quite well till it definitively broke in July
  • What we’re left with is a range yes, but one for which lower reference points are more difficult to fix than those on the upside: note the dual-shaded region of the chart below depicts standard deviations from centrality over a range 12th September 2014 to 17th August 2017. Price remains within 2 standard deviations from centrality on the top side of the automatically calculated range. But price would have repeatedly spilled beneath the bottom part of a symmetrical range because declines were 2.7 standard deviations beneath centrality
  • All told, whilst we can’t claim any purely mathematical basis, from a technical perspective, it appears the bottom half of the range is more vulnerable than the top
  • Immediate focus falls on the descending line from January 2015 which may provide support before 283p
  • A rapid increase in downside momentum would result if the latter gives way
  • Topside, the range would be re-established back above c. 302p


Source: Thomson Reuters and City Index

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