Good Evening,
A long day, and limited time for any thoughts tomorrow as its Cheltenham Gold Cup and tardiness is not allowed. We have Indiana (Ian) heading back to honour us with his company for the weekend +2 days, as he never replies to text at least he can read here that Hippo's sweetie is stuck the vent of his car.
Some thoughts on the train home, with Kingfisher’s (KGF) preliminary results due on the 31st
of this month, with Homebase's performance not instilling much in the way of
confidence for KGF.
France, as a country, has struggled to achieve anywhere near
the 2% EuroZone target and is now in deflation. The outlook for retail
including DIY and building projects isn't positive as a result of the
deflationary pressures.
Psychologically, we as the consumers (surprisingly the same in France) delay purchases (especially significant purchases) for longer when in a
deflationary environment, in the hope goods or services will become
cheaper. Last November, Kingfisher's French Castorama and Brico Dépôt sales
declined adding to an overall 11.8% fall in profits to £225m. The cause
was clearly weak consumer confidence in France (and Europe) and
adverse currency moves, which have continued through to January 2015.
More recently, France had a 0.4% decline in annualised
prices in January (released March 2015). This previously occurred after the
financial crisis in 2009/2010 where the French economy slipped into deflation
(notably margin pressure from consumers), so the read across for the economy
does not bode well in the short-term.
Kingfisher's bottom line will be under-pressure not only by
the currency strength of the pound (in reporting terms) but France's weakness
in addition to the retail outlook in Germany, Poland, Portugal, Romania and
Russia (Ruble watch out) along with their margins. Fools bet against buybacks
of considerable size, however Kingfisher are likely to cap their price in the
coming weeks. Save for some short-term momentum in the SP by the closing of the B&Q China deal for £140M.
The market should rightly be cautious about KGF performance, excluding
the UK & Ireland revenue being marginally better (circa 2%). Kingfisher
is logically up on the share buyback and special dividend. One will be very
surprised if anything within KGF operations has been outstanding above and
beyond the known. Screwfix will most likely be the shining star and still cannibalising the margins over at B&Q.
With the buyback continuing for some time and being in the
market for circa 5-8% of the stock most days, its not rocket science to
know which way the stock was going. The news on the 31st March
should change sentiment, save for speculation of the PE boys liking KGF
cashflow and business model its hard to justify a target price of 270 excluding
B&Q China special dividend of 6 pence. One wouldn't rule out The Home Depot lining up Kingfisher, but speculation is short lived in the absence of news.
Whilst reviewing KGF, there was a fatal flaw in KGF
operations, that not only did the man from Halfords (Matt Davies) identify in
his strategy at Halfords, but changed the entire direction of the company. Having mused
the possibilities of KGF, it was wise to close the last of the KGF longs today.
(The prize for identifying the flaw is a pair of socks).
Atb Fraser
Dairy date of interest: PLUS500 (PLUS) Ex-dividend and special dividend date.
Fraser- Assuming the socks are washed (and ironed?) I would go for 1. Russia and 2. FX as the two KGF worries, that and the Screwfix induced margin squeeze. This will leave SockIPO with no assets, so similar to many AIM rivals and it looks like it could be too late to buy a % of the Horse Hill clans digs too. Still some brokers will rate Sock on the basis of 2022 earnings so who cares what it has on IPO day??
ReplyDeleteRe AFR- deal today looks v favourable to the bondholders, with no haircut there, some higher rates and 89% of the shares in the new structure too. Well done to all bondholders, shareholders confused and some still ordering superyachts with their buy orders today... when will they learn. No positions for me in AFR.
Cheers. The Leggie
Hi Fraser - have you seen any good analysis of Plus500 (other than Alphaville) ? Is it worth a short up here?
ReplyDeletehi fraser. just wondering, have you seen any good analysis of Plus500 (other than your own and Alphaville). Looks and smells like a ponzi scheme, just trying to figure out how / when it will come undone...
ReplyDeleteMorning Nichoman, there's some very good analysis on PLUS, you'll notice the shorts are increasing/ Not the only indicator one should rely on to assess a trade but giving some credibility to your statement.
ReplyDeleteThere's some risks associated with longing and shorting PLUS. I tend to avoid commentating on active trades not for fear of being wrong, that's guaranteed, more so EMC is not a tipping service. If people want a tipping service there’s plenty out there.
You'll note it wasn't too hard to work out the oil storage capacity in China and internationally has hit near its capabilities, the trade was short Oil. Li and myself put in considerable work running through the storage numbers over a week ago, the market yet again didn’t notice the obvious. The market appeared to forget if China is rammed to the rafters, plus all other international storage locations peaking, the market has to acknowledge the doom and gloom.
The same for PLUS in terms of offerings, their losses or lack of on the CHF caused a revisit to the research on the company / the stock. Was it healthy risk management or an indication of the poor offering and limited future potential? Perhaps they’ve got it right? I do not think so…
There are no technical support levels to play off for oil (like PLUS) at the moment, there's simply too much oil out there and not enough storage (and demand).
What are your views save for the Ponzi element of PLUS? One can't help but wonder if PLUS500 adverts in most financial locations show of things to come. Betting against the market isn't wise without conviction, although when correct there are good profits. Perhaps a quick email to Valiant Capital might assist you if they’re being kind and answer! Haha.
The stock has risen near seven-fold since IPO...
Cheers Fraser