Engineer GKN’s shares have undone most of what was an otherwise enticing 6-week 15% rebound, dashing any hopes of another 8% bullish flag rally to revisit 2017 highs of 380p. Its sharp declines of up to 10% this morning have put the shares firmly in the UK 100 dog house.

This comes after management was forced to bring forward a Q3 trading update to warn of two ‘commercially sensitive’ claims (est. £40m charge; ~7.0% of Bloomberg consensus for FY operating profits). This are likely to result in FY profits being only marginally higher than last year – an unwelcome profits warning. Add to this an admission of worrying margin compression in Q3, and continued operational challenges in US Aerospace, and the update makes for ugly reading.

Shares may be off their worst but they remain under significant pressure. The usual bargain hunting vultures, who tend to circle around double-digit sell-offs (especially when it’s a blue-chip) simply aren’t swooping in. This can be explained by the statement that these unexpected claims will “slow our steady growth in profits” and the CEO telling conference call participants that he’d “hope to see some progress in 2018 and further progress in 2019”.

Commercially sensitive means no details disclosable at present, and the risk of further bad news. 2018/19 is also beyond the retiring CEO’s time horizon. The combination is clearly too much for potential investors to stomach.

Mike van Dulken, Head of Research, 13 Oct 2017,