Cineworld, ASOS, Currys, BooHoo and Kingfisher are just a few of the notable names on a London-based list of most shorted equities.
Although some stocks in the City are most severely shorted and are at the bone of their backsides, analysts believe that for some, the risk is moving to the upside.
Everyone is left wondering if the stock market will fall further and if short sellers will buy back to close trades. Or, perhaps, a greater concern is whether anyone could be overextended or exposed if sentiments improve faster than they expect.
A short squeeze” is one of the few things that make the market and retail buyers more excited than anything else.
These trades are not for everyone and should be accompanied by a warning. The Oder, as a former stockbroker colleague used to say, “If you try to pick bottoms,” expect to get dirty hands.
We take a closer look at London’s most shorted, according to data curated GraniteShares. They can go as low as possible.
Royal Mail PLC (LSE: RMG) shares have fallen 48% from last year. The majority of the declines were in 2022, which was the most recent year.
Granite estimates that 4.9% of the stock is shorted, while five funds are shorting.
The consensus of City analysts is bullish with 11 brokers rating the broker as either a ‘buy’, or ‘outperform’ against four bearish calls.
Royal Mail’s mid-May results statement showed that Simon Thompson, chief executive officer (CEO) of the company, stressed the need for Royal Mail to continue its transformation. This was a strong signal from the Communication Workers Union (CWU).
The year ended with a rise in group revenue to £12.71bn, compared to £12.64bn last year.
Profit before taxes fell 8.8% to £662mln, from £726mln, and net debt increased to £985mln. The board recommended a final dividend at 13.3p. This would make the total-year payout 20p.
Cineworld Group PLC, LSE: CINE), also owns America’s second-largest cinema chain Regal Cinemas.
Regal’s US competitor AMC was for a long time one of the largest so-called “short squeeze” trades after the Reddit network retail traders drove the market through Covid lockdown.
AMC shareholders are increasingly forgetting about the YOLO heat, as the meme-stock has lost over 40% in the past year.
It is not surprising that Cineworld has been the focus of attention, before other company-specific issues.
Cineworld’s March 2021 results showed a gradual recovery in admissions and demand following the re-opening. However, takings in January/February were affected by COVID-19 as well as the absence of major movie films.
From US$852.3mln in the previous year, revenue rose 112% to US$1.8bn by 2021. This led to profitability and adjusted underlying earnings (EBITDA), positive at US$454.9mln. This compares to the loss of US$115.1mln last year. The group is appealing against an Ontario Superior Court ruling that it must pay C$1.23bn to Cineplex (TSX: CGX) damages for pulling out of an acquisition. It stated it doesn’t expect damages to be paid while the appeal is ongoing.
It’s a serious problem for the company, considering that ash and restricted money stood at US$354.3mln as of December 2021.
Cineworld stock has fallen 70% over the past 12 months and has lost closer to 91% from its peak of 301p back in 2017.
According to data curated by GraniteShares, it is the #1 most-shorted share in London.
Granite estimates that 8.2% of Cineworld stock has been ‘held short’. Five other notable funds also have the shares.
Analyst consensus ratings across the market see Cineworld as a “hold” with one buyer and one seller, and seven analysts teams holding the middle ground.
While it is not the only retailer on the list ASOS PLC (AIM: ASC ), the former darling of AIM sees its share prices nearly 70% lower than last year and has fallen 31% so far in 2022.
Granite claims that 7.2% of ASOS stock was ‘held short’. Eight funds are also on the short side.
However, City analysts tend to favour the buy-side with 12 of 27 analyst teams being bullish and 12 holdings ‘hold’ ratings. Three of these analysts have bearish calls.
Although the consensus balance was not perfect last week, Liberum reduced its targets and retained a hold recommendation. The accompanying note was not exactly sweet and light.
Liberum observed that the UK’s clothing retail market was more resilient than other online categories due to seasonal events, the return to work and the restarting of travel for vacations. The stockbroker stated that ASOS will struggle to meet its sales guidance of +10 to+15% over last years, particularly since it requires +16 to +26% growth in H1 to achieve the target range.
ASOS released April’s half-yearly results and stated that the full impact of the cost-of-living crisis has yet to be felt.
A statement stated that “We have entered the second half-year well-positioned” and that they believe their stock position with increased product availability, newness and better quality will be of great help.
In the six months ending February 28, 2008, the loss before tax was £15.8mln. This compares to a profit of £106.4mln prior to supply chain constraints, stock availability reductions and Coronavirus (COVID-19), restrictions. Revenues rose by 1% to more than £2bn. This was below the 15%-20% growth target set last year, and less than its long-term target of £7bn.
Liberum also saw its margin forecasts drop by 40 basis points during the cost-of-living crisis. This was due to ASOS’s need to use promotions to drive traffic to the site and increase volumes.
Granite claims that 6.4% of Currys PLC (LSE: CURY), is shorted, and six funds are said to be shorting this retail share.
The consensus of analysts is almost unanimously in favour of ‘hold’, though four out of nine analysts are bullish.
Barclays is currently on the fence regarding the rating, even though it recently downgraded its model.
Barclays cut its targets and forecasts last week because its analysts see continued headwinds for the electrical retailer.
“Even though Curry’s trades for relatively low multiples, its weak earnings momentum hinders us from being more optimistic,” Barclays analysts wrote in a note.
Curry had earlier this year in January downgraded its profit forecasts for the current fiscal year following a decline in revenue during the peak Christmas trading period. This was due to a disruption in supply chains and a decrease in demand.
According to the retailer, it expects adjusted pre-tax profits of £155mln in the year ending April. This is down from the £160mln forecasted when it released interim.
B&Q owner Kingfisher (PLC LSE: KGF) has lost 26% of its market value in the past 12 months. Most of this loss was made in 2022.
Granite claims that 6% of Kingfisher stock has been sold short. Six funds are also shorted.
Most city analysts are neutral, with consensus landing at ‘hold’. Six brokers rate the retailer as either wither buy’ or ‘outperform’. Four are bearish, while ten maintain a? hold” recommendation.
Royal Bank of Canada (TSX: RY) stated earlier in May that Kingfisher should be able to pay higher cash returns to shareholders. Given the low share price, it would make sense to increase returns.
The analyst at the bank said that it would be a sensible use of cash as shares of home-improvement companies were currently trading in London at 75% of their book value.
Last week’s results showed that B&Q parent-reported first-quarter sales “significantly ahead of” pre-pandemic levels. They also announced a £300mln share purchase back.
Chief executive Thierry Garnier stated that despite having very strong comparatives over the previous year, we have managed to keep a substantial portion of the increased sales during this pandemic.
Kingfisher reported “good momentum” into the second quarter, with like-for-like sales falling 2.5% in the week to 14 May 2022, but rising 21.8% relative to three years ago.
As ASOS, online fashion rival Boohoo Group PLC (AIM: BOO) is also on the most shortened’ list.
Boohoo shares lost over 70% in the past 12 months and are currently 27% lower than 2022.
Granite’s data shows that 6.2% of shares are held short by seven funds, with the stock being shorted by a total of 6.2%.
Stock market analysts believe BooHoo will rise even more than ASOS with a consensus set at ‘outperform’.
Eleven out of 14 analysts teams are bullish and rate the retailer as either an ‘outperformer’ or a ‘buy.
Liberum is one of few brokers that are still waiting to be rated with a “hold” rating. This is due to the fact that there will be inflated supply chain costs for the next 12 months and a crunch in consumer spending.
“BooHoo has limited pricing power in an inflationary environment, where its target customers are impacted by higher cost of living and increased competition from D2C players coming from China.” It stated that it is working to keep prices stable despite rising costs. This is in order to maintain its market leadership.
Boohoo informed investors in May that it expected “pandemic-related factors external factors” to continue throughout the year, but it did predict an improvement in conditions over the final six months.
According to the online fashion retailer, revenue growth is expected to be low-single digits for the year ending February 2023, while underlying profit margins (adjusted EBITDA), are expected to range from 4% to 7%.
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