Britain’s ten most-hated shares – w/e 20 May
Rupert Hargreaves looks at Britain's ten-most hated shares, and what short-sellers are looking right now.
These are the UK’s ten most unpopular firms, based on the percentage of the company’s stock being shorted (also known as “short interest”).
What is short selling?
Short-sellers target struggling companies and sell their stocks short with the aim of profiting from falling prices. Short sellers borrow the shares, sell them, then hope to buy them at a lower price in the future and pocket the profit. But whether a profit is made or not, the short seller is still obliged to return the borrowed shares to the broker at some point in the future.
As a result, short selling is far riskier than “going long”, as it relies on successfully timing the market, and also carries the theoretical risk of unlimited losses (a share price can’t fall below zero, but there is no ceiling on how high it can rise).
The list is worth paying attention to as it highlights which company share prices are expected to fall (which can be a red flag for potential “long” investors), and which may rise on unexpected positive news due to short-sellers being forced out of their positions in what’s known as a “short squeeze”.
The top ten shorted stocks on the London Stock Exchange
Number of funds short
Position last week 13/05
% short last week 13/05
Source: FCA's daily short positions report (Data as of 20 May 2022)
The top ten holdings are based on data sourced from the Financial Conduct Authority’s daily short positions report as of 20 May.
Cineworld (LSE: CINE) remains the most-shorted share on the London market with short interest standing at 8.2%. The company has over £3.9bn in debt, (excluding leases) eclipsing its £419m market capitalization. With interest costs totalling £713m a year, the group may struggle to keep its head above water with interest rates on the up.
The next three most-shorted names are all former pandemic winners. Asos (LSE: ASC), Boohoo (LSE: BOO) and Currys (LSE: CURY) all benefited from a shift in consumer behaviour during the coronavirus pandemic, but as spending patterns have reverted back to historical trends, sales growth has slowed and profits have started to slide. The latest short position data suggests traders believe this trend will continue.
This is a recurring theme throughout the list. AO World (LSE: AO), Naked Wines (LSE: WINE) and Royal Mail (LSE: RMG) all recorded windfall profits during the pandemic and have warned that growth may slow this year. Royal Mail is particularly exposed to both this theme and inflationary pressures such as wage growth. With its large, unionised workforce, the company’s options are limited.
As a shopping centre landlord, Hammerson (LSE: HMSO) should benefit as consumers return to brick-and-mortar retail. However, the group is highly leveraged, suggesting higher interest rates could become a thorn in its side.
At the same time the business needs to find money to invest in its retail outlets to bring them up-to-date. Having flirted with bankruptcy once already in the past two years, investors appear to be betting that the corporation is facing an increasingly bleak outlook.
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