Short Stories

Barclays: The Short Side

Barclays (BARC) today announced its long-expected cash call to raise £4.5bn and bring in new investors, say the FT. The move is designed to lift Barclays' core equity Tier One capital ratio from about 5%, one of the lowest among European banks, to 6.3%, well aboveits 5.25% target. As you can see from the attached chart, Barclays paid a big dividend in March this year hence the spike in the percentage of its Market Cap on Loan for dividend yield enhancement reasons. However, you will see that there has also been a general increase in short interest too. Since June 6th the %MCOL has risen from 6.1% to 7.2% today, juxtaposed with a fall in share price from 342p on June 17th to 308p today. There are 7.57 Days to Cover. Interestingly, Utilisation is very low at 15%, so it is still easy to borrow the stock.

Bravery pays off with Carphone Warehouse

No one could argue that courage and conviction have paid off when 'going short' in Carphone Warehouse. Take a look at this graph. You can see that there has been a significant amount of short interest in the retailer since December 2006, even though the share price has continued to shoot up and down. The percentage of the company's Market Cap on Loan (%MCOL) to short sellers has not gone below the 13% mark since then, presumably because investors were biding their time before the more recent tumble in price - from 370p in December 2007 to 237p today. Even when CPW's share price increased from 280p to 375p between April and September last year did short sellers cease to hold their short positions. So now, rewards will be reaped. Charles Dunstone told the FT today that after several years of sustained growth in the European handset market, “we estimate that over the last 12 months the market has been flat or marginally down year-on-year,” sending a cautious note on growth in mobile connections and broadband subscriptions in the face of the poor economic climate. This is one of Data Explorers' best-timed H1 shorts. To receive a copy, please email jessica.johnson@dataexplorers.com, or for more information, please call Jessica on + 44 (0) 207 392 4011.

Housebuilders

There has been a significant rise in the short interest of house builders in general, and most notably Bovis (BVS), whose Market Cap on Loan (%MCOL) has risen from 13% in December 2007, to 23% today. The company's share price has tumbled from 1,200p a year ago, to 400p today. For those investors who came to the trade at the correct time, a very profitable trade would have been made. There are 17 Days to Cover for those who anticipate the price will rebound. Despite the large amount of shares on loan, Utilisation is at 50%, which means there is still a fair amount left to borrow.

In the Personal and Household Good sector, Persimmon (PSN) is the second most borrowed stock after Bovis, with 19% MCOL, then Redrow (RDW) at 17%, then Barratt (BDEV) at 14%, then Taylor Wimpey (TW) at 11%, and Bellway at 10%. Barratt fell 17% today so it is surprising that the %MCOL in this stock is not higher, and it could be that this dramatic fall in share price was not assumed by investors.

Preceding these stocks is AGA (AGA) at 9% and Burberry (BRBY) at 7%, which goes to show that it is the housebuilding stocks who are the most shorted in their sector. In the Financial Services sector, Shaftesbury (SBRY) has 18% MCOL, Liberty (LII) 14%, and Grainger (GRI).

Topping the short interest charts

It is clear from this chart of Topps Tiles (TPT) that short investors have increased their positions significantly since January this year, when the percentage of the company's Market Cap on Loan (%MCOL) was 6%. It is now 13%, although short positions have been covered (it was 15% in mid-April).

Utilisation is at 37%, so there is plenty still left to borrow. There are 28.5 Days to Cover. The consumer feeling the pinch has led to dwindling share prices and short positions being increased substantially in the retail sector since the start of this year, as you can see from this graph below of its average Market Cap on Loan. However, like Topps Tiles as an individual stock, short positions have been covered since late last week.

Short sellers no longer hungry for food

As you can see from this graph, short investors have started to cover their short positions in Northern Foods (NFDS) since late March, further fueling the notion that food prices are on the up. 13.79% of NFDS' Market Cap is on Loan (%MCOL) to short investors, down from 17% in mid-March, which was a two-year high. Utilisation has decreased from 54% to 43% in the past week. Interestingly, there are 33 Days to Cover, a significant amount for people who want to take profits imminently. Despite this short covering NFDS is still the second most borrowed stock in the UK Food and Beverage sector, after Uniliver at 13.98%.

This short covering is also true of Premier Foods (PFD), which now has 8% of its Market Cap on Loan, down from a similar two-year high in mid-April of 11.5%. Utilisation is at 27%, and there are 13.21 Days to Cover. Associated British Foods (ABF) has also seen a good deal of short covering, with its %MCOL dropping from 5.8% to 4% in the last six weeks.   

Marks & Spencer

Despite the recent bounce in Marks & Spencer's (MKS) share price - from 350p in early May to 400p today, short sellers have continued to increase their positions in the retail giant, with around 8% of M&S' Market Cap out on Loan (%MCOL, pre dividend) to investors. Although M&S has reported a 4.3% rise in annual profits to £1bn, the %MCOL has increased 100% since January this year. This graph shows a recent spike in stock on loan; but this is down to dividend trading, where investors hold on to the stock for tax arbitrage reasons. The genuine short interest occurred just before this spike. Utilisation is at 27%, so there is still plenty left to borrow. There are 16 Days to Cover. The average Utilisation for the rest of the FTSE 100 is 8%, and for the rest of the EMEA Retailing it is 34%. Other stocks in this sector with a high %MCOL include Signet (SIG) at 20%, Carphone Warehouse (CPW) at 16%, Next (NXT) at 13% and Kingfisher (KGF) at 12%.

Barratt is not as bad as expected...

Barratt Developments (BDEV), the UK housebuilder, offered some much needed relief to the battered housebuilding sector today, as it reported reservations down by only one third since the start of the year and eschewed a widely rumoured rights issue to strengthen its balance sheet. Net private reservations for the year were down 33.6 per cent against 2007 (FT.com).

It is clear to see from this graph (please click to enlarge) that short sellers correctly predicted Barratt's results were not set to be as bad as the market may have initially estimated, with the percentage of the company's Market Cap out on Loan (%MCOL) to short investors, decreasing from 18.7% on April 7th to 12.57% today.

Alliance & Leicester

Alliance & Leicester (AL) today revealed a sharp fall in unsecured personal lending and a slowdown in its mortgage business in the first four months of the year, as the UK bank revealed the costs related to the credit market downturn soared. (FT.com)

It is clear to see from this chart the sharp rise in the percentage of AL's Market Cap that is out on loan to short investors, and moreover the dramatic increase around the time of the credit crunch late last summer. However it does look (please click to enlarge) as though investors came to the trade late because the share price really started to drop in September before short positions started to increase later on that month. Utilisation is at 64%, and has decreased from 73% in December. There are 19 Days to Cover. The average Utilisation for the rest of the FTSE 100 is 7.7%, and for the rest of the EMEA Banks it is 20.8%.

Carphone Warehouse

Carphone Warehouse (CPW) is making daily front page news, and here is the short side data: Currently 15.62% of CPW's shares are on loan, up from 14% in December and down from 16.25% in mid-March (please click to enlarge graph). Utilisation has decreased from 86% in mid-February to 74% today, as the share price rebounds from 230p in late April to 280p today. Interestingly, there are 32 Days to Cover for those investors who want to buy back shares and take profits. Carphone is no longer at the top of the retail short interest tree. HMV (HMV), Sainsbury (SBRY) and DSG (DSGI) all have between 36% and 25% of their Market Caps on Loan respectively. The average Utilisation for the rest of the EMEA Retailing sector is 29%. The only other stock that is in the top five most borrowed retail stocks in Europe is the German Small Cap stock Hawesko (HAW), who sell wines and champagnes. With 27% of their Market Cap out on Loan, perhaps the credit crunch is dissuading city folk away from luxurious drinking.

Best Buy (BBY), who are paying Charles Dunstone's company £1.1bn for a 50% stake in the European Consumer Electronics Venture, has also seen short interest decrease since March, when the %MCOL was 11%. It is now 8.5%, with Utilisation at 33%. The average Utilisation for the rest of the S&P500 is 7%, and for the rest of the North America Retailing Sector it is 23%.

ITV

Dawn Airey left her job at ITV (ITV) yesterday to return to Five as chairman and chief executive, says the FT. The Companies & Markets section of the paper says Airey's move could revive speculation that Five's owner, RTL (RTL), may be preparing a bid for ITV, or at least the 17.9% stake British Sky Broadcasting (BSY) Holds.

In short interest terms, the data shows that the percentage of ITV's Market Cap out on Loan to short sellers has risen from 4% in January to 7% today (the spike here is dividend trading which does not account for short interest). Utilisation is at 16%, so there is still plenty left to borrow and there are 15 Days to Cover. The average Utilisation for the rest of the EMEA Media Sector is 23%, and for the rest of the FTSE 100 it is 7%.  RTL, listed under BE Equity, has just 0.25% of its Market Cap out on Loan, even though it is 31% Utilised, meaning it is very difficult and expensive to borrow this stock.

BSkyB has 6.49% of its Market Cap out on Loan to short investors, with Utilisation at 24%. There are 21 Days to Cover. In the rest of the UK Media Sector, Trinity Mirror, Johnston Press and Yell Group are the most borrowed stocks.