The Covid-19 pandemic saw a temporary ceasefire from activist investors as they stepped back and allowed businesses to adjust to the acute turmoil. But now that the dust has somewhat settled, activists are once again setting their sights on companies they believe are undervalued or mismanaged – two qualities that have been underscored by this crisis.
As the vultures prepare to take flight, Darren Novak, head of activist defence at UBS says: “many public companies have seen their pre-crisis valuation issues exacerbated and may see activist investors seize an opportunity to launch campaigns as we head into the second half of this year.” Some executives could find themselves never returning to the office for reasons other than lockdown restrictions.
The UK is the main activist stomping ground in Europe, and it would appear that the post-‘Corona crunch’ offensive has already begun. This week, London-based Gatemore Capital snapped up a 3 per cent stake in former retail darling Superdry (SDRY), betting that it can help return the shares to vogue. That follows Europe’s biggest activist investor, Cevian Capital, initiating its advance on Pearson (PSON) back in June – the Swedish investor has since upped its stake in the academic publisher to 7 per cent.
A dire 2019 saw Pearson’s shares lose more than a third of their value and investors have become all too accustomed to its profit warnings in recent years. Having been slow to adapt to the changing learning environment, the group is now trying to turn the page and transform itself into a more streamlined, digitally focused business. Presiding over the downward spiral has been chief executive John Fallon who announced in December that he would be retiring this year. Cevian believes his successor will be key to unlocking Pearson’s “full potential” and has expressed its preference for an external candidate to restore credibility. Despite Cevian’s involvement, Pearson still has its doubters, and you can see in the ideas farm below that it is one of the UK’s most shorted stocks.
Look a little higher up on that short interest list and you’ll find Royal Mail (RMG), who itself has attracted the attention of Czech billionaire Daniel Křetínský. As we note in our sell tip this week, his investment vehicle Vesa Equity has been increasing its holding since mid-March and is now the postal operator’s second largest shareholder. But unlike Cevian’s more transparent motives, it is unclear how Mr Křetínský intends to proceed – he is known as the ‘Czech Sphinx’ for being famously unreadable.
Whereas Royal Mail looks to be more of a value trap, we make the case in the tips section that housebuilder Redrow (RDW) could potentially be undervalued. There is an aura of uncertainty around the housing market right now, although property portal Rightmove (RMV) says it has seen a “mini price boom” since activity resumed in May, with buyer inquiries up 75 per cent versus a year earlier.
That pent-up demand contrasts the fortunes of chemicals specialist Elementis (ELM). Amid lower sales of its cosmetic products during lockdown and exposure to more the cyclical automotive and oil and gas industries, investors might consider making an exit. Meanwhile, for those of a tech persuasion, Sage’s (SGE) push into cloud-based products and a software-as-a-service model is worth a look. While fund manager Nick Train’s long-term backing of Pearson remains questionable, the LF Lindsell Train UK Equity Fund (GB00B18B9X76) does include Sage as a top 10 holding.
| Shorts | |||
| Company | Short interest | No of shorters | 1-week change in short interest |
| Hammerson | 13.10% | 9 | 0.50% |
| Royal Mail | 9.50% | 8 | 0.00% |
| Metro Bank | 9.50% | 4 | 0.00% |
| Premier Oil | 8.70% | 3 | 0.00% |
| Tullow Oil | 8.20% | 6 | 0.10% |
| Cineworld | 7.50% | 8 | 0.00% |
| Pearson | 6.50% | 6 | 0.10% |
| Pets At Home Group | 5.50% | 3 | -0.20% |
| Domino’s Pizza Group | 5.50% | 7 | -0.40% |
| Petrofac | 5.40% | 5 | 0.10% |
| GW Pharmaceuticals | 5.20% | 4 | 0.00% |
| Petropavlovsk | 5.20% | 1 | 0.00% |
| Babcock Intl | 4.90% | 3 | 0.30% |
| Future | 4.90% | 3 | 0.10% |
| Blue Prism | 4.80% | 5 | 0.10% |
| Croda International | 4.60% | 5 | -0.10% |
| Sainsbury (J) | 4.50% | 3 | 0.80% |
| Weir Group | 4.10% | 5 | 0.00% |
| Vodafone | 4.00% | 4 | 0.10% |
| Wm Morrison Supermarkets | 4.00% | 3 | 0.30% |
| Ascential | 3.90% | 5 | -0.10% |
| Smith (David S) | 3.90% | 5 | -0.60% |
| TUIAg | 3.90% | 4 | -0.10% |
| Capita | 3.70% | 5 | 0.10% |
| Wood Group (John) | 3.70% | 6 | -0.20% |
| Dignity | 3.70% | 3 | -0.40% |
| Micro Focus International | 3.50% | 3 | 1.10% |
| Keywords Studios | 3.50% | 4 | 0.00% |
| AG Barr | 3.40% | 3 | -0.30% |
| Marks & Spencer | 3.20% | 2 | 0.00% |
| Primary Health Properties | 3.10% | 4 | -0.10% |
| Ultra Electronics Hldgs | 3.00% | 1 | 0.00% |
| Restaurant Group | 3.00% | 3 | 0.10% |
| Victrex | 2.90% | 3 | 0.20% |
| Daily Mail & General Trust | 2.80% | 3 | -0.20% |
| Ashmore Group | 2.80% | 3 | 0.50% |
| Valaris | 2.80% | 1 | 0.00% |
| Hargreaves Lansdown | 2.70% | 4 | 0.10% |
| Intercontinental Hotels Group | 2.70% | 2 | 0.10% |
| Hiscox | 2.60% | 2 | New |
| Auto Trader | 2.60% | 4 | -0.50% |
| AA | 2.50% | 2 | 0.00% |
| Signature Aviation | 2.50% | 4 | 0.00% |
| British Land Co | 2.40% | 3 | 0.00% |
| Source: FCA | |||
| 1-month EPS upgrades (top 25) | ||||
| Wednesday, 22 July 2020 | Forward EPS change | |||
| Name | TIDM | 1mth | 3mth | 1yr |
| Yellow Cake | YCA | 3116.40% | - | 4026% |
| IGas Energy | IGAS | 400.00% | 66.70% | -89% |
| Trackwise Designs | TWD | 226.90% | 157.60% | 70% |
| Draper Esprit | GROW | 218.40% | 30.70% | -20% |
| Atalaya Mining | ATYM | 175.50% | 98.70% | -24% |
| Gear4music Holdings | G4M | 164.00% | 356.70% | 307% |
| System1 Group | SYS1 | 105.30% | 181.70% | 27% |
| Totally | TLY | 96.40% | 96.70% | - |
| RM | RM | 92.10% | -76.70% | -76% |
| ZOO Digital Group | ZOO | 77.80% | - | -60% |
| United Oil & Gas | UOG | 76.80% | - | - |
| Luceco Plc | LUCE | 62.70% | 19.80% | 18% |
| LoopUp Group | LOOP | 57.60% | 232.20% | 133% |
| Antofagasta | ANTO | 54.00% | 64.60% | -51% |
| Nucleus Financial Group | NUC | 53.70% | -5.50% | -30% |
| Barclays | BARC | 51.20% | -58.80% | -91% |
| EKF Diagnostics | EKF | 50.60% | 105.10% | 120% |
| Wincanton | WIN | 50.00% | -45.30% | -45% |
| Numis | NUM | 45.80% | - | 38% |
| Equals Group | EQLS | 42.90% | 42.90% | 0% |
| TI Fluid Systems | TIFS | 42.20% | -76.70% | -92% |
| Blancco Technology Group | BLTG | 41.20% | 23.80% | 34% |
| 3i Group Plc | III | 40.00% | - | -36% |
| Just Eat Takeaway.com | JET | 38.40% | 49.40% | - |
| ECO Animal Health Group | EAH | 35.10% | 39.60% | -57% |
| Source: FactSet | ||||
| 1-month EPS downgrades (top 25) | ||||
| Wednesday, 22 July 2020 | Forward EPS change | |||
| Name | TIDM | 1mth | 3mth | 1yr |
| Mission Group | TMG | -96.00% | -96.00% | -96% |
| Hunting | HTG | -95.70% | -98.90% | -100% |
| Arbuthnot Banking Group | ARBB | -94.30% | -94.40% | -93% |
| Stagecoach Group | SGC | -84.60% | -86.00% | -88% |
| ULS Technology | ULS | -84.20% | -84.20% | -86% |
| Halfords Group | HFD | -78.50% | -76.20% | -80% |
| Speedy Hire | SDY | -78.50% | -78.50% | -79% |
| Senior | SNR | -77.80% | -84.10% | -95% |
| PageGroup | PAGE | -67.20% | -80.10% | -92% |
| Scapa Group | SCPA | -65.70% | -67.90% | -75% |
| JD Sports Fashion | JD | -63.80% | -63.90% | -62% |
| 1pm | OPM | -59.60% | -57.40% | -63% |
| Forterra Plc | FORT | -58.60% | -79.20% | -83% |
| HML | HMLH | -53.20% | - | -53% |
| First Property Group | FPO | -52.20% | - | -52% |
| N Brown Group | BWNG | -51.90% | -52.40% | -60% |
| Shanta Gold | SHG | -51.50% | -51.90% | -13% |
| Norcros | NXR | -47.50% | -50.10% | -58% |
| Kenmare Resources | KMR | -46.80% | -47.20% | -71% |
| Polypipe Group | PLP | -46.80% | -51.20% | -59% |
| Savills | SVS | -45.30% | -45.60% | -41% |
| Intu Properties | INTU | -43.70% | -56.50% | -82% |
| InterContinental Hotels Group | IHG | -40.80% | -66.00% | -77% |
| MITIE Group | MTO | -40.20% | -39.70% | -49% |
| Source: FactSet | ||||
