Ideas Farm 

Ideas Farm: The hard sell

Ideas Farm: The hard sell

Some stock ideas just keep on giving. While this is a principle often associated with buy-and-hold investments, the same can apply to popular shorts (bets that a share price will fall). Indeed, over recent weeks, four of the top five stocks in our most-shorted-shares table are names that have flirted with top spots on the list in the past. 

Of the top five, Cineword (CINE), Metro Bank (MTRO), Sainsbury (SBRY) and Premier Oil (PMO) all have historical form as popular shorts – although short positions in Premier have actually more than halved from about 20 per cent in recent months.

We’ve previously taken a cue from rising shorts in two of these stocks (Cineworld and Metro Bank) with impressive results. And in the Tips section this week, we’ve been encouraged to look at Sainsbury after a sharp increase in short interest. 

Historical shorting patterns in the supermarket group’s shares actually make an interesting case study into how short surges can offer a false signal. Two historical surges failed to identify major share price declines, although the general trajectory of the share price over recent years has been downwards. This emphasises the importance of taking the kind of external prompts we monitor in the Ideas Farm as a reason to undertake further research rather than a call to blindly follow suit. 

But on this occasion, we think the prospects for Sainsbury may be more akin to two of the other serial short favourites when they’ve previously experienced short surges: Cineworld and Metro Bank.

In the case of cinema chain Cineworld, it was a combination of sharply rising short interest and broker downgrades that attracted our attention to the shares in September last year. Further research encouraged us to rate the shares a sell at 241p, from which point short interest doubled again to almost 15 per cent in February (based on data from Castellain Capital’s Short Tracker). Shorts unwound as the shares plummeted towards their 18p March low, but negative bets have built again as the share price has moved back to today’s 60p level.

In the case of Metro Bank, we were initially intrigued by forecast downgrades at the then richly valued challenger bank. This was three years ago with the shares at 3,491p and prior to short interest really taking off. However, the subsequent build-up in shorts underpinned our confidence in the sell case and encouraged us to restate the call. Shorts peaked at 12.5 per cent in May last year, by which time the shares were already down to 774p. Negative bets fell to 5 per cent a year ago, but have been riding high again for much of the past 12 months. The shares hit a 66p low in March and currently trade at 95p. 

Shorts aside, our view of both Cineworld and Metro Bank when we moved to sell boiled down to the fact they looked vulnerable to the dreaded combination of an ongoing decline in profit coupled with an overstretched balance sheet. We fear the same may be true for Sainsbury now. 

Our calls on stocks are just a view, and should always be considered fallible. The Sainsbury short surge could once again be sending a false signal, and our original decision to move Sainsbury to a sell in June 2019 at 202p, when shorts were at 3.6 per cent, was poorly timed – the shares’ fall since has been less than half that of the blue-chip index. The current reasoning behind our negativity can be found in this week's Tips of the Week. Those intrigued by our arguments are, as always, encouraged to do their own research and come to their own conclusions.

 

Click here to view the tables in PDF form

 

Fund manager best ideas: UK sustainable
 No. Funds
AstraZeneca PLC4 (+1)
London Stock Exchange Group PLC4 (+1)
B&M European Value Retail SA2 (NEW)
Croda International PLC2
Experian PLC2 (-1)
GlaxoSmithKline PLC2 (-3)
HSBC Holdings PLC2 (+1)
Just Eat Takeaway.com NV2
Kingspan Group PLC2
Rentokil Initial PLC2 (+1)
Smurfit Kappa Group PLC2
Softcat PLC2 (NEW)
Avast PLC1
AVEVA Group PLC1 (-1)
Bellway PLC1
BHP Group PLC1
Colgate-Palmolive Co1
Dechra Pharmaceuticals PLC1
Diageo PLC1 (NEW)
Diploma PLC1
Dunelm Group PLC1 (NEW)
EKF Diagnostics Holdings PLC1 (NEW)
Fevertree Drinks PLC1 (NEW)
Frontier Developments PLC1
Games Workshop Group PLC1 (NEW)
Gamma Communications PLC1 (NEW)
GB Group PLC1
Genus PLC1
Gresham House PLC1
Halma PLC1
Hargreaves Lansdown PLC1
Hikma Pharmaceuticals PLC1
Howden Joinery Group PLC1
Inspired Energy PLC1
Intermediate Capital Group PLC1
Kainos Group PLC1
LondonMetric Property PLC1
Macfarlane Group PLC1 (NEW)
National Grid PLC1 (-2)
Nestle SA1
Phoenix Group Holdings PLC1
Polypipe Group PLC1
Prudential PLC1
Reckitt Benckiser Group PLC1
Rio Tinto PLC1 (NEW)
S&P Global Inc1
Sabre Insurance Group PLC1
SSE PLC1
Strix Group PLC1 (NEW)
Telecom Plus PLC1
Tesco PLC1
Thermo Fisher Scientific Inc1
Unilever NV1
Unilever PLC1 (-1)
UnitedHealth Group Inc1

Source: Morningstar, as at 2 September 2020. Based on top 5 holdings.

 

New 52-week highs

NameTIDMPrice% from hi
Pershing Square HoldingsPSH2,130p0.0%
Baillie Gifford US GrowthUSA251p0.0%
Collagen SolutionsCOS7p0.0%
Applied Graphene MaterialAGM53p0.0%
BBGIBBGI172p0.1%
Pacific Horizon Invt TrPHI564p0.4%
SoftcatSCT1,414p0.6%
Allianz Technology TrustATT2,560p0.6%
Polar Capital TechPCT2,230p0.7%
SDCL Energy EfficiencySEIT112p0.9%
Fidelity China SpecialFCSS323p1.1%
Gamesys GroupGYS1,162p1.4%
Gresham HouseGHE690p1.4%
HgCapital TrustHGT275p1.4%
JP Morgan Emerging MktsJMG1,074p1.5%
JPMorgan American InvtJAM520p1.5%
4D PharmaDDDD129p1.5%
Monks Investment TrMNKS1,148p1.5%
JP Morgan European SmallJESC399p1.5%
Capital Gearing Trust PlcCGT4,450p1.5%
ASOSASC5,066p1.6%
Baillie Gifford ShinBGS197p1.6%
Hastings Group HoldingsHSTG252p1.7%
Jubilee Metals GroupJLP6p1.7%
Witan Pacific Invt TrWPC371p1.8%
JPMorgan Japanese InvtJFJ550p1.8%
Scottish Mortgage Invt TrSMT967p1.8%
Triple Point Social Housing REITSOHO107p1.8%
Jersey ElectricityJEL479p1.8%
Henderson EuroTrustHNE1,305p1.9%
Kazera GlobalKZG1p1.9%
FDM Group HoldingsFDM1,088p2.0%
Hipgnosis SongsSONG121p2.0%
VolexVLX191p2.1%
Bankers Invt TrustBNKR1,020p2.1%
RUA Life SciencesRUA135p2.2%
Horizonte MineralsHZM9p2.2%
JPMorgan Global Core RealJARA110p2.2%
JPMorgan Global Core RealJARA110p2.2%
Edinburgh Worldwide InvtEWI281p2.3%
Schroder AsiaPacific FundSDP490p2.4%
BlackRock Greater Eu InvtBRGE446p2.4%
Sterling EnergySEY13p2.4%
Augmentum FintAUGM118p2.5%
Dechra PharmaceuticalsDPH3,138p2.5%
Martin Currie Global PortMNP330p2.5%
KAZ MineralsKAZ585p2.5%
Greatland GoldGGP16p2.5%
Polymetal InternationalPOLY2,032p2.5%
Renewables InfrastructureTRIG137p2.6%
First DerivativesFDP3,140p2.6%
Schroder Asian TotalATR402p2.7%
Ocado GroupOCDO2,506p2.8%
Croda InternationalCRDA5,932p2.8%
discoverIE GroupDSCV610p2.9%
ComputacenterCCC2,016p2.9%
FresnilloFRES1,320p2.9%
Frontier DevelopmentsFDEV2,310p2.9%

Source: FactSet, as at 2 September 2020

 

New 52-week lows

NameTIDMPrice% from lo
Rolls-Royce HoldingsRR207p0.0%
SME Credit Realisation FdSCRF55p0.5%
Galliford Try HoldingsGFRD86p0.5%
HSBC HoldingsHSBA317p0.6%
Bakkavor GroupBAKK56p0.9%
Kier GroupKIE59p1.7%
Schroder REITSREI30p1.9%
Mears GroupMER118p2.2%
Imperial Brands PLCIMB1,246p2.2%
John Laing GroupJLG282p2.3%
Standard CharteredSTAN378p2.4%
RotalaROL19p2.7%
TOC Property Backed LndngPBLT86p2.9%

Source: FactSet, as at 2 September 2020

 

Shorts

CompanyShort InterestNo. Shorters1wk chg in short interest
HAMMERSON PLC14.0%110.0%
METRO BANK PLC8.8%5-0.1%
SAINSBURY (J) PLC8.5%70.2%
CINEWORLD GROUP8.2%8-1.2%
PREMIER OIL PLC8.2%20.0%
TULLOW OIL PLC7.5%50.0%
Royal Mail Plc7.2%60.0%
PEARSON PLC6.0%50.6%
PETROFAC LTD5.8%70.0%
TUI AG5.6%20.0%
PETROPAVLOVSK PLC5.6%70.1%
DOMINO'S PIZZA GROUP PLC5.5%30.6%
PETS AT HOME GROUP PLC5.0%30.0%
BABCOCK INTL GROUP PLC4.9%40.5%
FUTURE PLC4.8%60.1%
WEIR GROUP PLC/THE4.8%5-0.1%
BLUE PRISM GROUP PLC4.7%30.0%
IQE PLC4.6%50.3%
CAPITA PLC4.0%40.0%
VODAFONE GROUP PLC3.7%4-0.1%
CRODA INTERNATIONAL PLC3.7%30.0%
MICRO FOCUS INTERNATIONAL3.5%30.0%
WM MORRISON SUPERMARKETS3.5%40.0%
ASHMORE GROUP PLC3.4%40.0%
KEYWORDS STUDIOS PLC3.3%5-0.5%
WOOD GROUP (JOHN) PLC3.3%40.0%
ASCENTIAL PLC3.2%20.0%
MARKS & SPENCER GROUP PLC3.2%30.0%
HURRICANE ENERGY PLC3.2%30.4%
INTERCONTINENTAL HOTELS GROUP PLC3.1%50.0%
AUTO TRADER GROUP PLC3.1%40.0%
Primary Health Properties PLC3.0%10.0%
ULTRA ELECTRONICS HLDGS PLC3.0%20.0%
N. Brown Group2.9%30.0%
VICTREX PLC2.8%3-0.1%
RESTAURANT GROUP PLC2.8%10.0%
NETWORK INTERNATIONAL HOLDINGS PLC2.7%4-0.8%
GVC Holdings Plc2.7%30.1%
SMITH (DAVID S) HOLDINGS PLC2.5%3NEW
TalkTalk Telecom Group PLC2.4%20.0%
HISCOX LTD2.4%20.0%
VITEC GROUP PLC (THE)2.2%20.0%
DAILY MAIL & GENERAL TRUST2.2%3-0.1%

Source: FCA, as at 2 September 2020

 

1-month EPS upgrades

Wednesday, 2 September 2020FWD EPS CHG
NameTIDM1mth3mth1yr
IGas EnergyIGAS130.6%-50.3%-83%
BarclaysBARC128.5%165.1%-81%
ASOSASC116.2%-239%
Alfa Financial SoftwareALFA100.6%100.6%-72%
Stagecoach GroupSGC63.9%-84.9%-88%
Accrol Group HoldingsACRL58.2%58.2%-
RenishawRSW57.6%73.9%-36%
IXICOIXI50.0%--
LSL Property ServicesLSL49.0%0.9%-21%
TI Fluid SystemsTIFS47.7%98.6%-85%
Lloyds Banking GroupLLOY42.1%-31.8%-85%
Sylvania PlatinumSLP41.4%27.1%135%
Clipper LogisticsCLG39.7%36.7%0%
Luceco PlcLUCE37.0%262.0%62%
CapitalCAPD35.4%38.0%63%
Grafton GroupGFTU33.9%1.6%-47%
Keller GroupKLR32.5%16.4%-13%
ProactisPHD30.0%30.0%-63%
Gear4music HoldingsG4M27.2%261.1%457%
Ariana ResourcesAAU26.7%40.7%-5%
Hochschild MiningHOC25.8%5.9%-14%
AO WorldAO24.0%--
3i Group PlcIII22.8%96.6%-13%
Kenmare ResourcesKMR22.8%-58.2%-76%
IP GroupIPO21.1%21.1%-64%
Lok 'n' Store GroupLOK20.2%20.2%13%
Hummingbird ResourcesHUM19.8%-6%
Wentworth ResourcesWEN19.8%20.1%-41%
Henry BootBOOT18.6%18.6%-69%
FerrexpoFXPO16.6%38.1%-43%
BATM Advanced CommBVC16.4%91.2%75%
Watches of Switzerland GroupWOSG15.9%16.0%-11%
Admiral GroupADM15.6%16.2%20%
4Imprint GroupFOUR15.4%-69.6%-86%
CRHCRH15.2%20.8%-17%
TBC Bank GroupTBCG15.1%-6.8%-47%
Intu PropertiesINTU14.5%-15.2%-73%
AAAA14.4%14.2%-10%
RobinsonRBN13.4%13.4%41%
PersimmonPSN12.7%14.1%-22%
Phoenix Group HoldingsPHNX12.6%18.0%22%
ContourGlobal PlcGLO11.9%23.7%-2%
MITIE GroupMTO11.9%-57.4%-61%
Royal Dutch ShellRDSB11.5%13.1%-77%
Burford CapitalBUR11.3%-20.1%-42%
Barratt DevelopmentsBDEV11.3%-7.8%-30%
CLS HoldingsCLI11.3%15.0%-9%
SDLSDL11.1%13.2%-19%
CalisenCLSN10.6%-21.2%-
EVRAZEVR10.5%5.9%-57%
Tribal GroupTRB10.0%10.0%-7%
Royal Dutch ShellRDSA9.4%16.6%-78%
BunzlBNZL9.3%34.4%-1%
Pets At HomePETS8.3%-2.4%-15%
MondiMNDI8.3%3.3%-32%
IMImobile PlcIMO8.1%2.5%-8%
PlaytechPTEC8.0%4.9%-61%
AntofagastaANTO7.9%133.1%-43%
Flutter EntertainmentFLTR7.7%14.6%30%
Mortgage Advice BureauMAB17.5%7.5%-31%
Empiric StudentESP7.5%13.5%-44%
GVC HoldingsGVC7.4%25.5%-14%
Codemasters Group HoldingsCDM7.4%50.1%38%
AvivaAV7.2%3.6%-17%
CMC MarketsCMCX7.1%14.7%350%
Gamesys GroupGYS7.0%7.0%32%
PendragonPDG6.7%6.7%-
RHI MagnesitaRHIM6.5%8.0%-47%
FresnilloFRES6.3%47.6%55%
Polymetal InternationalPOLY6.1%10.7%65%
Panoply HoldingsTPX5.9%38.5%2%
Bank of Georgia GroupBGEO5.7%-26.7%-48%
Kainos GroupKNOS5.5%33.4%27%
Next Fifteen CommNFC5.4%8.1%-12%
Caledonia MiningCMCL5.3%7.6%-
Hikma PharmaceuticalsHIK5.3%1.7%10%
EKF DiagnosticsEKF5.3%58.6%131%
RotorkROR5.2%7.5%-15%
Arcontech GroupARC5.1%5.1%2%
CranswickCWK5.0%15.5%28%
Rio TintoRIO5.0%12.0%-20%
McBrideMCB5.0%8.6%-7%
Polar CapitalPOLR5.0%3.8%0%
BodycoteBOY4.8%-3.4%-44%
United Utilities GroupUU4.7%2.7%-19%
Plus500PLUS4.7%15.5%133%
IG Group HoldingsIGG4.4%-16.7%28%
Keywords StudiosKWS4.3%-6.2%-17%
Standard CharteredSTAN4.3%-14.7%-58%
STV GroupSTVG4.2%-22.1%-36%
Compass GroupCPG4.1%-2.2%-73%
Randall & Quilter Investment HoldingsRQIH4.1%5.8%-20%
Marks & Spencer GroupMKS3.9%-14.6%-64%
Dunelm GroupDNLM3.7%12.3%-12%
Games Workshop GroupGAW3.6%22.6%2%
GraingerGRI3.5%7.1%-23%
ComputacenterCCC3.5%13.0%17%
Just GrpJUST3.4%17.5%18%
ClarksonCKN3.4%-5.7%-14%
Smurfit Kappa GroupSKG3.3%6.9%-26%

Source: FactSet, as at 2 September 2020

 

1-month EPS downgrades

 FWD EPS CHG
NameTIDM1mth3mth1yr
Mears GroupMER-88.0%-94.9%-96%
Churchill ChinaCHH-87.9%--86%
PageGroupPAGE-87.0%-92.6%-98%
Yourgene HealthYGEN-58.8%--
Appreciate GroupAPP-58.3%-58.3%-59%
H&T GroupHAT-57.3%-57.5%-40%
HaysHAS-53.1%-45.5%-81%
AscentialASCL-52.2%-64.1%-89%
GlencoreGLEN-44.7%-23.2%-83%
PetrofacPFC-41.9%-58.8%-81%
Melrose IndustriesMRO-38.3%-95.1%-98%
U & I GroupUAI-38.0%--81%
Balfour BeattyBBY-37.8%-52.8%-64%
Inspiration Healthcare GpIHC-37.1%-47.6%-37%
Vitec GroupVTC-36.2%-60.5%-91%
InterContinental Hotels GroupIHG-35.0%-65.0%-86%
Keystone Law GroupKEYS-33.4%-33.4%-57%
Coats GroupCOA-32.0%-44.7%-82%
InvestecINVP-26.0%-17.3%-43%
Bloomsbury PublishingBMY-24.9%0.3%-46%
Gem DiamondsGEMD-22.8%-73.1%-91%
Bushveld MineralsBMN-22.3%-36.7%-63%
HammersonHMSO-21.9%-25.7%-64%
Morses ClubMCL-21.2%-21.2%-36%
Serabi GoldSRB-21.0%-40.4%17%
NewRiver REITNRR-20.9%-60.9%-54%
Babcock International GroupBAB-20.3%-38.0%-41%
Anexo GroupANX-19.5%-34.0%-36%
Mattioli WoodsMTW-18.9%-15.7%2%
AggrekoAGK-17.7%-27.9%-56%
Frasers GroupFRAS-17.4%2.4%-4%
LancashireLRE-16.7%-39.3%-50%
United Oil & GasUOG-16.3%178.5%-
RicardoRCDO-16.1%-42.7%-59%
Airtel AfricaAAF-15.9%-23.0%-30%
Serica EnergySQZ-15.8%-33.7%-81%
HSBC HoldingsHSBA-15.5%-27.5%-70%
Tekmar Group PlcTGP-15.0%-15.0%-52%
Scapa GroupSCPA-14.9%-70.8%-77%
Howden Joinery GroupHWDN-14.6%-42.5%-52%
IbstockIBST-14.5%-59.5%-75%
Virgin Money UKVMUK-14.3%-9.7%-83%
Cake Box HoldingsCBOX-14.2%--6%
FRP Advisory GroupFRP-13.8%-13.8%-
Yellow CakeYCA-13.5%3586.6%5272%
Taylor WimpeyTW-13.3%-53.6%-69%
Hargreaves LansdownHL-12.7%-10.7%-14%
JD Sports FashionJD-12.7%-64.4%-63%
BellwayBWY-12.5%-19.6%-46%
CentralNic GroupCNIC-12.4%-5.8%-6%
Gooch & HousegoGHH-11.9%-11.6%-38%
InformaINF-11.3%-35.6%-67%
Midwich GroupMIDW-11.1%-23.9%-28%
SThreeSTEM-9.4%-17.0%-60%
First DerivativesFDP-9.1%-18.2%-38%
Countryside PropertiesCSP-8.8%-44.1%-61%
BHP GroupBHP-8.5%-12.9%-30%
Workspace GroupWKP-8.1%-35.1%-36%
PelatroPTRO-7.9%--87%
Redde NorthgateREDD-7.8%-19.3%-29%
Amino TechnologiesAMO-7.3%-8.4%-5%
Costain GroupCOST-7.1%-31.7%-73%
SimplyBiz GroupSBIZ-7.1%-18.6%-13%
CentricaCNA-6.9%14.0%-38%
Capital & RegionalCAL-6.3%-22.2%-67%
NWF GroupNWF-6.2%-6.2%13%
TymanTYMN-6.1%-6.5%-33%
Kier GroupKIE-6.0%-28.0%-62%
Go-Ahead GroupGOG-5.9%-29.4%-65%
Greencore GroupGNC-5.9%-22.1%-61%
James Fisher & SonsFSJ-5.6%-13.0%-33%
RDI REITRDI-5.6%-3.1%-45%
St Modwen PropertiesSMP-5.2%-33.9%-44%
AbcamABC-5.1%-18.3%-47%
InchcapeINCH-5.0%-45.7%-70%
Rl Est CredRECI-5.0%761.8%2%
Dixons CarphoneDC-4.5%-14.7%-39%
Vectura GroupVEC-4.5%-3.2%16%
BOKUBOKU-4.4%9.9%28%
Target Healthcare REITTHRL-4.4%-4.4%16%
Hastings Group HoldingsHSTG-4.3%-3.9%-1%
CVS GroupCVSG-4.3%69.6%-18%
Alliance PharmaAPH-4.2%-4.9%-8%
Stock Spirits GroupSTCK-4.1%-6.5%-2%
Smith & NephewSN-4.0%-19.9%-40%
Just Eat Takeaway.comJET-3.9%12.0%-
UDG HealthcareUDG-3.7%-11.5%-19%
PetropavlovskPOG-3.3%-21.6%-
Vistry GroupVTY-3.3%-28.2%-40%
SSESSE-3.0%-12.5%-19%
Pebble GroupPEBB-3.0%-2.4%-

Source: FactSet, as at 2 September 2020

 

Click here to view the tables in PDF form

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