A growing number of short positions are being taken out against FTSE 100 stocks Boohoo, Rentokil and Kingfisher, among others. Here, we take a look at some of the stocks with the biggest short interest, as of early October, and explain why funds are betting that their prices will continue to slide.
Daily data from the Financial Conduct Authority reveals that short sellers have been targeting a number of FTSE 100 stocks, including Boohoo [BOO.L], Rentokil [RTO.L], Kingfisher [KGF.L], Fever-Tree Drinks [FEVR.L] and Naked Wines [WINE.L].
Out of the top six companies, Rentokil has the largest short position with 9.89% of its float shorted by nine funds followed by Boohoo with 10 funds having short positions of 9.67%%. Meanwhile, Kingfisher has five funds shorting 6.8% of its float, three funds have a 6.05% short position against Fevertree and Naked Wines short interest sits at 5.97% from four funds.
Of the six stocks, Naked Wines has had the biggest fall with the stock trading 88.4% below its share price at the start of the year. Boohoo’s year-to-date fall is at 70.9%, while Fever-Tree is at 64.9%. Kingfisher has tumbled 36.6%, while Rentokil, the company with the largest short position, has descended a relatively modest 15.7% over the same period.
Greenwashing scandal hurts Boohoo
Funds are increasingly looking to online fashion retailer Boohoo, exploiting weakness in the stock amid a greenwashing scandal. It’s been accused of misleading shoppers with sustainability claims, which has contributed to the share price plunging 70.9% year-to-date.
Short interest has also increased from 7.83% at the end of August due to a profit warning that the company issued in September. It revised its earnings margin target to between 3% and 5% from previous guidance of between 4% and 7%, citing inflationary pressures on consumer spending.
Rentokil’s acquisition set to fail
Pest-control firm Rentokil has moved into the list of the most shorted stocks in the past few months, with Millennium International Management increasing its position to 2.35% just this week. This is despite analysts at JPMorgan writing in a note to clients at the end of August, seen by The Times, that it was a top pick for standard trades.
The logical explanation is that short sellers have been betting on its acquisition of American rival Terminix [TMX], first announced in December last year, falling through. Rentokil shareholders voted in favour of the deal on 6 October and the firm completed the deal on Wednesday, but the question now is whether funds will look to increase or reduce their positions.
Kingfisher’s profit forecasts “exposed”
Short interest in the B&Q owner Kingfisher has been above 4% for the majority of 2022, though it has come down 2.42 percentage points since peaking at 9.22% at the end of July.
According to Investors’ Chronicle, Panmure Gordon analysts said after Kingfisher’s capital markets day in July that investor confidence would only be boosted “once trade patterns have normalised post-Covid” but that profit forecasts “look exposed”. Retail profit for the six months to the end of June were down 27.6% as a result of the cost-of-living crisis, the company reported in September.
Cost margins in focus at Fever-Tree Drinks
Premium tonic maker Fever-Tree Drinks reported that revenue had increased 14% year-on-year and announced an interim dividend of 5.63p per share, up 2% from that of 2021, on 13 September. Short interest in the stock has remained relatively flat since then, with a substantial portion of its 6.05% short float at 4.47% coming from BlackRock – an investment manager which, with assets under management (AuM) of over $10trn, can likely take the risk.
According to Hagreaves Lansdown head of equity research Derren Nathan, underlying growth does look healthy, yet “there's a limit to how much premium tonic you can sell and it looks like Fever-Tree is approaching it”. The company “needs to get a tighter grip on costs so margins can start to move in the right direction again”. If it doesn’t, then it could continue to be a target for shorts.
Management reshuffle shakes Naked Wines
The Naked Wines share price is going down the sink, tumbling 45.7% in the past month following the shock departure of a non-executive director who had only been appointed a few weeks earlier. In a note to clients seen by Bloomberg, Liberum analyst Wayne Brown wrote that “something has gone somewhat awry”, explaining why he was reducing his price target by one-third.
The booze retailer will announce revised plans in a trading update on 17 October, which Brown said, “could be rather negative” as concerns remain around its liquidity. This could potentially lead to funds adding to their short positions.
ASOS and Travis Perkins attract short interest
Like Boohoo, ASOS [ASC.L] has been heavily shorted since the Competition and Markets Authority revealed it had opened a greewashing investigation. Five funds are shorting the stock by 6.25%.
Concerns about the housing market have gathered short positions against Travis Perkins [TPK.L], with seven funds shorting by 6.56%, up by 3.94 percentage points within the last month.
EasyJet [EZY.L] has five funds shorting it for 5.48%. Short interest in the airline took flight this summer after its share price dived in reaction to the budget airline cutting thousands of flights to minimise disruption that had been plaguing the aviation industry.
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