We looked at the largest short positions on stocks currently covered by AlphaValue and wondered to what extent we would agree. Here is the list as captured from European exchanges, as of 18-02-2019.

COUNTRYCOMPANYSHORT POS %
SELLERS
NEFUGRO NV-CVA15,8%12
FRCASINO GUICHARD PERRACHON12,5%14
GBMARKS & SPENCER GROUP PLC10,9%10
FRVALLOUREC SA10,6%11
GBANGLO AMERICAN PLC10,1%9
FRINGENICO GROUP9,2%6
GBPEARSON PLC8,5%9
GEHEIDELBERGER DRUCKMASCHINEN8,3%6
NEWERELDHAVE NV8,0%10
FIOUTOKUMPU OYJ7,7%7
FRNEXANS SA7,1%6
GBASOS PLC7,0%6
LXEUROFINS SCIENTIFIC6,7%8
GBINTU PROPERTIES PLC6,3%8
NEBOSKALIS WESTMINSTER6,2%8
NEKONINKLIJKE BAM GROEP NV5,9%6
FRSOCIETE BIC SA5,8%7
NOPETROLEUM GEO-SERVICES5,8%6
GEK+S AG-REG5,5%7
FRVALEO SA5,1%2
FRILIAD SA4,9%4
GBWM MORRISON SUPERMARKETS4,8%5
GEELRINGKLINGER AG4,7%4
GBAGGREKO PLC4,7%6
GECECONOMY AG4,5%5

We matched this list with our own fundamental views and the current share price momentum on these companies. The obvious point is that those stocks on average are not top in class with a low “fundamental strength” (which defines the resilience of a business model) and weaker average balance sheets with an average BB.

Shorts Feb 18thAlphaValue Universe
Upside15.413.1
Momentum+
Fundamental Strength2.46.1
Yield3.5%3.9%
Credit RiskBBBBB
Governance Score7065.6

The performance chart below is unweighted to reflect the differences in market caps.

Most shorted stocks (in pink) actually outperformed ytd

In a more granular way we see a 15% or more upside potential on the following names which may not be ripe for a fall. To be fair Weredhave and Oriflame are due for downgrades.

Shorts with a strong AlphaValue upside potential

CompanyCountryUpsideMomentumFundamental Strength (max 10)Dividend Yield 2019Credit Risk
VallourecFrance77,9%Negative00,00%CCC
IliadFrance51,6%Negative30,96%A
FugroNetherlands36,3%Good00,00%B
BoskalisNetherlands36,2%Good14,35%A
Eurofins ScientificFrance32,3%Unfavorable81,01%BBB
k+sGermany25,3%Good25,42%BB
PGSNorway25,1%Good00,00%BB
OutokumpuFinland22,0%Unfavorable25,96%BB
ValeoFrance16,8%Good44,00%BBB
NexansFrance16,7%Good32,74%BB
WereldhaveNetherlands15,5%Negative410,2%BBB
AsosUK15,2%Unfavorable40,00%BB

There are also stocks for which the market goes against the shorts. We can identify this through AlphaValue proprietary momentum metrics dubbed “Momentum”.

Shorts that can wait

CompanyCountryUpsideMomentumFundamental Strength (max 10)Dividend Yield 2019Credit Risk
UKAnglo American9,24%Strong65,05%A
FranceCasino-3,65%Strong36,93%B
UKIntu Properties10,7%Good012,1%B
UKWm Morrison7,62%Good42,71%BBB
UKMarks & Spencer-20,6%Good00,00%B
UKPearson-13,5%Good21,85%BB
Germanyk+s25,3%Good25,42%BB

The last view is to highlight those stocks for which short sellers seem to be right and the AlphaValue analysts may be somewhat optimistic

Shorts that seems right

CompanyCountryUpsideMomentumFundamental Strength (max 10)Dividend Yield 2019Credit Risk
FranceVallourec77,9%Negative00,00%CCC
NetherlandsWereldhave15,5%Negative410,2%BBB
FranceIliad51,6%Negative30,96%A
GermanyElringklinger5,07%Negative16,83%BBB

On a more qualitative view we are of the view that:

  • Vallourec indeed has a weak balance sheet but it is also a call option on profile on any business pick up
  • Casino’s liquidity problems seem to be addressed by the quick fire sale of its periphery assets
  • Oriflame operations indeed are set to suffer again in 2019 (so that the upside potential is downgraded to less than 10%)
  • Shorting PGS is becoming risky after a solid Q4 and upgraded outlook.
  • Anglo American is under the speculative pressure of Vedanta/Volcan (which is admittedly underfinanced) which adds to so far strong operations.

“Shorts reviewed” : Learn more