Shorts reviewed

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.

COUNTRY COMPANY SHORT POS %
SELLERS
NE FUGRO NV-CVA 15,8% 12
FR CASINO GUICHARD PERRACHON 12,5% 14
GB MARKS & SPENCER GROUP PLC 10,9% 10
FR VALLOUREC SA 10,6% 11
GB ANGLO AMERICAN PLC 10,1% 9
FR INGENICO GROUP 9,2% 6
GB PEARSON PLC 8,5% 9
GE HEIDELBERGER DRUCKMASCHINEN 8,3% 6
NE WERELDHAVE NV 8,0% 10
FI OUTOKUMPU OYJ 7,7% 7
FR NEXANS SA 7,1% 6
GB ASOS PLC 7,0% 6
LX EUROFINS SCIENTIFIC 6,7% 8
GB INTU PROPERTIES PLC 6,3% 8
NE BOSKALIS WESTMINSTER 6,2% 8
NE KONINKLIJKE BAM GROEP NV 5,9% 6
FR SOCIETE BIC SA 5,8% 7
NO PETROLEUM GEO-SERVICES 5,8% 6
GE K+S AG-REG 5,5% 7
FR VALEO SA 5,1% 2
FR ILIAD SA 4,9% 4
GB WM MORRISON SUPERMARKETS 4,8% 5
GE ELRINGKLINGER AG 4,7% 4
GB AGGREKO PLC 4,7% 6
GE CECONOMY AG 4,5% 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 18th AlphaValue Universe
Upside 15.4 13.1
Momentum +
Fundamental Strength 2.4 6.1
Yield 3.5% 3.9%
Credit Risk BB BBB
Governance Score 70 65.6

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

Company Country Upside Momentum Fundamental Strength (max 10) Dividend Yield 2019 Credit Risk
Vallourec France 77,9% Negative 0 0,00% CCC
Iliad France 51,6% Negative 3 0,96% A
Fugro Netherlands 36,3% Good 0 0,00% B
Boskalis Netherlands 36,2% Good 1 4,35% A
Eurofins Scientific France 32,3% Unfavorable 8 1,01% BBB
k+s Germany 25,3% Good 2 5,42% BB
PGS Norway 25,1% Good 0 0,00% BB
Outokumpu Finland 22,0% Unfavorable 2 5,96% BB
Valeo France 16,8% Good 4 4,00% BBB
Nexans France 16,7% Good 3 2,74% BB
Wereldhave Netherlands 15,5% Negative 4 10,2% BBB
Asos UK 15,2% Unfavorable 4 0,00% 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

Company Country Upside Momentum Fundamental Strength (max 10) Dividend Yield 2019 Credit Risk
UK Anglo American 9,24% Strong 6 5,05% A
France Casino -3,65% Strong 3 6,93% B
UK Intu Properties 10,7% Good 0 12,1% B
UK Wm Morrison 7,62% Good 4 2,71% BBB
UK Marks & Spencer -20,6% Good 0 0,00% B
UK Pearson -13,5% Good 2 1,85% BB
Germany k+s 25,3% Good 2 5,42% 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

Company Country Upside Momentum Fundamental Strength (max 10) Dividend Yield 2019 Credit Risk
France Vallourec 77,9% Negative 0 0,00% CCC
Netherlands Wereldhave 15,5% Negative 4 10,2% BBB
France Iliad 51,6% Negative 3 0,96% A
Germany Elringklinger 5,07% Negative 1 6,83% 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.

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