Every now and then I like to take a look at some of the more popular shares on the local market to see which ones are being relatively heavily shorted. Hedge funds will borrow shares from a prime broker (usually on the asset servicing side of an investment bank) to short sell on the market in the expectation that they will be able to buy them back later at a cheaper price and pocket the difference as a profit.
So let's take a look at four companies with quite a lot of their outstanding shares borrowed and sold short. All stats accurate as at 24 May 2019 according to ASIC.
BWX Limited (ASX: BWX) has 12% of its shares shorted and the Sukin manufacturer has now issued two profit downgrades this financial year to leave shares at $1.63 today. I must admit I used to own shares myself but sold my entire holding over the middle of 2018 at average prices around $5.40. I'm inclined to agree with the short sellers on this business.
Harvey Norman Holdings Limited (ASX: HVN) has 9.3% of its shares shorted as a 'short thesis' over the business has been circulated in the business media and amongst professional investors recently. Gerry Harvey has publicly rubbished the short sellers' thinking though and the stock could be volatile in the 12 months ahead.
Inghams Group Ltd (ASX: ING) is the poultry farmer and retailer that has a whopping 17.5% of its scrip shorted. Over the last year the stock is around 8% higher to $4.28, but someone is taking a huge bet on it running into trouble. I must admit I have little idea why this may be.
IOOF Holdings Limited (ASX: IFL) is the financial services group that has 10% of its shares shorted. It's easy to see why given its recent record of regulatory problems that have resulted in the superannuation sector regulator APRA imposing conditions on its AFSL, among other things. It's also still trying to get a giant deal to buy Australia & New Zealand Banking Group's (ASX: ANZ) OnePath wealth business over the line.
