Online grocer Ocado has become the most shorted stock in the UK after short positions in the company rose 3.1 percentage points last month, according to data from the Financial Conduct Authority.
It wasn’t in the top 10 at the start of February but leapt to the top spot by the end of the month when five new firms bet against the company, bringing the total amount of shares loaned out to short sellers to 6.6%.
Short selling is the controversial practice used by hedge funds, who buy sell shares for a period of time, promising to buy them back at a later date. The hope is that the share price falls so they can make a profit.
Ocado was the worst performing stock in the FTSE 100 last year, sinking 63.2% throughout the course of 2022 and making a net loss of £501m.
Source: Financial Conduct Authority
Shares in the company have continued to decline 21.9% in 2023 as revenues fall behind from their pandemic highs.
It performed strongly during the lockdowns of 2020, climbing over 77% that year, but consumers’ return to physical stores mixed with rising inflation have spelled trouble for the company since.
The cost-of-living crisis may be a strong headwind for the time being, but Ocado’s prospects could improve once inflation eases, according to Mark Crouch, analyst at eToro.
He said: “It’s clear then that even Ocado’s customers, who tend to be wealthier, are beginning to feel the everyday financial pressures that come with rising inflation.
“With the overall inflation picture set to improve as we enter the second half of the year, it will be interesting to see if basket values and volumes recover. We suspect that they might.”
Indeed, the market reacted positively to the company’s first quarter results at the end of March, with Ocado shares rising 20.5% in the three days following the report.
Share price of Ocado in 2023
Source: FE Analytics
It revealed a 13.8% rise in active customers in the first three months of the year and 3.4% increase to retail revenue.
A 7.5% drop in the average basket size slightly soured the results, but Chris Beauchamp, chief market analyst at IG Group, said that overall, it was “the first real ray of light for a while”.
“These are the kind of numbers on which a recovery can begin and, if inflation comes down in the year ahead, perhaps Ocado’s share price can recover too, reversing the dismal underperformance against the FTSE 100 so far this year,” he added.
March’s figures may have been the first positive sign after a bout of bad news, but Ocado is not out the woods yet, according to Sophie Lund-Yates, lead equity analyst at Hargreaves Lansdown.
She said: “A true understanding of Ocado Retail’s attractiveness can’t be painted until inflation subsides and the fog clears.”
Oilfield services provider Petrofac also joined the top 10 most shorted UK stocks in March after positions rose by 1.5 percentage points throughout the month.
The £395m company was down 29.1% in 2022 as the company made a net loss for the second year running, largely driven by challenges in the engineering and construction branch of the business.
Derren Nathan, head of equity research at Hargreaves Lansdown, said that new chief executive Tareq Kawash “has his work cut out for him” to fix this part of the company.
He formally took over last week, replacing former CEO Sami Iskander who had been at the helm since 2020.
Iskander ended his tenure on a high, announcing a €13bn deal with Dutch renewables company TenneT at the end of March that provides Petrofac with six new projects.
Share price of Petrofac in 2023
Source: FE Analytics
Shares in the company leapt more than 81% following the news, grabbing the attention of investors after a period of relative inactivity.
Nathan said: “We are impressed by Petrofac’s continuing move into new energy with oilfield services having underperformed of late.
“How the financial spoils are divided remains to be seen and we would like to see more details on contract margin, which has been an issue in recent times.”
The only other new entrant to the top 10 list in March was e-commerce retailer THG, with short positions in the company rising 0.9 percentage points to a total of 4%.
Shares were down 80.9% in 2022 after the group announced three profit warning throughout the year. It issued its fourth profit warning in January this year, after which the share price fell 8.2%.
Despite this, the company is up 53.2% since the start of the year, partially influenced by the arrival of activist investor Kelso Group at the end of January.
Share price of THG in 2023
Source: FE Analytics
The firm bought an additional 2.4m shares in THG last month – bringing its total stake to 7.4m – on the condition that it engages in trying to meet four new goals.
THG, Ocado and Petrofac replaced outgoing stocks Victoria, abrdn and Metro Bank in the top 10 most shorted list last month.
Positions in Victoria remained the same, but those in abrdn and Metro bank dropped by 1.1 and 0.8 percentage points respectively throughout the month.
Bets against February’s most shorted company, boohoo, dropped by 0.9 percentage points in March to 5%.