BlackRock, Marshall Wace and Qube Research & Technologies all placed bets against Pennon Group in July, dragging the water company into the list of the UK’s 10 most shorted stocks judging by the percentage of its share capital in the hands of short sellers.
Pennon provides clean water and wastewater services. Its largest business, South West Water, serves Cornwall, Devon and parts of Dorset and Somerset.
South West Water was fined £2.15m in April 2023 for environmental offences committed in Devon and Cornwall during four years. Incidents included harmful chemicals escaping from South West Water’s site at Kilmington, killing thousands of fish in the River Axe. In 2016, raw sewage was pumped into the River Fowey for more than 12 hours.
The quality of drinking water was also compromised in the Brixham area, which was subject to a ‘Boil Water Notice’ earlier this year. As chief executive officer Susan Davy acknowledged whilst announcing the group’s annual results on 21 May 2024: “We are 100% focused on returning a safe water supply to the people and businesses in and around Brixham. Normal service has returned for 85% of customers, but we won’t stop until the local drinking water is returned to the quality all our customers expect and deserve.”
The group has grown by acquisition in recent years. Pennon acquired Bournemouth Water in 2015, Bristol Water in 2021 and SES Water in January 2024. Then in June, the Competition and Markets Authority approved the merger of South West Water with Sutton and East Surrey Water.
Pennon’s share price peaked in 2020 but it has been on a downward trajectory since the summer of 2021, as the chart below shows.
Pennon’s share price over 5yrs
Source: Google Finance
The stock is in negative territory year to date (down 10.3% as of 1 August) but it has climbed 13% in the past month (from 1 July to 1 August 2024), which would have been painful for short sellers.
Besides Pennon, the line-up of the UK’s most-shorted stocks remains broadly similar to recent months, with Petrofac, Diversified Energy and Ocado in pole position.
Most shorted UK companies in July 2024
Source: Financial Conduct Authority