Short sellers kept up relentless pressure against DIY giant Kingfisher, hydrogen specialist ITM Power and fashion companies Boohoo and ASOS last year. They were amongst the 10 most shorted UK stocks during most months of 2023.
All four shares had a bumpy year with plenty of opportunities for short sellers to make money. However, Boohoo and Kingfisher rode the Santa rally to end the year in positive territory. They returned 16% and 10%, respectively, beating the FTSE All Share’s 7.8% for the year to 28 December 2023.
Short sellers got it right with ASOS and ITM Power, which lost 16.7% and 34.1%, respectively, as the chart below shows.
Performance of shares versus FTSE All Share in 2023
Source: FE Analytics
Kingfisher, ASOS and Boohoo all benefited from increased demand during the Covid lockdowns as bored consumers stuck at home turned to online shopping and doing up their homes. The retailers have struggled to grow since then, as the cost-of-living crisis has curtailed spending habits and competitors have gained market share.
Kingfisher is facing intense competition in several key markets such as Poland and France, which led the DIY giant to lower its full-year profit expectations in November, according to Adam Vettese, an analyst at trading and investment platform eToro.
Nonetheless, Vettese believes Kingfisher has the potential to recover. “We don’t think this troubled patch is down to a problem with Kingfisher itself. Market conditions are mostly to blame. Therefore, we expect things to improve as economic conditions become more benign and consumers are feeling better off,” he explained.
“If higher interest rates result in people deciding to do up their existing homes instead of moving, then Kingfisher will likely be a beneficiary.”
ASOS, which issued another profit warning in November, faces similar challenges to Kingfisher. The fashion company is fending off new rivals such as Shein and is saddled with hefty borrowings. Management expects sales to fall in the 12 months to August 2024.
AJ Bell investment director Russ Mould said ASOS is hoping to restore its fortunes by reducing inventory, improving stock turn and reducing discounting to improve profits. This plan “makes perfect sense”, he said, “but the problems are clearly deep-rooted and the economic and competitive backdrop is equally unhelpful”.
Meanwhile, “management is maintaining a dignified silence about the rumours of a sale of the Topshop brand acquired from Sir Philip Green’s fallen Arcadia empire for £330m in 2021, but such a move would not shock given how that transaction is one reason ASOS now finds itself cabined, cribbed and confined by debt,” Mould added.
Fellow fashion retailer Boohoo is struggling with the same macroeconomic headwinds. Its results for the six months to 31 August 2023 revealed a 19% fall in UK revenues compared to the same period in 2022 and a 15% fall in international revenues. Core bands declined 10%.
Furthermore, its reputation has been damaged by allegations of modern slavery stemming from the Coronavirus pandemic. Labour Behind the Label published a report in June 2020 about conditions in Leicester’s garment factories, which it said remained open during lockdown and were paying as little as £3 an hour.
Boohoo responded by launching an immediate independent review of its UK supply chain and committing to invest £10m to eradicate supply chain malpractice, but the allegations wiped £1bn from Boohoo’s market value
Moving on to ITM Power in Sheffield, which makes electrolysers to produce green hydrogen, 2023 started badly with its third profit warning in less than eight months. The hydrogen specialist said that its April 2023 full year results would show lower revenues and deeper losses than previously expected due to delays on a project at the Leuna chemicals complex in Germany, as well as inventory write-downs.
A new chief executive officer, Dennis Schulz, took the reins in December 2022 and embarked on a 12 month turnaround plan.
ITM Power announced in October that it intends to move its listing to the US to access subsidies offered under the Inflation Reduction Act. The company is starting to bid for US contracts, having standardised its product for multiple territories.
By the end of 2023, short sellers had financial services firms Hargreaves Lansdown and abrdn in their sights. Citadel Advisors, Point72 Asset Management and Marshall Wace bet against Hargreaves Lansdown, while AQR Capital Management and GLG Partners thought abrdn’s share price would fall, and BlackRock had short positions against both firms.
Oil services company Petrofac was the most shorted stock in November and December, as it contended with a liquidity crisis.
Shares that fund managers bet against in December 2023
Source: Financial Conduct Authority
Investment firms must disclose net short positions worth 0.1% or more of an issuer’s total share capital to the Financial Conduct Authority (although the notification threshold will increase to 0.2% on 5 February 2024). Trustnet has ranked the 10 most shorted stocks by the percentage of their share capital that investment firms have disclosed they are shorting.