How much lower can Cineworld, ASOS, BooHoo and Royal Mail go?

Some of the City’s most shorted stocks are on the bones of their backsides but, for some of them, City analysts see the risk is now moving to the upside.

It leaves everyone wondering whether the prices can go much lower, when short sellers will start buying back to close out trades, or, more pertinently whether anybody may find themselves over-extended and exposed if stock market sentiments recover more quickly than they’re counting on.

There are few things that make the market, and especially retail buyers, giddier than a ‘short squeeze’.

Such trades are often only for the brave and should come with a health warning. Or, as one former stockbroking colleague used to say … “if you try to pick bottoms, expect to get dirty hands”.

Here we take closer a look at some of London’s ‘most shorted’, according to data curated by GraniteShares. How much lower can they go?

Cineworld

Besides its eponymous UK business, which most investors will be familiar with, Cineworld Group PLC (LSE:CINE) is also the owner of America’s second-largest chain Regal Cinemas.

Regal’s main US rival AMC has for quite some time been among the largest so-called ‘short-squeeze’ trades in the world after the Reddit network of retail traders drove the market through Covid lockdown.

The YOLO heat is increasingly a distant memory for AMC shareholders, with the so-called meme-stock losing over 40% in the year to date.

Perhaps its no surprise that attention is being paid to Cineworld, even before some company-specific issues.

In March, Cineworld’s results for 2021 described a gradual recovery of admissions and demand since the re-opening after lockdown, but takings in January and February were affected by COVID-19 and the lack of major movie film releases.

Revenue rose 112% to US$1.8bn in 2021 from US$852.3mln the year before leading to a return to profitability, with adjusted underlying earnings (EBITDA) positive at US$454.9mln compared to a loss of US$115.1mln the year before. The group is currently appealing against a Ontario Superior Court ruling it must C$1.23bn in damages to Cineplex (TSX:CGX) for pulling out of an acquisition, and said it does not expect damages to be payable while any appeal is ongoing.

Given that ash and restricted cash stood at US$354.3mln at December 2021, it’s a big problem for the firm.

Cineworld stock is down some 70% in the past twelve months and has given up closer to 91% since its peak of 301p in 2017.

It is the #1 most shorted share in London, according to data curated last week by ETF provider GraniteShares.

Some 8.2% of Cineworld stock is ‘held short’, according to Granite, and five notable funds are short the shares.

Across the market, analyst consensus ratings see Cineworld as a ‘hold’ with one buyer, one seller and seven analyst teams holding the middle ground.

Asos

By no means the only retailer on the most shorted list ASOS PLC (AIM:ASC), the former darling of AIM, currently sees its share price nearly 70% lower than it was this time last year, and, has fallen 31% in 2022 to date.

Some 7.2% of ASOS stock is ‘held short’, according to Granite, and it said eight funds were on the short side of the trade.

Nevertheless, City analysts skew to the buy side – with twelve of twenty-seven analyst teams bullish versus twelve ‘hold’ ratings and three with bearish calls.

The balance of consensus perhaps teetered last week though as Liberum cut its targets but retained a ‘hold’ recommendation. The accompanying note wasn’t exactly sweetness and light either.

Liberum noted that the UK clothing retail market had been more resilient than other online categories as seasonal events, return to office work, and the restart of travel for vacations provided support. Nonetheless, the stockbroker said it believes ASOS will find it difficult to meet its sales guidance, pitch at +10 to +15% over last year, especially as after just 1% growth in H1 it needs to see +16 to +26% to reach the target range.

In April’s half yearly results ASOS said the full effects of the cost-of-living crisis have yet to hit.

“We’ve entered the second half of the year well placed, and believe that our stock position, with increased product availability and newness, will stand us in good stead,” a statement said.

For the six months to February 28, loss before tax was £15.8mln against a profit of £106.4mln previoulsy as supply chain constraints, reduced stock availability and Coronavirus (COVID-19) restrictions hit. Revenues grew by 1% to over £2bn, below its growth target of 15%-20% outlined last year and short of its long term target of £7bn per year.

Moreover, amid the cost-of-living crisis Liberum slashed its margin forecasts, by 40 basis points, because of the need for ASOS to use promotions to drive traffic and volumes.

Currys PLC (LSE:CURY)

Some 6.4% of Currys PLC (LSE:CURY) stock is held short, Granite says, with six funds said to be shorting the retail share.

Analyst consensus just about lands on ‘hold’ albeit four of nine analyst are bullish.

On the fence in terms of rating is Barclays, though it downgraded its model last week.

Barclays trimmed forecasts and targets last week as its analysts reckon on continuing headwinds for the electricals retailer.

“Even though Currys trades at relatively undemanding multiples, its weak earnings momentum prevents us from being more positive,” Barclays analysts said in a note.

Earlier this year, in January, Currys downgraded its profit expectations for the current year after revenue fell over the peak Christmas trading period, impacted by a drop in demand and supply chain disruption.

The retailer said it expected adjusted pre-tax profits of £155mln for the year to end-April, down from the £160mln it forecast when it announced its interims.

BooHoo

Like ASOS, online fast fashion rival Boohoo Group PLC (AIM:BOO) also finds itself on the ‘most shorted’ list.

So far in the past year Boohoo shares have lost more than 70% of their value over the last twelve months, and, are 27% lower in 2022 to date.

Some 6.2% of shares are ‘held short’ with seven funds shorting the stock, according to Granite’s data.

Even more so than ASOS, stock market analysts fancy BooHoo will go higher with consensus pitched at ‘outperform’.

Eleven of fourteen analyst teams are bullish, rating the retailer as either a ‘buy’ or ‘outperform’.

Liberum is among few brokers staying on the fence with a ‘hold’ rating cautioned over inflated supply chain costs persisting for the next twelve months as well as a crunch on consumers.

“BooHoo’s pricing ability is limited in the current inflationary environment where its target customer demographic is impacted by increased cost of living, and competition from the emergence of D2C players from China is increasing. The company noted that it is trying to prevent any price increases despite the cost inflation as it focuses on maintaining its competitive position in the market.”

In early May, Boohoo told investors it expects “pandemic-related external factors” to continue in the year ahead, although it predicted an improvement in conditions in the last six months of the year.

Revenue growth for the year to end-February 2023 is expected to be in the low-single digits, while underlying profit (adjusted EBITDA) margins are forecast to be between 4%-7%, the online fashion retailer said in a statement.

Kingfisher

B&Q owner Kingfisher PLC (LSE:KGF) has shed 26% off its market value over the past twelve months, with most of that lost in 2022 to date.

Some 6% of Kingfisher stock is held short, according to Granite, which says six funds are shorting.

City analysts are mostly on the fence, with consensus landing on ‘hold’ – as six brokers rate the retailer as wither ‘buy’ or ‘outperform’, four are bearish and a total of ten retain a ‘hold’ recommendation.

Royal Bank of Canada (TSX:RY) earlier in May said that Kingfisher should have scope to pay higher cash returns to shareholders and that, given the depressed share price, upping returns would “make sense”.

Moreover, the bank’s analyst said it would be a “very sensible use of cash” as home improvement company’s shares were trading in London at around 75% of book value.

Results last week saw the B&Q parent report first-quarter sales were “significantly ahead” of pre-pandemic levels, and, announced a £300mln share buyback.

“While facing very strong comparatives in the prior year, our continued strategic progress has enabled us to retain a significant proportion of the increased sales during the pandemic,” said chief executive Thierry Garnier.

Kingfisher reported “good momentum” into the second quarter with like-for-like sales down 2.5% in the two weeks to 14 May 2022 but up 21.8% compared with three years ago.

Royal Mail

Royal Mail PLC (LSE:RMG) shares are down 48% since this time last year, most of which came in 2022 in the year to date.

Some 4.9% of its stock is held short, according to Granite, and five funds are shorting.

City analyst consensus lands on the bullish side with eleven brokers rating as either ‘buy’ or ‘outperform’ versus four bearish calls.

In mid-May, Royal Mail’s full-year results statement saw chief executive officer (CEO), Simon Thompson, emphasised the need for the letters and parcels delivery firm to kick on with its transformation, a shot across the bows of the Communication Workers Union (CWU).

Group revenue in the year just ended edged up to £12.71bn from £12.64bn the year before.

Profit before tax slipped 8.8% to £662mln from £726mln. Net debt widened to £985mln from £457mln a year earlier. The board proposed a final dividend of 13.3p, making the full-year pay-out 20p.