Short & Caught: Flight Centre and rate sensitive stocks among ASX most shorted
In Short & Caught, Stockhead recaps the ASX stocks that are the most shorted and have had the greatest increase in short interest right now.
Shorting works by selling stocks you do not actually own in the hope of buying them back at a lower price. Investors are in effect betting they will fall.
Because shorting is restricted under Australian law, any substantial shorting of stocks is worth knowing about, even if you only trade long.
Stockhead has utilised the number of short positions as a percentage of total shares on issue. The most shorted ASX stocks all have 5.5 per cent or more.
Surprise, surprise Flight Centre (ASX:FLT) continues to hit turbulence with short sellers, remaining the most shorted stock on the ASX and has been in this column for most of the year.
Flight Centre’s short position has fallen only very slightly. The company had 17.05% or ~34.5 million of its outstanding ~199.8 shares on issue held short. Traders are betting travel restrictions mean Flight Centre will struggle to justify today’s valuations.
The Brisbane-based company is forecasting an underlying EBITDA loss of $195 million to $225 million for FY22. Co-founder and managing director Graham Turner said its major issue is a lack of international flights which are substantially down on pre-Covid-19 levels and the fact that domestic travel including flights pay less margins than international travel bookings.
Flight Centre’s share price has actually picked up recently but still remains in the red, down 1.16% for the month to $20.46.
The RBA board yesterday used its June meeting to deliver a 50 basis points rise to increase the cash rate to 0.85%, reaffirming its commitment to putting the inflation genie firmly back in the bottle.
The RBA in early May forecasted inflation will hit 6% by the end of 2022, before easing to 3% by mid-2024 in response to rising rates and as higher energy costs work through the data. The central bank’s target is to keep inflation between 2-3% over time.
Investors Mutual Limited portfolio manager and senior equities analyst Marc Whittaker told Stockhead the good number of stocks being targeted by short sellers are those in rate sensitive sectors, which fell on news of the rate hikes yesterday.
He said fintech, payments and sports betting companies are also sensitive to rate hikes. Appen (ASX:APX), Block (ASX:SQ2), EML Payments (ASX:EML) , ZipCo (ASX:ZIP), Tyro Payments (ASX:TYR)BetMakers Technology Group (ASX:BET)and Pointsbet (ASX:PBH) are all on the short seller list.
“These two groupings have been beneficiaries of cheap money for the last five years, generally make small profits at best and have funded their business models with low cost of funding, that is changing now with rates moving higher, which means growth will need to be internally funded more so than previously and because they really don’t generate a lot of cash, growth will slow,” Whittacker said.
“Also, a dollar today is worth more than a dollar in five years, which is when a lot of these stocks were forecasting to become profitable, so they are marked down on higher discount rates.”
Whittacker said others on the list are consumer discretionary including City Chic Collective (ASX:CCX), Kogan (ASX:KGN), RedBubble (ASX:RBL) and Temple & Webster (ASX:TPW), along with Webjet (ASX:WEB) and Flight Centre.
“These are consumer exposed stocks and with a Covid-19 reopening tailwind, as rates go up and consumer spending pulls back, these types of names will see an impact to sales and earnings as well,” he said.