Short & Caught: Flight Centre hits turbulence as ASX’s most shorted stock
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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.
Flight Centre (ASX:FLT) continues its turbulent trip with short sellers, remaining the most shorted stock on the ASX. Flight Centre’s short position has fallen ever minutely from 17.9% to 17.07% in the past month.
The travel sector remains in recovery mode from Covid-19 pandemic domestic and international restrictions, with the Brisbane-based company forecasting an underlying EBITDA loss of $195 million to $225 million for FY22.
Flight Centre has felt the bearish sentiment in the past month, with its share price down 9.16% to $19.74.
Investors Mutual Limited portfolio manager and senior equities analyst Marc Whittacker told Stockhead he thinks the biggest issue for Flight Centre is on the international travel side and the cutting of commissions or overrides by the airlines back to the company.
“Arguably this was the biggest source of revenue for FLT previously and in the past FLT was that dominant that few airlines could push back against this.,” Whittacker said.
“What we are seeing now is a number of airlines significantly reducing their commissions and so this revenue is not going to return to previous levels for FLT.”
Whittacker said travel volumes are returning which is a positive, but corporate travel is probably returning more quickly than leisure.
“FLT is underweight in corporate and are looking to grow this business but it is still a work in progress,” he said.
“The company still has ample liquidity and did report positive cash flow last month but has continues report negative profits and will likely do so for some time to come.
“Despite all this, the company has rerated significantly from its covid low of around $9.00 back to $20.00 so pricing in a recovery in earnings which hasn’t come through yet.”
Morningstar equity analyst Brian Han told Stockhead Flight Centre shares are trading at a premium to their valuation, mainly due to two reasons.
“First, its corporate travel business is recovering faster than market had anticipated because businesses are learning to live COVID-19 and business people are desperate to get away from their partners and kids after being stuck at home for 2 years,” Han said.
“Second, pent-up travel demand is being released for the benefit of its leisure business because everyone is desperate to get away from home and zoom, and parents want to tear their kids away from their screens.”
However, he said at current prices, investors may be a little complacent about the fact that Flight Centre is still loss-making, and the path back to pre-COVID profitability will not be smooth.
“Flight Centre’s competitive advantage lies in its brand awareness in both corporate and leisure, its long-established client relationships in corporate, and its hybrid digital-shopfront distribution network in leisure,” Han said.
“Unfortunately, we don’t think any of these competitive advantages are enduring enough to erect an economic moat around Flight Centre longer-term, and competition is intense from fellow industry players and digital disruption.”
Not faring much better with short seller is travel booking platform Webjet (ASX:WEB), which has a short position of 10%, with the company’s share price falling 1.36% in the past month to $5.82.
BetMakers Technology Group (ASX:BET) also remains the second most shorted stock with a short position of 13.44%, falling slightly from 13.62%.
BetMakers operates a platform model providing the back-end technology for bookmakers primarily in horse racing.
BetMakers earlier this week announced its wholly-owned subsidiary Racing Technology Ireland – trading as Global Tote – had been contracted as the new tote technology and service provider for Norway.
The new gig was part of a 10-year agreement relating to the provision of wager processing services with Stiftelsen Norsk Rikstoto.
While its shares rallied on the news, overall at the time of writing BetMakers has seen its share price drop 22% in the past month to 50 cents.
The healthcare sector has felt the rotation out of growth and into value stocks during the recent market downturn, so it’s no surprise to see short sellers wondering about its prospects in an economy of higher inflation and interest rates.
Nanosonics (ASX:NAN), which has developed and commercialised the trophon EPR device, an automated disinfectant technology for ultrasound probes, has seen 12.01% of its stock shorted, slightly less than our last report at 12.48%.
Shares in Nanosonics have also felt pressure of a major change in its US sales model and move to a direct sales model. The company’s share price is down ~1% in the past month to ~$3.87.
Wound care company Polynovo (ASX:PNV) has a short position of 11.23%, despite its share price rallying 15.20% in the past month to $1.18, on no real news.
The company did a record (unaudited) Q3 FY22 with revenue of $12.26m, up 59.3% on pcp, while throughout the past month chairman David Williams has been throwing his support and funds behind the company.
Williams has made a series of large share purchases in Polynovo through entities with which he is associated and according to their latest announcements (May 26), now holds 22,860,080 fully paid ordinary shares.
Pharmaceutical company Clinuvel (ASX:CUV) has seen 6.98% of its stock shorted. The company’s share price has fallen 5.34% in the past month to $15.42. The company recently revealed positive results of its pilot study CUV801 had delivered positive results of the company’s drug afamelanotide in treating arterial ischaemic stroke (AIS).
Clinuvel also announced it will start treatment of vitiligo patients with afamelanotide under a new study protocol (CUV104).
Cellular medicines company Mesoblast (ASX:MSB) is also in the eyes of short sellers with a short position of 8.09%. Mesoblast has ongoing clinical research activities in the country to commercialise a drug that treats GVHD (graft versus host disease), which is a severe inflammation in the bloodstream caused by complications of bone marrow transplants.
Mesoblast’s share price has fallen ~11% in the past month to 98 cents.
A former favourite of the Covid-19 pandemic, protective personal equipment (PPE) specialist Ansell (ASX:ANN), has also got a short position of 5.37% up from 5.21%. The short position comes despite the company’s share price lifting 3.28% in the past month to $27.23.
The Bank of Queensland (ASX:BOQ) was also not spared from the attention of short sellers and now has 5.73% of its stock shorted.
Despite the resource sector being up 0.9% for the month and 1.77% this week, short sellers also have some stocks in the sector in their line of vision.
Coal miner New Hope Corporation (ASX:NHC), gold miner Regis Resources (ASX:RRL), platinum group metals explorer Chalice Mining (ASX:CHC) and gold explorer De Grey Mining (ASX:DEG) were among resources stocks shorted.
Artificial intelligence company Appen (ASX:APX) has seen 10% of it stock shorted, despite the company’s share price rising 20% in the past month to $8.10. The company has received a takeover offer worth $9.50/share from Telus International – well above its current price.