Woolworths, CBA the most profitable shorts last quarter

If you’ve been betting against Woolworths, in particular over the last three months and perhaps longer, it may be time to rethink that position. 

Although the supermarket giant was the most profitable short in the September quarter, according to data provided exclusively to AFR Weekend, the latest data from the corporate regulator shows bets against Woolworths have continued their year-to-date easing.

Short positions in Woolworths slipped to 2.98 per cent as of September 28, according to the Australian Securities and Investments Commission data, from 3.19 per cent a month earlier, 3.38 per cent at the end of June and 4.76 per cent at the end of March.

Ahead of the shift, betting against Woolworths has been a money maker.

Citigroup upgraded Woolworths to a buy with a $32 price target, saying the recent share price slump represented a buying ...
Citigroup upgraded Woolworths to a buy with a $32 price target, saying the recent share price slump represented a buying opportunity.

Louie Douvis

Bets against the retailer’s shares in the September quarter generated a profit of $US91.1 million ($126 million), according to data from New York-based financial technology and analytics firm S3 Partners.

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Woolworths shares dived more than 12 per cent from a July 12 close of $31.30 to $27.30 on September 20; a retreat of most of the 16 per cent gain they recorded from the end of the March quarter at $26.29 through the end of June at $30.52.

House of Hayne

Among the other top five most profitable shorts in the latest quarter were: Commonwealth Bank of Australia at $US66.2 million; Westpac Banking at $US65.6 million; Flight Centre at $US53.6 million; and Rio Tinto at $US41.2 million.

The latest ASIC data shows while sentiment has improved for the banks, risks remain and for one simple reason: Kenneth Hayne.

The latest ASIC data shows that while sentiment has improved for the banks, risks remain and for one simple reason: Hayne.
The latest ASIC data shows that while sentiment has improved for the banks, risks remain and for one simple reason: Hayne.

Eddie Jim

Commissioner Hayne’s review of misconduct in the banking, superannuation and financial services industry has cast a continuing cloud over the sector. He’s only handed down an interim report at this point.

In an October 2 note, Macquarie Wealth Management said “we see limited scope for the interim report to act as a catalyst to unwind the current negativity around the [banking] sector’s outlook.”

CBA ended the June quarter at $72.87, advanced to $76.10 on July 9 and then started to drop, falling 7.9 per cent to $70.11 on September 5. It recovered and then sold off again to end the quarter at $71.41. It closed on Tuesday at $69.57.

At the end of last week short positions held against the banks were 0.8 per cent for ANZ, 1 per cent for CBA, 0.4 per cent for NAB and 1.1 per cent for Westpac. AMP stood at 5.2 per cent.

The five most painful short bets in the September quarter were paced by TPG Telecom, with a loss of $US115.4 million. ...
The five most painful short bets in the September quarter were paced by TPG Telecom, with a loss of $US115.4 million. Among the other wrong-way wagers: Afterpay Touch Group at $US66.4 million.

Rob Homer

Buying opportunities

Macquarie said the banking sector had historically traded at about a 22 per cent discount to all industrials, based on a five-year average.

“While we believe the current market conditions justify a bigger discount due to the increased level of regulatory scrutiny, higher compliance costs, bank levy, and weakness uncovered by the royal commission, we believe that 5-10 per cent discount to the five-year average is justifiable,” the bank said.

“Given the sector is currently trading at about 36 per cent to the broader industrials, we see value at current levels, however, we recognise that the sector lacks a near-term catalyst that would narrow the current valuation gap.”

Macquarie has a neutral recommendation on CBA and a price target of $76.50. It has a neutral recommendation on Westpac; it has outperform recommendations on both ANZ and NAB.

As for Woolies, the shift in sentiment was reflected in a September 25 report by Citigroup. The broker upgraded Woolworths to a buy with a $32 price target, saying the recent share price slump represented a buying opportunity. 

Citi also said it expected Woolworths to bounce back against rival Coles “due to superior in-store execution and greater management stability, following the recent turnover of the key Coles grocery director role”.

In addition, Citi said Woolworths’ investments over the past three years in labour, store refurbishments, digital and supply chain support “faster growth” over Coles.

Tech strength

If you chose to bet against some of the local technology sector’s high flyers during the latest quarter, your timing was off.

The five most painful short bets in the September quarter were paced by TPG Telecom, with a loss of $US115.4 million. Among the other wrong-way wagers: Afterpay Touch Group at $US66.4 million; Telstra at $US60.2 million; Vocus Group at $US39.8 million; and WiseTech Global at $US33.5 million.

Afterpay leapt to a closing high of $21.13 on September 27; its 52-week trading range now is $4.12 through $23.

WiseTech has become the largest software company in the small-cap index trading on a P/E of above 100.

On a year-to-date basis, through September, bets against CBA have a paper profit of $US258.1 million. Among the other top five most profitable shorts: Westpac at $US219.1 million; AMP at $US138.5 million; Syrah Resources at $US103.9 million; and Ramsay Health Care at $US85.4 million.

As for the five most painful shorts so far this year, BHP Billiton at $US144.9 million; Afterpay at $US94.7 million; Flight Centre at $US72 million; CSL at $US68.5 million; and, WiseTech at $US58 million.

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