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Eat my shorts: Morrisons gives short sellers a lesson after strong Christmas trading news

According to the website www.shorttracker.co.uk, Morrisons is the seventh-most shorted stock in the UK – meaning traders are betting that the share price is primed to fall - with some 11.5% of its shares on loan, according to publicly declared positions
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Morrison reported a 2.8% increase in like-for-like sales, excluding fuel, in the 10 weeks to 7 January, its ninth straight period of growth

Investors in Wm Morrison Supermarkets PLC (LON:MRW) were still celebrating at lunchtime after Britain’s fourth biggest food retailer saw its Christmas trading update surprise on the upside, although short sellers of the stock were less happy.

According to the website www.shorttracker.co.uk, Morrisons is the seventh-most shorted stock in the UK – meaning traders are betting that the share price is primed to fall - with some 11.5% of its shares on loan, according to publicly declared positions.

READ: Morrisons delivers sales growth over festive season

Russ Mould, investment director at AJ Bell commented: “The battle between the bulls and the bears continues at Morrisons but it is the shareholders rather than the short-sellers who are raising a glass to the grocer’s Christmas trading statement,”

He pointed out: “A 2.8% increase in like-for-like sales, excluding fuel, in the 10 weeks to 7 January represented the ninth straight period of growth and an acceleration on the prior three-month period, as Morrisons focused on providing quality at the right price in its stores, showed solid growth online and benefited from faster growth in wholesale.”

Mould also noted that Morrison’s management left their full-year earnings expectations unchanged, which he thinks will reassure many after the carnage seen in some retailers’ share prices this month and also underpin analysts’ forecasts of a steady recovery in the dividend payment. 

He added: “A yield of around 3.0% for 2019 may start to bring the stock nearer to the radar of income-hunters once more.”

Bears yet to be convinced

But the investment director also noted that, given the high short position: “Bears are clearly yet to be convinced.”

Mould said: “The 12 funds who have taken positions against it will point out the latest data from consultants Kantar Worldpanel which show how Morrisons’ 2.1% sales growth in the 12 weeks to 31 December lagged a 3.1% increase at Tesco, let alone the 16.8% gain recorded by both Aldi and Lidl.

“As a result, the Kantar numbers show that Morrisons still lost market share in 2017, from 10.9% in January to 10.7% at the end of the year and boss David Potts and team still have work to do.”

Market leader Tesco PLC (LON:TSCO) will post its Christmas trading update on Thursday, together with clothing and food retail group Marks & Spencer PLC (LON:MKS), while number two player J Sainsbury PLC (LON:SBRY) reports tomorrow, together with upmarket grocer Waitrose – part of mutually-owned retailer the John Lewis Partnership.

READ: Kantar has Tesco as its top Christmas cracker, but market reckons it could still be a festive turkey

Tesco shares were weak on the FTSE 100 index as Morrison’s rose today as the Kantar data also showed continued market share gains for the German discounters, Aldi and Lidl, which challenges Tesco’s number one position, with their Christmas sales growth in the mid-teens, exceeding the ‘Big Four’ supermarket’s sales by a factor of five.

But Morrison’s shares came off their best with some commentators noting disappointment that the strong Christmas performance had not led to any guidance upgrade.

One blot on the landscape

Mike van Dulken, head of research at Accendo Markets, said: “The only blot on the update is management leaving full year guidance unchanged. This is preventing the shares from benefiting from the type of short squeeze we saw for Next last week (5.3% of shares on loans for short positions; shares popped 10%) after it not only beat consensus but also upped the mid-point of full year guidance.”

He added: “Do we attribute management reluctance to upgrade as conservatism, designed to engineer a full year beat come the start to Feb? Or should we consider it prudence in the face of still tough conditions for the UK consumer?”

Around 12.45pm, Morrison’s shares were up 1.8%, or 4p at 230.9p, having hit a session high of 237.8p in early trading.

Van Dulken pointed out: “A break above 230p does get the shares back in the upper half of last year’s trading range, following a tough Nov/Dec, equating to a 16% bounce form the lows, but an even more optimistic message from management was clearly required in order to challenge the highs.”

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