viewKier Group PLC

Kier gives short-sellers a boost after profit warning sends shares crashing

About 4.75% of Kier’s shares are on loan to short sellers, according to website www.shorttracker.co.uk

Short-sellers should therefore welcome a 40% drop in Kier's shares this morning

Short-sellers in Kier Group PLC (LON:KIE) will take home a pretty penny on their positions after shares in the contractor plunged on the back of a profit warning on Monday.

Kier shares dropped after it said underlying operating profit for 2019 will be £25mln below its previous guidance due to lower-than-expected sales in its building division as well as “volume pressures” in its highways, utilities and housing maintenance arms. Profit will also be hit by a £15mln increase in restructuring costs.

READ: Kier shares slide as the troubled outsourcer issues profit warning

The news sent shares in Kier down more than 40% in morning trading.

Ahead of the announcement, about 4.75% of Kier’s shares were on loan to short sellers, according to website www.shorttracker.co.uk. 

Short-selling is when an investor borrows shares from a broker and immediately sells them in the hope that they can buy them back at a lower price, return them to the lender and pocket the difference.

The risk is that if the share price increases soon after an investor takes a short position, they’ll have to pay a higher price to repurchase the stock and return them to the broker’s account.

Metro Bank and AA among most shorted stocks in the UK

The top five most shorted stocks in the UK at the moment are Arrow Global Group PLC (LON:ARW), AA PLC (LON:AA), Metro Bank PLC (LON:MTRO), Debenhams and Wood Group (John) PLC (LON:WG), the Short Tracker website shows.

Over the past year, Arrow Global Group shares have declined 25%, AA shares have slumped 58%, Metro Bank is down 81% and Wood Group is down 41%.

Debenhams shareholders saw their equity wiped out after the department store chain was taken over by creditors when it entered into a “pre-pack” administration in April. 

Elsewhere, Marks and Spencer Group PLC (LON:MKS) is creeping up the list of shorts after its shares dropped on the back of a £601mln rights issue, a full-year dividend cut and a 9.9% year-on-year drop in pre-tax profit before adjusting items to £523.2mln.

M&S has seen its share price fall by nearly 16% in the past month, 6% in the year to date and 18% in the last 12 months as it embarks on a major store closure plan to offset the impact of weaker sales in both its troubled clothing and home division and the food arm.

About 9.1% of M&S shares are on loan by short sellers hoping to see a further slide in the price.

The same amount of shares have been shorted in Anglo American PLC (LON:AA), which in April reported a 6% drop in first quarter production but kept its full-year guidance unchanged.

Anglo’s shares have fallen 4% in the past month but are up 11% in the year to date and nearly 3% in the past year so short sellers are taking a gamble.

Woes in outsourcing sector could attract more short-sellers 

Given the recent struggles in the outsourcing sector, which led to the collapse of Carillion last January and Kier’s profit warning on Monday, investors may look to take short positions in other contractors. 

Mitie Group PLC (LON:MTO) shares tanked 8% on March 28 after the outsourcer warned its order book was likely to fall by 10% in the coming year as clients steer away from entering longer-term contracts. Over the past year its shares have fallen by 24%.

Sector peer Capita PLC (LON:CPI) has seen its shares fall 21% in the past year as it undergoes a major overhaul, which has included a £700mln rights issue, the sale of £400mln of unwanted business and cost cuts.

Shares in rival Serco Group PLC (LON:SRP), on the other hand, have recovered by 36% in the past year, boosted by contract wins and the acquisition of the naval engineering arm of US defence technology group Alion.

According to shorttracker.co.uk, 5.4% of Mitie shares were on loan, while the numbers were 4.4% for Capita and 0% for Serco.

Quick facts: Kier Group PLC

Price: 69 GBX

Market: LSE
Market Cap: £111.86 m

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