Short interest data can help active investors manage risk. Short sellers tend to do their research. If they’re shorting a stock, there’s usually a good reason they are doing so.
In this report, we are going to discuss the short interest data on J Sainsbury PLC (SBRY:LN). J Sainsbury is the second-largest supermarket chain in the UK with a market share of around 16%. The company is listed on the London Stock Exchange and currently has a market capitalization of £6.3 billion.
J Sainsbury: Short Selling Activity
An analysis of the short selling data on SBRY reveals that this month, the number of shares on loan has increased significantly. At the start of July, 149 million shares were being shorted by five different investment managers. However, as of 15 July, eight different investment managers were shorting 183.2 million shares worth approximately £518 million as per the closing price on 14 July.
As a result of this increase in short interest, SBRY has become the second-most shorted stock in terms of value of shares shorted across Europe, just behind AstraZeneca PLC, whose value of shorted shares stands at a huge £1.26 billion.
One of the new investment managers to disclose a short position in SBRY is BNP Paribas SA. It shorted approximately 18.3 million shares worth £51.9 million on 7 July. BNP Paribas only has two UK short positions. Its other UK short is Vodafone Group PLC.
Polygon Global Partners LLP and Syquant Capital SA were the other two managers to disclose short positions in J Sainsbury. Both managers disclosed positions on 7 July (0.51% and 0.55% respectively). However, Syquant Capital has since disclosed that it has increased its short position to 0.60%.
BlackRock Investment Management UK Limited currently holds the largest short position in SBRY at 2.29% of the total issued shares. This short position was worth approximately £145 million as of 14 July. It’s worth noting that this is the manager’s second-most shorted position out of its 20 active short positions in Europe and 11 active short positions in the UK market. One important fact is that J Sainsbury represents approximately 32.67% of BlackRock’s UK short portfolio and is the largest short bet in terms of value.
Why Are Short Sellers Targeting J Sainsbury?
In terms of why short sellers are targeting J Sainsbury, it is most likely related to the fact that its share price has risen recently on the back of the acquisition of rival WM Morrison by US private equity group Fortress Investment Group. Under the terms of this deal, MRW shareholders will receive 242p per share – a 42% premium on the share price before the offer period. Since it came to light that WM Morrison had received a takeover approach, on 19 June, Sainsbury’s share price has climbed about 10%. Short sellers clearly believe this share price rise is unjustified.
It’s worth noting that Sainsbury’s full-year results for the year ended 6 March 2021 showed a 39% decrease in underlying profit before tax and a 190 basis point decrease in return on capital employed.
It’s also worth noting that on 7 July, Sainsbury’s Chief Information Officer Phil Jordan sold 180,000 SBRY shares at a price of £2.81 per share. This reduced his holding by 70%.
Given the rising level of short interest here, we think caution is warranted towards SBRY stock at present. Quite often, increases in short interest are followed by a period of underperformance.