Short sellers burnt by Woodford favourite

FTSE 250 construction firm Kier Group reports profit rise

Short sellers of Neil Woodford-held stock Kier Group are likely to have taken a hit as the construction firm reported a rise in profit in its annual results.

Woodford Investment Management owns 10% of the Kier Group, roughly 9.8 million shares, according to the FT.

The results revealed that Kier Group’s order book was worth around £10.2bn ($13bn) at the end of June, up from £8.9bn a year earlier. Shares for the FTSE 250 firm rose 8.6% on Thursday morning as a result, and were trading 5.5% higher.

However, Blackrock Investment Management, Marshall Wace LLP and Och-Ziff Capital Management Group, are among the short sellers of the stock.

According to IHS Markit data, short interest in Kier jumped from around 10% a month ago, to 18% last week. This was because short-selling hedge funds that targeted Carillion had turned their attention to Kier Group earlier this month.

The firms listed below all shorted the stock.

NameNet short position (%)
BennBridge Ltd0.50
BlackRock Investment Management (UK) Limited2.31
Citadel Europe LLP0.84
Ennismore Fund Management Limited0.57
GLG Partners LP0.81
GMT Capital Corp0.50
Marshall Wace Asia Limited1.42
Marshall Wace LLP1.80
Och-Ziff Management Europe Ltd.0.94

Adrian Lowcock, head of personal investing at Willis Owen, said this is likely because managers are comparing it to Carillion and looking for the “same weaknesses in the system to exploit”.

He explained that both companies utilised a supply chain finance system which Carillion used it to keep cash on its books and retain money it owed to suppliers, making it look like it had more cash than it did.

Downwards trend

Haydn Mursell, chief executive of Kier Group, said he was pleased with the results.

“Our strong market-leading positions, our record £10.2bn construction and services order books, and our £3.5bn property development and residential pipelines, will see the group deliver on its Vision 2020 targets.

“In addition, the Future Proofing Kier programme positions the group well for an improvement in operating margins and higher cash generation, culminating in a net cash position for FY21.”

However, Lowcock argued the trend for the construction firm has been downwards for some time.

He said: “The nature of Kier’s business means it is sensitive to a downturn in the UK economy and could be more vulnerable if there is a hard Brexit as that puts more pressure on the UK economy.

“So, the shorts might still get proven right later. Short positions are challenging and risky as you can lose money quickly while you wait to be proven right and it takes a lot of conviction to maintain a short position, but also you need to know when to cut your losses.

“Whether they are right or not depends on when they took out their short positions, why they did so and if they are making a profit from them.”

Likewise, Jason Hollands, managing director at Tilney, said the reason short sellers view Kier negatively is because of its similarities to Carillion.

He said: “There has been a degree of Brexit-induced gloom hanging over the construction sector recently, as it draws heavily on EU labour.

“The CEO of Kier is clearly on a mission to prove the doubters wrong though, by plans to cut debt and restructuring the business by selling non-core assets, as well as improving free cashflow.”

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