Rise in short-selling flattens bread maker's shares

SHARES in struggling bread maker Goodman Fielder have taken another step down this year, with an increase in short-selling activity by hedge fund investors indicating uncertainty about the company's turnaround strategy.

By InvestSMART · 17 Jan 2012

By InvestSMART ·
17 Jan 2012

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Goodman Fielder, which faces increasing price pressures and competition from home-brand products as a result of the supermarket wars, has had its shares hit fresh lows over the past 10 days, falling below 40?.

The shares closed down half a cent at 42? yesterday, down on the 45? a share at which the company raised more than $259 million in September-October, and about 74 per cent below its post-financial crisis peak of $1.62, reached in October 2009.

Meanwhile, the company has rejoined the list of the top 20 most-shorted stocks on the ASX, according to Commonwealth Bank analysts using net short position data from the Australian Securities and Investments Commission.

As of last Monday, about 4.1 per cent of Goodman Fielder shares had been sold short, down from a peak of 5.5 per cent during last

year's capital raising but a sharp increase from later last year.

Equities analyst Nizar Torlakovic said the bank expected Goodman Fielder to deliver "a weak profit result in February, given tough conditions, and an increase in short-selling activity was not unexpected".

"So far short positions above this [4.1 per cent] level were short-lived," Mr Torlakovic said.

"However, that may change if the result proves to be worse than expected."

Last year was difficult for Goodman Fielder, which endured a profit downgrade, a switch to new chief executive Chris Delaney, $300 million in write-downs, and the dilutive capital raising.

The company also announced a $100 million cost-cutting and supply chain optimisation exercise and the sale of non-core businesses. Goodman Fielder declined to comment yesterday.

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Frequently Asked Questions about this Article…

Why have Goodman Fielder shares fallen recently?

Goodman Fielder shares have hit fresh lows amid increasing price pressure and competition from supermarket home‑brand products. The article says the share slide reflects uncertainty about the company’s turnaround and comes after a tough year of profit downgrades, a CEO change, write‑downs and a dilutive capital raising.

What does the rise in short selling activity mean for Goodman Fielder investors?

The article reports that increased short‑selling by hedge funds signals investor uncertainty about Goodman Fielder’s turnaround strategy. Analysts say rising short positions are not unexpected given tough conditions and could grow if the company’s profit result proves worse than expected.

How much of Goodman Fielder was sold short and how does that compare to earlier levels?

According to Commonwealth Bank analysts using ASIC net short position data, about 4.1% of Goodman Fielder shares had been sold short as of last Monday. That is down from a peak of about 5.5% during last year’s capital raising but is a sharp increase compared with later last year.

Is Goodman Fielder on the list of most‑shorted ASX stocks?

Yes. The company has rejoined the list of the top 20 most‑shorted stocks on the ASX, based on net short position data analysed by Commonwealth Bank analysts using ASIC data.

What do analysts expect from Goodman Fielder’s upcoming profit result?

Commonwealth Bank equities analyst Nizar Torlakovic said the bank expected Goodman Fielder to deliver a weak profit result in February given tough trading conditions. He added that increases in short‑selling activity were not unexpected and that higher short positions could persist if the result is worse than expected.

What major problems did Goodman Fielder face last year?

Last year the company endured a profit downgrade, a switch to a new chief executive (Chris Delaney), about $300 million in write‑downs, and a dilutive capital raising that raised more than $259 million at around 45 cents a share.

What cost‑cutting or restructuring steps has Goodman Fielder announced?

The article says Goodman Fielder announced a $100 million cost‑cutting and supply‑chain optimisation exercise and plans to sell non‑core businesses as part of its turnaround efforts.

How far below its peak are Goodman Fielder shares trading?

Shares are trading about 74% below their post‑financial crisis peak of $1.62 reached in October 2009. The article notes the shares recently closed down half a cent at around 42 cents, compared with about 45 cents at which the company raised capital in September–October.