Rise in short-selling flattens bread maker's shares

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 house-brand products as a result of the supermarket wars, has had its shares knocked to fresh lows over the past eight trading days, falling below 40?.

The shares closed 0.5? lower at 42? yesterday, less than the 45? a share at which the company raised more than $259 million in September-October, and about 74 per cent below the post-financial crisis peak of $1.62, reached in October 2009.

Goodman Fielder 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 its 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 are Goodman Fielder shares falling and what’s driving the recent weakness?

Goodman Fielder shares have fallen to fresh lows over recent trading as hedge funds have increased short-selling and the company faces price pressure and tougher competition from supermarket house-brand products. Analysts also point to tough trading conditions that are weighing on the company’s turnaround strategy.

How much of Goodman Fielder has been sold short on the ASX?

As of last Monday about 4.1% of Goodman Fielder’s shares had been sold short, according to ASIC-based net short position data cited by Commonwealth Bank analysts. That was down from a peak of around 5.5% during last year’s capital raising but represents a sharp increase from levels later in the previous year.

What does it mean that Goodman Fielder rejoined the top 20 most-shorted ASX stocks?

Rejoining the ASX top 20 most-shorted list means a relatively high proportion of Goodman Fielder’s stock is being shorted compared with other listed companies, signalling hedge funds and some investors are sceptical about the company’s near-term prospects and expecting further weakness.

Could short-selling activity increase further if Goodman Fielder reports a weak profit?

Yes — Commonwealth Bank equities analyst Nizar Torlakovic said the bank expects a weak profit result in February given tough conditions, and that an increase in short-selling activity wouldn’t be unexpected if the result proves worse than expected.

What recent corporate actions has Goodman Fielder taken to try to stabilise the business?

Goodman Fielder announced a $100 million cost-cutting and supply-chain optimisation program and plans to sell non-core businesses. The company also completed a dilutive capital raising in September–October that raised more than $259 million.

How do current Goodman Fielder share prices compare with the capital raising price and historic peak?

The shares recently closed around 42 cents, below the 45 cents per share at which the company raised more than $259 million in September–October, and about 74% below the post-financial-crisis peak of $1.62 reached in October 2009, according to the article.

What major problems did Goodman Fielder face in the past year?

Last year was difficult for Goodman Fielder: the company endured a profit downgrade, a change in chief executive to Chris Delaney, about $300 million in write-downs, and a dilutive capital raising, all of which have contributed to investor concern.

What should everyday investors watch next regarding Goodman Fielder stock?

Everyday investors should watch the upcoming profit result (expected in February), changes in ASX short-position data, updates on the $100 million cost-cutting and non-core business sales, and any company commentary—Goodman Fielder declined to comment at the time of the article.