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Disclosure: The author has a short position in one or more of the shares mentioned. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
The fortunes of London’s two most shorted companies, Carillion (CLLN) and Ocado (OCDO) have differed sharply of late.
Carillion is now well and truly in the 90% club with its shares at around 17p, having started the year at 250p. In July I predicted that the only solution for it was a massive debt restructuring which would all but wipe out the equity and suggested selling at 63p.
The 17th November RNS has confirmed this and the only question that remains for shareholders is what they will be left with. The market cap now is £72 million and I can’t see the creditors being anything like that generous. I reckon single digits are on the way and I am not minded to close until then. I don’t expect to wait very long.
On the flip side, in June I recommended selling Ocado at 300p on the basis that a reported tie up with M&S was wildly over hyped and that bid rumours from Amazon were unjustified. Last week I was patting myself on the back with the shares at 235p.
This week the shares rocketed by well over £1 in two straight days as the company came up with the long-awaited 'big deal' which has added £1 billion to the already hugely overblown market cap. As you can imagine, I felt a bit of a chump.
The deal is with large French retailer Casino, which some of you may recall was the subject of a detailed and damning short report by Muddy Waters a couple of years back which questioned the company’s financial position and highlighted a host of accounting irregularities.
That aside, details of the arrangement are a little sketchy. It appears that the deal will increase Ocado's already impressive cashburn by £15 million in FY18 and that FY19 will depend on the whims of the snooty Parisian shopper as well as the ability of Casino to meet its obligations. Neither of these are a given and a £1 billion uplift is an absurd reaction to the deal. Those, unlike me, who were wise enough to have closed Ocado shorts before last Tuesday should reopen them promptly at 350p.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE
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