Investor sentiment towards the changing high street

The landscape of the UK high street is changing. The number of shops being boarded up is increasing and the national average vacancy rate is set to surpass 15%. Shop front boards are changing at an ever increasing rate too. We turn to the securities lending market to detect investor sentiment as to which names are expected to disappear from the declining high streets. Stock covered include: Debenhams (LON:DEB), Next (LON:NXT), Marks and Spencer (LON:MKS), HMV Group (LON:HMV), JD Wetherspoon (LON:JDW), Mitchells and Butlers (LON:MAB), Punch Taverns (LON:PUB), Ladbrokes (LON:LAD), William Hill (LON:WMH), Banco Santander (SAN), HSBC Holdings (LON:HSBA) and Barclays (LON:BARC).

Retailers have definitely been making the most of out-of-town malls and online shopping, neglecting their traditional high street branches. With Arcadia (owner of Topshop) set to shut 300 high street stores, who else is poised to follow suit? Investors are not showing confidence in Debenhams which has been less than aggressive in promoting its online business and lags behind the movement to out-of-town retail parks and malls. The company has seen short interest rise from 2% to 5% of total shares outstanding on loan over the year. Holdings of funds who lend, which can be applied as a proxy for institutional ownership, has fallen slightly over the past year from 190 million to 180 million, which could imply uncertainty over the direction presented by the retailer. There has been less activity in competitors Next and Marks and Spencer with short interest at similar levels to last year at 4% and 2.5% respectively of total shares outstanding on loan.

The future looks bleak for HMV after reports that it has hired KPMG’s debt advisory team following supplier and credit trouble. Short interest has increased from 14% to 23% of total shares outstanding on loan over the year. The current figure may include a proportion of borrowing for dividend arbitrage purposes. Institutional investors reduced holdings over the first six months to a low of 80 million shares but this has increased to be on par with January 2010 holdings of 95 million shares.

Independent pubs are also disappearing from the scene and commercial chains are not keen on the high street reports the Financial Times. With short interest on the increase in the sector and institutional investor sentiment unfavourably falling, this may be likely. JD Wetherspoon has seen short interest increase over the year from 3.5% to 5% and over 20% of the lendable supply currently out on loan. Mitchells and Butlers are more positively viewed in the eyes of the short sellers as they covered their positions over 2010, from 4.3% to 3% of total shares, as the share price rallied. Institutional investors have been more modest, with total holdings ranging from 40 million to 46 million shares over the same period. Punch Taverns has received some negativity from the short side of the market as short interest has doubled to 3% since last year, whilst institutional ownership remains unchanged at 120 million shares.

The Financial Times reports that bookmakers are the only category to see significant growth and are set to stay. Ladbrokes is expected to be a winner as short sellers have covered their positions over the second half of 2010 from 8% to 3% of total shares outstanding on loan. Competitor William Hill has not been perceived so positively by short sellers. Although short covering over the last quarter halved short interest from 10% to 5%, levels are still far above the two year low of 1% of total shares outstanding on loan.

Spanish bank Banco Santander is a great example of the reshuffle of high street banks with its red shop front a familiar feature in high streets. Institutional investors have piled into the stock, increasing holdings from 800 million to 1,300 million since October 2008. However, the increase did lose momentum over 2010 as holdings were relatively unchanged. Short interest in UK banks is generally low, with Santander as no exception at 2% of total shares outstanding on loan. HSBC and Barclays have solid foundations in the high street and see increasing institutional ownership.
 

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