This year's IPOs grab headlines
This will be my last piece of 2010 – hard to believe I have done 70,000 words since July and generally managed to steer clear of trouble! Who would have thought there would be that much to say about short selling and securities lending. We will return to normal service in early January and be thankful that I am not filling the ether with frivolous seasonal stories about short interest in toy manufacturers or the like. And now, for this year’s final piece; it is hard to resist a quick look at the IPO situation regarding Opentable, Betfair, Ocado, Supergroup, Mecox Lane, YouKu.
There have been plenty of headline grabbing IPO’s this year with many companies seeing their shares drift lower post floatation - but before we jump on the bandwagon I took a quick look at Sports Direct (SPD), which was the “overvalued” IPO of its time in early 2007. Merrill Lynch came in for some stick at the time when it fell 60% in its first 8 months of trading. Short sellers made hay but interestingly the shares have been continually climbing since the credit crunch and are up 55% this year. Does it take time for companies and investors to get to know one another, and therefore foolish to judge an IPO after only a few months?
The above chain of thought will not have much truck with retail investors who bought shares in online betting exchange Betfair (LON:BET)on the float at GBP 15, given they are now trading at just over GBP 10 per share. Some short selling is occurring to the tune of 1.3% of all shares which is 22% of supply. This rose recently but is not that significant. Of more interest is the fact that funds who lend bought 3.1m shares in Betfair at the float but have been selling their shares and now only own 2.76m shares or 2.6% of the company.
UK grocery delivery firm Ocado (LON:OCDO) has been popular to short, with up to 11.25% of all shares on loan due to the WM Morrison Daily Mail bid rumour. This led to some short covering with the latest figure being 10.5%. However, unlike in Beftair, our proxy for the view being expressed by the long term investors is positive since they keep adding to their stake in Ocado and now own 47.4m shares which is 9% of the company.
Trendy clothing firm, Supergroup (LON:SGP) is a marmite stock in the sense that the short interest kept rising since June (the IPO was in March) while funds who lend kept buying shares, showing confidence. The latter investors have been generally right since SGP floated at GBP 6 and reached 16. Short sellers finally saw some signs their patience could be rewarded when the shares fell badly on this week’s earnings.
In the US, this year’s IPO market has been more than interesting, especially in regards to Chinese companies floating there. We covered the corporate shenanigans surrounding DuoYuan in late September and can see that short selling remains high despite the shares having bottomed out at $3 after falling from $8 in September. Mecox Lane (NASDAQ:MCOX) is another one suffering from post IPO blues falling from $16 to $7, with stock on loan rising in late November and staying quite high relative to the shares that are borrowable at just under 0.6% of total shares. There is a court case in process regarding MCOX.
Youku.com (NYSE:YOKU) means “What’s best and what’s cool.” Sadly, short sellers don’t think this applies to their online video content and have instantly borrowed as many shares as they can on the recent IPO!
There seem to be two types of IPO at present – mining/resources versus every other type of company. Investor skepticism surrounds the latter while investors are far more keen on the former.
