Home Retail’s performance in 2015 could be regarded as an ‘annus horribilis’ offering a return of -52% for the year(under-performing the broader sector by -58%) exacerbated by its Pre-Christmas profit warning suggesting directional short sellers to date have made a healthy return. However, screening the company on OTAS across our range of factors highlights some interesting analysis on the risk landscape which could prompt shorts(and Long investors) to consider their current positioning.
- Valuation : Home Retail is currently trading on 9.23x 12m fwd P/E and is now statistically cheap. When contextualising similar such valuation levels on the OTAS Stacked Graph, it can be observed that over the last 8 years it has only reached a similar extreme once back in November 2011 which coincided with lows in the share price and positive inflection point.
- Short Interest : The current total % of free float shares on loan is around 10.5% and significantly high compared to the last 2 years. With roughly 11 days of trading volume to cover the existing short base the risk of a short squeeze notable.
- Divergence : The performance of the shares over the last month(-6.82%) has prompted a contraction in the short base of around 2% suggesting directional accounts are now covering existing positions.
- Dividend : As well as offering a cheap valuation, from a fundamental perspective Home Retail also offer a high relative yield at just under 4% which is comfortably covered over 2.7x by next years earnings.
- Other notables :
Home Retail are currently rated a consensus ‘Hold’ and trade at the widest discount(-23%) to the median analyst price target of UK peers.
Home release a Sales update shortly after Christmas on the 14th January
With fundamental factors arguably appealing and offering positive historic context, short interest high and seeing some signs of contraction whilst the depressed share price is attracting bid chatter it may be time for investors to re-assess current positioning in Home Retail shares.
Merry Christmas & a prosperous New Year from everyone at OTAS