Market Report: Long faces among Ocado short sellers

  • @LauraHChesters

Short sellers in the grocery specialist Ocado got the life squeezed out of them for a second day. The online grocery distribution group was a favourite of the hedge fund community as one to bet against – more than 87 million shares were out on loan in February. But a run of good news, including its distribution tie-up with Morrisons and now rumours that it might be looking at something similar with Marks & Spencer, hasn't helped the shorters' positions. Since the end of last month the number of shares out on loan has fallen by almost 13 per cent.

Karl Loomes, market analyst at SunGard's Astec Analytics, said: "Our data suggests that the covering of Ocado short positions began to come through in the latter half of May and continued through to June, where it now seems to be helping squeeze the share price higher. Last week, for example, the number of Ocado loans being closed [ie returning of borrowed shares] was double the number of new loans being opened."

The short squeeze, accompanied by the M&S rumour, helped to push the mid-cap grocer up for a second day. On Monday it finished up 13 per cent, and it closed up 13p – or 4.1 per cent – to 325p.

The FTSE 100 continued its fall as punters worried that central banks would start turning off stimulus. It lost 60.37 points to 6,340.08, back down to levels last seen in February. William Nicholls, dealer at the spread better Capital Spreads, said: "All this speculation on central bank policy has been very damaging for markets, so it could be worth holding off until there is some certainty surrounding the matter, as opposed to just rumour."

The main sufferers were miners. Evraz was the worst performer on the benchmark index, 7.3p worse off at 117.3p. Alongside Polymetal International it is expected to leave the FTSE 100 after this week's reshuffle.

Experts at Bank of America Merrill Lynch boosted Tullow Oil when it reiterated its "buy" rating with a 1,570p price target. It trickled up 5p to 1,017p.

But a downgrade to "underperform" for Aberdeen Asset Management from the same broker pushed Aberdeen down 18.3p to 395.8p.

John-Paul Crutchley at UBS said the threat of a good bank/bad bank split for Royal Bank of Scotland, being discussed by the Parliamentary Commission on Banking Standards, is "much ado about nothing". Mr Crutchley claimed that RBS is "one of the few UK banks that has grown its core domestic loan book since the crisis" and if there is a "political belief that removing non-core millstones around UK banks would assist lending, the obvious response is why only consider RBS and not also Lloyds?" He rates both a buy with a 370p and 72p price target. RBS declined 6.5p to 327.5p and Lloyds edged back 0.37p to 61.19p.

Back on the mid-cap index, debt-laden First Group began its £615m rights issue, but analysts at Investec declared the bus and train group is about to get back on track with a "recovery story" centred on its student and UK bus business.

Investors have suffered as the share price crashed, the dividend was scrapped and the discounted rights issue has been "painful for existing holders", but Investec claimed that the transport operator is "on the verge of becoming an interesting equity investment again". Investec thinks that if everything goes to plan (the turnaround and the fundraising) then the present share price "looks a good entry point".

Dealings in the new shares will start on 26 June. The rights issue is priced at 85p a new share – a 39.5 per cent discount to the theoretical ex-rights price. The shares were down 23.2p to 99.6p. Investec raised its recommendation to "add", but reduced the price target to 110p after last months' price fall.

Over on Aim, the oil explorer Gulf Keystone said it had hired the recruitment firm Odgers Berndtson to find a non-executive chairman as part of its quest to split its chief executive and chairman roles ahead of its attempts to move from Aim to London's premium listing. The Kurdistan-focused group was 6.5p weaker at 154.5p.

The pan-African agricultural group Agriterra has increased revenues by more than 50 per cent to $20.8m (£13.3m) for the past year and reported a 146 per cent rise in revenues from its beef operations in Mozambique. Its shares gobbled up 0.05p to 2.68p.