The Market Report: Bloody nose for shortsellers as Ocado rockets
The short-sellers won't be happy, but there is no stopping Ocado at the moment. One of the most divisive stocks in the Square Mile, the online grocer continued its fantastic start to the year yesterday as yet more short covering helped it up to its highest share price for four months.
The group closed at the top of the mid-tier index last night after rocketing up a huge 11.05p, or 12.69 per cent, to 98.15p – a level it has not seen since last October. It means that, having fallen to an all-time low in December, Ocado has added more than 80 per cent in 2012 already.
Traders were putting much of this move down to a bear squeeze, saying that short-sellers were being forced to cover their positions. According to the latest figures from Data Explorers, 12 per cent of Ocado stock is out on loan, making it one of the most heavily shorted stocks on the FTSE 250.
Still, there are some true believers. Numis Securities – which recently became one of Ocado's joint brokers – came out to bat for the group by reiterating its "buy" rating in the wake of its full-year results on Tuesday. Saying the figures showed "a credible performance considering the disruption within the distribution centre", Numis' Andrew Wade added that Ocado was "now well set to be one of the winners" in the battle for online grocery shopping.
The analysts at Oriel Securities, however, warned that anyone expecting the group's sales growth to increase significantly was "grossly optimistic". Keeping their "sell" advice, they also attacked vague speculation it could be a target for Morrisons (up 0.1p to 286.1p) as "fanciful", while adding that the "shares' brilliant but unjustified run is a great opportunity to build short positions".
Overall, encouraging factory data from China overnight, followed by figures showing a surprise return to growth for the UK manufacturing sector, got the session off to a good start. Positive data from the US later in the day only pushed the FTSE 100 up further, meaning that by the bell it was 109.11 points higher at 5,790.72 – nearly a six-month high.
A rally amongst the miners played its part in the move, with Xstrata jumping up 45p to 1,119.5p. The Swiss digger's production update earlier in the week was largely welcomed, and yesterday UBS analyst Myles Allsop reiterated his "buy" rating, saying the group still seemed cheap.
After announcing the details of its management reshuffle, Lloyds jumped up 1.58p to 32.2p, rising for the first time in four days. The rest of the sector were also ahead as sentiment appeared to be improving over Greece's debt talks despite there still being no conclusion, as Royal Bank of Scotland and Barclays were bumped up 1.12p to 27.74p and 11.55p to 224.1p.
A bullish note from Bank of America Merrill Lynch was the catalyst for Rolls-Royce to set a new all-time high. The engineering giant flew up 35p to 770.75p after the heavyweight broker's analysts said they believed the group could reach 855p, praising its "structural long-term advantages over its peers".
Traders were blaming profit taking for Arm Holdings being one of the six blue-chip stocks to fall. Amid concerns over its valuation, the chip designer was knocked back 17p to 592.5p, despite a number of brokers raising their price targets following its forecast-beating fourth-quarter results earlier in the week.
Down on the FTSE 250, Aquarius Platinum was unable to bring its recent slide to a halt, slipping a further 3.3p to 166.9p. The miner – which on Tuesday admitted its production over the second-quarter had dropped 17 per cent year-on-year – has now lost nearly 13 per cent in just three sessions.
The decision by the European Commission to block the merger between Deutsche Börse and NYSE Euronext sparked optimistic buying of London Stock Exchange. It was lifted 47p to 917p amid hopes it could be involved in future consolidation among the global bourses, although dealers were not getting excited over the well-worn idea.
Elsewhere, bid talk was being revived around Soco International. Its shares spurted up 8.5p to 300.2p after Brewin Dolphin predicted that the explorer would "either divest its Vietnamese assets, be taken over or... return significant cash to shareholders."
After its share price has dropped more than 80 per cent in under 11 months, Aurelian Oil & Gas announced it was putting itself up for sale. Complaining that it was undervalued, the AIM-listed explorer revealed it was looking at a number of options, including a sale or a merger.
Yet, despite rumours last November claiming it had rebuffed an approach worth 25p-a-share, Aurelian dropped 0.25p to 16.25p, with City voices saying there was little confidence the group – which has been hit by a wave of bad news from its Polish operations – would receive a bid priced at a significant premium.
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