Short Bets Of $950 Million Thrust Spanish Retailer Into Spotlight
Dia has become a frustrating play for short sellers.
The Spanish supermarket chain’s shares are up 13% this year, outperforming peers. That’s unwelcome news for the firms that have collectively sold short a quarter of Dia’s shares, according to IHS Markit Ltd, worth €820 million ($950 million) at the current price. Among them is Marshall Wace LLP, which also bet against Carillion Plc, the UK company that plunged 71% last week.
Dia has become the most-shorted stock in the Stoxx Europe 600 Index, IHS Markit data show. Marshall Wace, GLG Partners and Capital Fund Management all increased their short positions in Dia this month, even as the Madrid-based company is expected to raise earnings per share 31% this year. Of the 31 analysts who cover the stock, 27 rate it buy or hold, according to data gathered by Bloomberg.
“Most short positions are there because investors believe Dia’s margins will shrink, as happened to other retail players in the main European markets,” said Jose Rito, an analyst at Banco BPI in Portugal, with a buy rating.
A spokeswoman for Dia, whose full name is Distribuidora Internacional de Alimentacion SA, declined to comment.
KKR-backed Marshall Wace, the biggest bear, has built its wager over two-and-a-half years to a 3.4% stake, currently valued at €115 million, filings show. A spokesman in London for the fund declined to comment.
The shares are trading about 32% below their 2015 high. Dia is more liquid than many peers, with a relatively high trading volume and availability of shares, making it easier to borrow the stock to sell short, analysts said.
The company paid its annual dividend yesterday, providing a yield of 3.9%. That beats the 3.3% average of the 21-member Stoxx Europe 600 food and drug retailers index.
“For me, and most Spanish analysts, it’s hard to understand why this company has such a big short interest,” said Intermoney analyst Antonio Pausa, who rates the stock buy. “But the market is sovereign, and you have to accept that.”