Aryzta shares hit by bearish hedge fund wagers

Aryzta shares, the worst performers so far this year on the Iseq 20 index, succumbed to heavy betting among hedge funds ahead of the frozen baked goods company's interim results this week.

Some 12.5 per cent of the stock was out on loan to so-called short sellers as the company reported weak figures on Monday, according to market information provider IHS Markit. That marked a 40 per cent surge in borrowed stock over four weeks.

Short sellers make money from falling stock prices by borrowing shares, selling them in the market and buying them back and returning them to their original owners once the shares have dropped. The bet can backfire, making them the preserve of investors with a high appetite for risk, such as hedge funds.

Aryzta shares have fallen 29 per cent so far this year, following a profit warning in January from the Swiss-Irish food company and a weak set of results reported on Monday.

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Six-month figures

Earnings before interest, tax, depreciation and amortisation (ebitda) plunged 31.3 per cent to €158.5 million in the six months to the end of January. The company, which will see chief executive Owen Killian, chief financial officer Patrick McEniff and head of the Americas division John Yamin resign by the end of March, was unable to provide guidance on future performance.

Markit analyst Simon Colvin said the spike in "shorting activity" in Aryzta's shares in the run-up to the results "comes in the wake of a turbulent couple of months for the struggling baker". The shares fell almost 7 per cent in the three trading sessions following the release of the interim results.

“Some investors have raised questions as to whether the firm will be able to continue on its current path without raising additional capital, and the increase in short interest would indicate that investors are starting to take this possibility seriously,” said Mr Colvin.

Remarks

A spokesman for Aryzta, when asked for a comment, referred to remarks by the company’s chairman, Gary McGann, during a call with analysts on Monday.

Mr McGann said: “I will be a foolish person who would ever say under no circumstances there will be a cash call. However . . .[A] cash call from shareholders at any price of the share, but particularly at a depressed price of share, is the last place you will want to go.”

Mr McGann, who has only been in the chairman’s role since December, said he is confident that the group, which had €2.2 billion of borrowings as of the end of last July, will be able to cut €1 billion of its debt mountain within four years. The company has signalled plans to sell its 49 per cent stake in French frozen foods company Picard, which it bought two years ago for €446 million, and is reviewing the future of other joint ventures.