ELD surged +18.28% on Monday after the agricultural services business delivered a small beat for FY23 – sales fell 4% to $3.3b, slightly ahead of consensus. However, cash conversion caught the eye with operating cash flow ~50% above consensus, helping the company to pay a 23cps div (30% franked), 7cps above expectations, i.e. the stocks now forecast to yield ~7% over the coming 12 months. The company has encouragingly managed costs far better than expected, and it appeared on Monday that many traders decided all at once that the reason for being extremely negative towards the stock had disappeared in one set of numbers.
- Heading into yesterday’s report, there were ~10m shares /7% of ELD reported as being short-sold, that’s a large position to cover in a hurry.
We mentioned earlier that the “Christmas Rally” is usually characterised by a distinct lack of selling as opposed to aggressive waves of buying; hence, it’s easy to comprehend the move by ELD yesterday. I wouldn’t want to be heavily short a potential turnaround story whose selling volume was poised to dry up in the coming few weeks, the stock could be back above $8 in the blink of an eye, hence locking in some profit after the stock’s shocking year made total sense for those short.
MM is cautiously bullish on ELD short-term
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This prompts the obvious question, what other stocks are heavily shorted that could also potentially snap back in a similar manner to ELD?
