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Bond or No Bond, Victoria Plc Remains in Short Sellers' Sights

Bond or No Bond, Victoria Plc Remains in Short Sellers' Sights

  • Last week’s big share price fall hasn’t ended bearish wagers
  • Fast-growing firm spooked investors with bond, later withdrawn

Short sellers don’t seem to have given up on Victoria Plc, even after last week’s 26 percent plunge in the company’s shares.

Plans for a debut bond helped trigger the sell-off. The debt sale was canceled on Monday but the shares remain about 20 percent lower than when the plans were first announced and more than 40 percent down since the start of September, when short-sellers stepped up their positions. Most speculators are continuing to hold onto their bearish wagers, with hedge funds paying elevated rates to borrow the shares.

The big drop in the stock marks a big reversal for the Kidderminster, England-based firm, which has grown rapidly with a series of acquisitions since executive chairman Geoff Wilding took control of the business in 2012. The Oct. 29 trading update, which was intended to support the company’s first bond sale, “needlessly left shareholders feeling uncertain about the future” and “left an open goal for those with less than pure motives to spread outrageous untruths”, Wilding said in a Nov. 6 statement.

“Victoria seems to be on the wrong side of a flight to quality, given the tightening in the credit markets and the company’s exposure to slowing economic growth,” said Michael Ingram, chief market strategist at WH Ireland in London. “Short sellers need to have high conviction in the small-cap space because any short squeeze can be really painful.”

Victoria Plc Responds to Biggest Share Fall as Considers Bond

Polar Capital LLP, TT International Funds Plc and SFM UK Management LLP are among investors with short positions in Victoria, according to data sourced from regulatory filings. The funds didn’t immediately respond to requests for comment.

Bets are on

Short interest rose to a record last month and was hovering at about 6.3 percent of share outstanding on Nov. 7, the day after the bond sale was withdrawn, data compiled by IHS Markit Ltd. show. Annualized borrowing rates for Victoria shares currently average 1,500 basis points, compared with just over 100 basis points at the start of October, according to Markit. Short sellers borrow stock to sell, with the aim of buying it back at a lower price.

Under Wilding, Victoria acquired a dozen flooring businesses at a cost of more than 630 million pounds, Berenberg analysts have calculated, while revenues have soared to 424.8 million pounds from 71.4 million pounds in 2014, according to data compiled by Bloomberg.

Its falling equity value and scrapped bond plans haven’t dented Victoria’s buy-and-build strategy with the company saying it “continues to identify and very selectively pursue attractive acquisition opportunities” on Monday.

A representative for the company couldn’t immediately provide a comment.

For Wilding, a former investment banker, a big share of his estimated 285 million-pound fortune is tied up in the business, but he has been steadily decreasing his holdings in recent years. Wilding sold 5 million shares when the stock was still close to its record high, cutting his stake to 18 percent as of Aug. 6.

Balance Tipped

Given the short sellers’ positioning, and the negative trading update, the bond sale may have been doomed even on the day it was announced. High-yield investors have rejected at least 13 other deals in Europe this year as volatility has crept into the market amid fears of sudden losses and difficulties finding the right price for a security.

Victoria said it canceled the deal after indicative pricing for the offering climbed too high. It may still return to debt investors to refinance a 445 million-euro loan maturing in 2020 if it wishes to pursue further acquisitions.

The company’s strategy of ‘rolling up’ businesses in the fragmented flooring sector has been “highly successful”, CreditSights analysts wrote in a report on Monday. However, there are concerns, including execution and integration risks, and potential for overleveraging, they wrote. And in the absence of dividends, “the company relies on capital appreciation to repay equity investors’ faith and this approach is sensitive to changes in market confidence,” the analysts wrote.

— With assistance by Suzy Waite