Hedge funds increase punts against UK betting firms
In a wry turn of events, hedge funds have increased their bets against UK bookmakers six-fold, placing more money on falls in shares of companies which themselves profit from speculators punting on the wrong outcome.
William Hill and Ladbrokes are among UK bookmakers in which hedge funds have recently increased their short positions.
Short sellers sell borrowed shares, betting their price will fall so they can buy them back cheaper and return them to the lender. The difference between the sale and repurchase prices, minus the cost of borrowing the shares, is winnings.
Punters have increased their short positions in William Hill by 600% since the start of the year, and in its peer Ladbrokes by about 5%, according to Dataexplorers.com, a short selling data research firm headquartered in New York.
London's Odey Asset Management revealed in exchange filings it was short 0.3% of William Hill's shares at the end of February. UK bank Barclays said the Alpha Advantage Europe fund was short 0.4%.
The bookmaker's shares have fallen 2.3% since the end of February, but they are 14% below their peak this year in early February. About 12% of William Hill's shares are now out on loan, a jump from levels of between 2% and 6% between September and the end of January. It is the third most heavily shorted stock in the FTSE index of UK-listed consumer services companies, after hotelier Accor SA, 17% of whose shares are on loan, and pub chain Wetherspoon, at 13%, according to Dataexplorers.com.
Ladbrokes, less heavily shorted, has seen its shares fall 7% this year, but they are up 4% since the end of February. It announced last month that its earnings per share last year fell by about 24% compared to 2007, however it retained its 9.05p per share dividend.
William Hill announced recently it would raise about £350m (€392m) by selling new shares as part of a debt refinancing. It said this was due to the "dramatic deterioration in credit markets since August 2007, which has resulted in banks seeking to reduce their overall lending to borrowers.” Brokers Teathers said the move "resolved the near-term funding uncertainty" facing William Hill.
Shares in both companies have been the subject of negative recommendations or downgrades recently by brokers at Cazenove, Nobles, and Deutsche Bank.
Hedge funds that exclusively sold short made about 28% last year, according to analysts Hedge Fund Research, as global shares fell by 42%, according to Bloomberg.
William Hill and Ladbroked both declined to comment on the short positions in their companies; neither Alpha Advantage nor Odey could be reached for comment.
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