In case you were wondering why the downfall today - from AFR -- He is already short, not as if he has taken a new position
Regal’s Phil King takes on retail army with Flight Centre short pick
Jonathan Shapiro
Regal’s Phil King says he’s the only Australian hedge fund manager brave enough or silly enough to return to Sohn Hearts&Minds to pitch a short stock during one of the biggest bull markets of all time.
Regal’s Phil King is short Flight Centre. Brook Mitchell
But he’s gone after a retail favourite, and reopening winner.
“There’s a saying in finance that it’s often better to travel than to arrive,” King said, which is why he’s picked a retail favourite – Flight Centre as a short.
The stock has surged in anticipation of the economy reopening, but King says the share price travelled to a good place long before the business got there. He doubts Flight Centre will ever return to its past pre-COVID-19 glories.
King outlined five reasons why he’s shorting Flight Centre.
- The share price has run too far on sentiment. He compared it to Zoom which has become a part of our everyday life, but is down 60 per cent from its October 2020 peak.
- Flight Centre has financial challenges. The company lost over a billion dollars last year, has drawn down on debt and issued two convertible bond issues. Convertible bonds, he says “are great for investors as they give you the upside without the downside.” In the case of Flight Centre it means future dilution for existing shareholders if things go well or a large refinancing task if they don’t.
- Flight Centre has slashed its store footprint which will make it tougher to improve the sales to previous levels implied by its share price.
- There’s more pressure on one of Flight Centre’s key sources of profits - the kickbacks from airlines.
- The bricks-and-mortar business was already under pressure from digital competitors prior to COVID-19, which if anything has accelerated the shift to online commerce.
“It’s been a tough two years we all need a holiday. Some of us might even use Flight Centre to book it,” King said signing off. “But I think the shares are a great short.”
(20min delay)