The short-selling attack on sandalwood group Quintis has intensified the focus on short positions in other Australian stocks, amid growing expectations that similar raids could be in the works.
Shares in Quintis — which was formally rebranded on Tuesday from TFS Corp — plunged to their lowest level in more than three years yesterday as investors continued to react to Tuesday’s blistering attack from US activist short-seller Glaucus Research.
The research note from Glaucus described Quintis as “worthless” and accused the company of making “highly misleading statements and disclosures”.
Quintis had long been in the sights of short-sellers and was ranked as the fifth-most shorted stock on the ASX at the time Glaucus released its report.
It is surrounded by a group of stocks that have shown signs of becoming overvalued and which in some instances have had questions asked of their business models. They include IT group Aconex, retailer Myer, television network Nine Entertainment, graphite developer Syrah Resources and the once-unstoppable Domino’s Pizza Enterprises.
Aconex and Syrah are down about 60 per cent from their highs of last year, while shares in Domino’s have fallen 30 per cent since August.
While shorting has long been a part of the Australian market, the Glaucus note was the most public attack of its kind seen here.
Australian fund manager Sandon Capital has taken activist positions in the past but its focus has been on improving, rather than hurting, the share price of its targets. Sandon founder **riel Radzyminski told The Australian that while short-sellers here had a record of weeding out poor companies, investors were more inclined to work from the shadows.
However, the rise of high-profile US short-sellers such as Carl Icahn and Bill Ackman, coupled with the early apparent success of Glaucus’s move on Quintis, suggested that the Australian market was likely to see more public attacks from short-sellers.
“Most people here in Australia are private with their views on shorts, including us, but in the US there are lots of short-sellers that are public with their views and that is now finding its way here,” Mr Radzyminski said.
The comparative reluctance of Australian investors to talk publicly about their short position reflected both culture and the size of the market.
“The number of people who operate in this market, be it at fund management level, broker level, management level, is very small,” he said. “Most people here would know each other within two or three degrees of separation in the corporate world, and I think that means people here are probably more reluctant to genuinely confront underperformance.”
While some high-profile short attacks in recent years have been successful, others have backfired. Andrew Forrest’s Fortescue Metals Group was one of the most shorted stocks in Australia only a few years ago, amid expectations that weak iron ore prices and a hefty debt position would weigh on the company for a considerable time. But the miner has rebounded with a 330 per cent bounce since January 2016.
Shares in Quintis — whose shareholders include retail magnate Gerry Harvey and Quintis “brand ambassadors” Daniel Ricciardo and Adam Gilchrist — fell another 13.4 per cent yesterday to close at $1.135. The 11.4 million shares traded represented the biggest single-day turnover in the company’s history.
Meanwhile, about 200 shareholders, plantation investors and financial advisers were at the Quintis’s official name launch in Melbourne on Tuesday night, including Ricciardo and Gilchrist as special guests.
Many in the crowd were said to be unaware of the Glaucus report.
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