Shortseller ShadowFall targets Asos - report

According to The Sunday Times, the hedge fund has taken a short position in the retailer worth around £4m, making it the second most shorted stock in the FTSE 250.

Unlike traditional stockpickers, shortsellers target stocks in the expectation the share price will fall. They profit by selling borrowed shares before buying them back in the future at a lower price.

Asos’s shares have lost 45% of their value over the last 12 months, and 87% over the last five years.

The retailer, which a year ago moved from Aim to the main list, saw demand surge during the pandemic, in common with most online businesses. But since then it has struggled as customers returned to in-store shopping. Product returns have jumped, while costs have mounted.

Last October, Asos announced it had made a pre-tax annual loss of £31.9m, and acknowledged that the new financial year had got off to a volatile start.

However, it also said profitability and cashflow were likely to improve in the second half.

Recently installed chief executive Jose Antonio Ramos is looking to cut both costs and inventory. In January, the retailer had cash and undrawn credit facilities totalling £430m, the Sunday Times noted.

However, it is thought that ShadowFall – known in the City as the ‘dark destroyer’ – is targeting Asos as it believes the struggling retailer will still need to raise cash from shareholders.

Other companies previously targeted by ShadowFall include Wirecard, the collapsed German payments processor, cybersecurity firm Darktrace and Asos-rival Boohoo.

Russ Mould, investment director at AJ Bell, said: “It’s easy to see why corporate vultures are circling. Ramos is desperately reducing inventory and slashing costs as he looks to stem the flow of cash which is bleeding out of the business.

“The company failed to fix the roof while the sun was shining. Online retail had a good thing going during the pandemic. Now a lot of those factors have reversed, household budgets are tight, returns are easier to make and physical retail is an option.

“Ramos faces a real battle to get things back on track and an increasing number of observers are now betting against him.”