Despite launching a significant buyback to bolster its share price last month, Domino’s Pizza, the delivery franchise, is currently the most shorted public company in the UK.
The shares of the FTSE 250 member are already at a decade low as the company grapples with numerous challenges including escalating labour costs and weak consumer confidence, as reported by City AM.
However, several investors anticipate that Domino’s market capitalisation will sink even further. This comes after data from the Financial Conduct Authority revealed that prominent hedge funds were betting against it more than any other stock on London’s primary market.
Investment powerhouses such as Blackrock, Citadel led by Ken Griffin, and Marshall Wace – the British hedge fund managed by GB News owner Paul Marshall – were among the ten investment firms that have disclosed major short positions exceeding 0.5 per cent of Domino’s market capitalisation.
Hedge funds are required to disclose any substantial bet against companies quoted in London to the FCA. According to the regulator’s daily published data, investors have shorted at least 10 per cent of the delivery giant’s total stock, equivalent to £75m in short positions.
Domino’s balancing franchise and shareholder returns
Domino’s senior management has been engaged in a struggle to halt a falling stock price, burdened by a challenging trading environment for retail and hospitality firms and an increasingly competitive home delivery and fast food sector.
Despite the company’s board approving a £20m share buyback programme in September, shares have fallen by 24 per cent over the past three months, with the pizza group remaining “highly cash generative”.
Dan Coatsworth, head of markets at AJ Bell, told City AM that the London-listed stock, which owns the UK and Ireland master franchise, has experienced a challenging period following a dispute with franchisees over profit-sharing and expansion plans. “Last December, Domino’s announced a new five-year framework deal with franchise partners, which looks to have helped repair relationships but raises costs for the listed company.”
The group, which holds the master franchise of the US takeaway giant, was downgraded last month by analysts at Deutsche Bank. They re-rated the stock from a ‘buy’ to a ‘hold’, stating that the recent agreement to give franchisees more profits would impact shareholder returns.
