Hedge funds that have taken short positions on struggling ASX-listed payments provider, EML Payments Ltd, could come under pressure this morning after a leading institutional investor revealed that it had built a substantial interest in the company.
Soon after the ASX closed on Friday 10 June, Australian Ethical Investment Limited told the market in a filing that it had become a material shareholder in EML following sustained buying activity last month.
Since 12 May Australian Ethical splurged A$4.1 million to acquire an additional 3 million shares in EML.
This boosts the fund manager’s total interest in EML to 18.7 million shares, which accounts for 5 per cent of the total issued equity of the company.
Australian Ethical’s bullish posture on EML comes after a sharp sell-off of the stock in the last year, which has seen the market value of the business slide almost 70 per cent.
EML last traded at $1.33 – a few cents above its 12 month low of $1.29.
The scrip was trading above $4 in September last year.
Australian Ethical’s investment support could test the conviction of short sellers when the market re-opens this morning.
According to securities borrowing data published by the ASX, EML is one of the most shorted stocks on the Australian exchange.
On 8 June there was at least 30 million EML shares subject to share lending agreements, which equated to 8.12 per cent of the total issued scrip.
However, the emergence of a large institutional buyer on the company’s register might be a signal to short sellers that the stock’s bear run might have reached an end.
Notwithstanding this, some current and former investors in EML might perceive Australian Ethical’s move to establish a big exposure to the company as controversial.
In December last year Shine Lawyers filed a class action in the Supreme Court of Victoria against EML that alleges misleading and deceptive conduct and breaches of the company’s continuous disclosure obligations.
In a post on its website, Shine states that the alleged conduct relates to an investigation by Ireland’s central bank into an EML subsidiary’s anti-money laundering and risk governance.
EML chairman Peter Martin told shareholders in February that the company would mount a “vigorous defence” against the claim and that a $10.5 million provision had been taken to cover legal costs likely to flow from the case.
“EML strongly denies the allegations and denies any liability,” Martin wrote in a report to shareholders.
“EML has engaged highly experienced and leading class action defence lawyers.
“We have provided in full for known legal costs likely to be incurred in what will be a vigorous defense of these proceedings over the coming years.”
Shine Lawyers has invited investors who acquired shares between December 2020 and May 2021 to join the class action.