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Jul 19, 2017

S3 Analytics: July 10th – July 14th Best and Worst European Short Performers

Every week, S3 tracks short sellers’ equity positions in Europe, revealing the trades that delivered positive results or missed the mark.  After tracking $214 billion worth of short positions, the above is a list of this week’s top five best and worst performing shorts.

European 5 Best Performing Shorts:
• CLLN LN: Carillion, an international transportation construction service, was this week’s top performing short. Its 70.8% decline in one week gave short investors $360.9 million in mark to market profits after the company announced Monday that they would be suspending its dividend and terminating some of their existing construction contracts. CEO Richard Howson is stepping down from his position, as well as resigning from Carillion’s board. Carillion warned that its overall 2017 performance is expected to be well below previous expectations. 2017 revenues are now expected to be between 4.8 billion and 5.0 billion pounds, compared to 2016 revenues of 5.21 billion pounds. The firm continues to be hampered by an 800 million pound pension deficit and cash flow issues related to a highly leveraged capital structure. 
• MKS LN: Marks & Spencer Group, a London based department store, fell 5.7% last week after posting weaker than expected first quarter revenues. Revenues declined due to a nation-wide sales slump resulting from a pull-back in spending coming from the country’s surging inflation and slowing growth since Brexit.
• PSON LN: The struggling British educational product company, Pearson PLC, fell 7.3% last week when the company decided to sell a 22% stake in book Publisher Penguin Random House for $780 million. This was the latest chapter in a series of Pearson asset sales in order to prepare itself for the rising popularity of e-books and other online products. Pearson fears that the move to digital content will cut into the profit margins in their existing product lines and is attempting to pivot into the digital arena.
• PNDORA DC: Pandora, the Danish jewelry company, finished the week down 3.8%. Shares tumbled on Friday after a report came out showing the companies in the Stoxx Europe 600 Index with the biggest gaps between their stock price and analysts’ average price estimates. At the top of the underperformers list was Pandora whose stock price is 34% below analysts’ expectations. Pandora’s stock price is down 27% in 2017 but has plateaued and rebounded slightly over the past six weeks.
• NAS NO: The Norwegian Air Shuttle ASA closed at a 2-year low of 177.00 NOK, a 5.9% drop that followed disappointing Q2 revenues that missed analysts’ expectations. The CFO, who abruptly resigned after 15 years of service, said the lower Q2 results were due to increased aircraft leasing costs, higher jet fuel prices and a new Norwegian government’s passenger tax which negatively impacted costs and sales.   European airlines are in a slump due to Brexit related economic issues and growing concerns about terrorism. 

European 5 Worst Performing Shorts:
• AAL LN: Anglo-American, a global mining company based in the UK and South Africa, is this week’s worst performing short after its stock price rallied 6.3% last week, generating nearly $150 million of losses for short sellers.  The company stock price rose after the South African government temporarily suspended the implementation of a new mining ownership charter, which would have increased minimum black ownership requirements and provided for extensive dividend redistribution.
• UNA NA: British consumer goods company Unilever’s stock price rose 3.1% last week after the company launched its Foundry program (meant to bring innovators and entrepreneurs together) in Ireland. The company hopes that its launch of a collaborative workspace for Irish startups and innovators with Unilever will provide the company with fresh business ideas while also benefiting Irish entrepreneurs by giving them an opportunity to partner with Unilever’s 400+ brands.
• MT NA: ArcelorMittal, Europe’s largest steel maker, saw its stock price increase by 9.3% price last week costing short investors $84.4 million in mark to market losses. New European tariffs imposed in China steel exports beginning in October are likely to boost the company’s profits, as European countries are more likely to turn to domestic steel. With China’s steel exports limited in the U.K. and European Union, demand for ArcelorMittal’s production is expected to increase dramatically.
• TLW LN: Tullow Oil saw its price jump 7.3%, helped in part by an announcement by Premier Oil that it had found at least 1 billion barrels of oil off the coast of Mexico, which caused UK oil exploration and production companies to surge. Furthermore, its mid-year financial update outlined first half performance, which was in-line with expectations. Tullow also stated that second half revenues might be unpredictable as oil demand and its resulting price remains highly volatile.
• WDI GR: Wirecard, a German Internet-based consumer finance company, rallied 6.7% last week after the company raised its EBITDA outlook range to 392 million –  406 million euros from 282 million – 400 million euros. The company recently signed an agreement with Chinese internet and e-commerce giant, Tencent to provide European retailers with a new mobile payment application called WeChat Pay, the leading payment solution in China. The partnership could bring a substantial increase in short term and long term revenues for Wirecard.

Want deeper insight into the above analysis? Contact:
Head of Data Analytics, S3 Partners, LLC
The information herein (some of which has been obtained from third party sources without verification) is believed by S3 Partners, LLC ('S3 Partners') to be reliable and accurate. Neither S3 Partners nor any of its affiliates makes any representation as to the accuracy or completeness of the information herein or accepts liability arising from its use. Prior to making any decisions based on the information herein, you should determine, without reliance upon S3 Partners, the economic risks and merits, as well as the legal, tax, accounting and investment consequences, of such decision.

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