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Jul 26, 2017

S3 Analytics: July 17th – July 21st 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 $216 billion worth of short positions, the following is a list of this week’s top five best and worst performing shorts.

Top 5 Best Performing Shorts:
• ERICB SS: Swedish telecom operator Ericsson was last week’s best performing  European short. The share price of Sweden’s second largest short, behind Hennes & Mauritz, plunged more than 15% on Tuesday after the company posted a disappointing net loss of $114.6 million in its second quarter due to weak net sales and a declining overall market. The company provided little assurance in its new guidance moving forward, estimating that its equipment market will decline by high single digit percentages to finish out 2017.
• TLW LN: Tullow Oil’s share price decreased 8.9% last week in active short activity. Several funds including Capital Fund Management, Millennium International , Blackrock, and Marshall Wace increased their short positions in the past week while Societe Generale analyst Mehdi Ennebati upgraded Tullow Oil to a buy recommendation with a new price target of 208p, more than a 30% increase since its close last week.
• AAL LN: Anglo American, the British and South African mining company, earned short investors $61.5 million after dipping 3% last week. South Africa, a country where Anglo American does much of their mining, recently proposed restrictions on new mining and prospecting rights. Anglo American’s recent production report showed that copper production has fallen while diamond production increased during the first half of the year. The mining company maintained its full-year production outlook in most categories while raising iron ore production.
• ZAL GR: The German e-commerce fashion accessory site, Zalando SE, fell 8.2% last week as concerns over its slowing growth continue to rise. The company recently launched its own loyalty program called Zalando Zet in an effort to compete with Amazon prime, but preliminary results for 2Q earnings have continued to fuel the concern that Zalando’s growth is on a diminishing trajectory. Senior Vice President David Schroder said that the next step in its strategy will be to provide “an even more frictionless shopping experience, tailored to fashion.” Zalando may look to a more specialized product line to offset Amazon’s dominance in the overall e-retail clothing sector.
• SDF GR: After closing at a 1-yr high of $27.52 the week before, shares of K+S, an agricultural fertilizer manufacturer, fell 4.28% last week. This was on news that potash prices were trending lower than initial expectations.  K+S is hoping that recent unfavorable weather will force agricultural producers to increase their use of potash based fertilizers to boost production yields.

Bottom 5 Worst Performing Shorts:
• HMB SS: Hennes & Mauritz, the third largest European short with $2.7 billion in short interest, rose 4.8% last week. Sales in the overall retail apparel sector increased by half a percentage point in the first half of July with ongoing sales promotions being the catalyst for stronger consumer activity. In particular H&M sales increased by 7% in June, pointing to a possible stronger summer sales season than expected. 
• PNDORA DC: Pandora, the Danish jewelry company, rose 9.15% last week as Carnegie raised its rating to a buy from a hold citing growing 2nd quarter sales momentum in Italy and Australia. The analyst also believes continued growth in China, especially Tier 3 cities, present a significant opportunity for growth. Below expectation April sales are being offset by a strong June sales and hopes of continued strength through discounted stock clearance and a new Disney based jewelry line.
• UHR VX: Swatch Group jumped 7% last week after posting strong first half results and raising its second half outlook. CEO Nick Hayek expecting the company will grow sales by 5%-10% with a focus on China, which accounts for approximately 34% of the company’s sales. Swiss watch exports increased by 5.3% in June with sales to China and Hong Kong increasing by 12% and 4.6% respectively.
• UNA NA: Consumer goods manufacturer Unilever is Europe’s second largest short position at $3.6 billion and short sellers were down $66.6 million last week. Unilever posted stronger than expected first half earnings with gross margin improving by 40 bps and turnover increasing 5% year over year. Unilever has made strides to improve product pipelines particularly in its home and personal care segments.
• ING FP: Ingenico, a French electronic payment solution company, enjoyed a 6.5% price increase last week, with 6% occurring on Thursday after it completed its acquisition of Swedish rival Bambora for $1.7 billion. Bambora is responsible for providing an online payment platform for 110,000 shops and companies, earning 202 million euros in revenue in 2016.   The deal is part of a major shift in the payments industry from hardware to online transactions. The acquisition, financed with cash and debt, is expected to boost Ingenico’s revenue by 1%-2% while boosting earnings per share by 5% in 2018.

Want deeper insight into the above analysis? Contact:
Managing Director Predictive Analytics, S3 Partners
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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