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Aug 2, 2017

S3 Analytics: July 14th – July 28th 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 $221 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:
- BATS LN               British American Tobacco topped our list for the best performing European short after shares fell 8.57% last week, earning short investors $375.7 million in profits, which is as much as the next 10 best performing shorts combined. This came after the Trump Administration decided to back an FDA initiative to reduce nicotine in cigarettes to a non-addictive level, sending tobacco stocks tumbling. “(Cigarettes) are the only consumer product that, when used as intended, will kill half of all long-term users,” said FDA Commissioner Scott Gottlieb.
- GTO NA                Gemalto NV, a Dutch-based digital security company, saw share prices plunge by 20.5% last week after it announced its fourth profit warning since October. The troubling revised second half guidance led analysts to downgrade the stock and adjust its price target to a much lower range as the new guidance implied that gross margins were under severe pressure.  Analyst Alexander Duval from Goldman Sachs noted that these were due to SIM card delays and lower selling prices that were caused by an anticipated transition to embedded SIM cards as well as erosion in payments pending and introduction of contactless payment cards. 
- MRW LN              The British supermarket chain WM Morrison dipped 2.5% last week, enough to net short investors $48.2 million in profits on the $1.7 billion of short interest. As UK food inflation helped boost supermarket sales, WM Morrison has underperformed relative to its competitors, losing 0.2% of market share. WM Morrison is the largest short in the worldwide Food Retail sector at $1.7 billion, topping both U.S.’s Kroger and Australia’s Woolworths by $600 million of short interest. Short sellers have almost as much short exposure in WM Morrison as they do to the next two U.K. Food Retail shorts, Sainsbury short interest comes in at $911 million and Tesco’s at $856 million.
- VOW3 GR            Volkswagen shares declined 3.9% last week after they were mandated to repair the diesel engines of over a million cars, many of which were recalled. Volkswagen’s Dieselgate scandal has hit its bottom line in the form of financial payouts and repair costs but this year’s first half profits increased by 1.4 billion euro year-on-year.
- PFG LN                 Subprime lender Provident Financial’s first half profits dropped by 46% to 90 million GBP even as revenues increased by 8% to 619.4 million GBP due problems switching from self-employed agents to direct hires. The lack of collection agents who issue new loans and collect payments door-to-door had a negative impact on the firm’s profitability. The firm’s managing director of its consumer credit division resigned from the firm.

Bottom 5 Worst Performing Shorts:
- AAL LN                  Anglo American, lost short investors over a quarter billion dollars after its price jumped 14.1% last week. The British mining company resumed dividend payments much earlier than analysts expected and confirmed the 40% of underlying earnings payout policy, instilling confidence in investors. Additionally, through reducing operating expenses and capital expenditure, Anglo American was able to drive down its debt to $6.2 billion, already below its $7 billion year end projection. With help from rebounding commodity prices, the company generated 2.7 billion GBP of free cash flow in the first six months of 2017, more than double the same period from a year ago.
- DIA SM                 Spanish supermarket chain Distribuidora Internacional climbed 17.9% to close at a 1-yr high of $7.04 last week. This was on news that Russian billionaire Mikhail Fridman’s private equity firm Letterone Holdings had taken a 10% stake in the company valued at about $400 million.  DIA is the third largest short in Spain with $1.35 billion of short interest, following Banco Santander with $1.95 billion and Telefonica SA with $1.61 billion. After hitting its year-to-date high of 6.00 euro on Friday, it was also the worst performing Spanish short in 2017 with a net loss of $311 million, or down 35.5%.
- TLW LN Shares in Tullow Oil rose 15.9% last week after first half year earnings were in line with analyst expectations. Tullow concentrated on managing its indebted balance sheet and generating free cash flow, posting a 1H EPS of -$25.20 on revenues of $788 million (47.5% year-on-year). Tullow’s profitability rebounded with oil reaching $50 a barrel again. Its second half outlook remains vulnerable to volatile oil prices and South African drilling restrictions.
- ABI BB                   Anheuser-Busch shares increased 5.6% last week on a solid Q2 earnings report highlighted by volume growth of 1%. Revenue was up 5%, EBITDA was up 11.8%, and EPS was $0.95 thanks to the company’s effective cost-saving strategy. Going forward, the company is relying on the emerging markets of Asia, Latin America, and Africa for industry growth, with success heavily dependent on the ability of consumers in these markets to be able to afford its premium beers.
- TEF SM                 Spanish telecom carrier Telefonica saw its shares rise 4.3% last week after posting a solid Q2 earnings report, which demonstrated a general acceleration in growth in most of its financial fundamentals. Revenue reached $12.96 billion Euros, free cash flow increased to 1.6 billion (double same period in the previous year), and EPS at 0.15 Euros (up 16.3%). The company subsequently upgraded its guidance going forward and reiterated its dividends announcement for the year.

Want deeper insight into the above analysis? Contact: 
Managing Director Predictive 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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