There are not many short plays that were successful this year, especially the high-profile ones. There were, however, some successfully timed bearish bets in Europe that brought profits for the shortsellers. Here is a roundup of what worked best for the shortsellers and what proved catastrophic:
Europe’s Potash cartel breakup
We have talked about the high short interest in K+S AG; the company, which manufactures potassium and magnesium-based chemicals, took a major loss as the potash cartel broke up. While several hedge funds have jumped aboard the shorting bandwagon, the earliest shortsellers were Viking Global, Citadel and Pennant Capital.. Shares of K/+S AG are down 40% YTD. The potash industry faced pressure from the possibility of competitive prices as Russia’s Uralkali OAO (MCX:URKA) (OTCMKTS:URALL) ended its agreement with Belarusian Potash Company, which together accounted for the bulk of the world’s potash supply.
Shares of K+S tumbled massively for two main reasons: the first being the company’s $4 billion potash mining project underway in Canada, and the second its 12% stake in Uralkali. Short interest in K+S is currently equal to 13.6% of outstanding shares, one of the highest percentages in Europe.
Finnish miner plummets
Another winner for shortsellers was Talvivaaran Kaivososakeyhtio Oyj (LON:TALV), a Finland based nickel and zinc miner. While most missed bagging profits from the catastrophic fall of this company, a few lucky hedge funds bet against it at the right time. We covered the story of this Finnish miner as it happened back in April; hedge funds like Sothic Capital, Magnetar Financial and Polygon Global Investors netted large gains from this position. Short interest in the company has phased out a little, but Polygon Global and Capeview Capital still think more can be juiced from this play.
Talvivaaran Kaivososakeyhtio Oyj (LON:TALV) or Talvivaaran Mining Company is suffering from a falling base of assets and scarce funding. Furthermore, the global slowdown in the metal mining industry is also not helping the Finnish miner’s case. Shares of the company have lost 95% of their value so far this year, meaning its market cap has fallen from $3 billion to a mere $141 million now.
Online dating gets no love in Europe
Another big hit of this year was Cupid PLC (LON:CUP). Shortsellers were highly rewarded by the fall of this online dating company. Shares of Cupid have fallen 72% so far this year, and the company has seen consistent short interest despite of seeing a wipe-out of the bulk of its market cap.
U.K.-based hedge funds Tremblant Capital and Ennismore Fund Management managed to net big gains from their short bets against Cupid. The company was marred by allegations of fake profiles on its dating websites that were meant to attract higher subscriptions. However, the accusations were not confirmed by the independent auditor’s report.
Belgian pharma waits for approval
ThromboGenics NV (EBR:THR), a Belgian biopharmaceutical company, has been a favorite among shortsellers this year. Despite a 60% fall in shares, Thromogenics still has a large number of active short positions, with total short interest amounting to 12.8% of outstanding shares. The reason for the company’s massive share price fall was regulatory snags in its flagship drug.
The company said in August that revenues were unlikely to increase in the second half of 2013, given that it was still waiting to get the J-code for Jetera. Yesterday, CMS (Center for Medicare and Medicaid Services) announced that a permanent J-code for Jetera has been assigned which will be effective from January 2014. A J-Code helps in streamlining the claims filed against the drug and speeds up the reimbursement process, which in turn makes it more convenient for the physicians to prescribe the drug.
It seems that this was not the only theme of the shortsellers’ bearish thesis, since hedge funds are still betting strongly against the company and none of them have covered yet. Millennium Management, Adage Capital and Meditor Capital are some of the funds who have active shorts in Thrombogenics.
Europe’s worst performing shorts
There are plenty of badly-performing short bets in Europe, however there are a few that really stood out. The concentrated short bets that took a big u-turn in their business were, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V), Ocado Group (LON:OCDO) (OTCMKTS:OCDGF) and a few others.
Tiger cubs get beaten in Nokia
We have previously reported how shortsellers scurried for cover as soon as news of the Nokia-Microsoft deal broke. In a landmark deal, Nokia Corporation (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) sold its handset business to Microsoft Corporation (NASDAQ:MSFT) and by doing so just subtracted the bears’ thesis out of the equation. Nokia’s share price soared as a result, and is now up nearly 100% YTD. The major losers were the pack of tiger cubs that were aggressively shorting the stock.
Europe’s most shorted stock, Ocado
Ocado Group PLC (LON:OCDO) (OTCMKTS:OCDGF), the U.K.-based online grocery retailer, was the most shorted stock in London at one time. However the company inked a 25 year partnership with Wm. Morrison Supermarkets plc (LON:MRW) (OTCMKTS:MRWSY) in May this year, which changed the whole game. The $250 million deal between the two retailers rocketed Ocado’s shares and the company has since accumulated a 350% increase in share value, no kidding. This was by far the worst short call of the year. High profile hedge funds who lost on their negative bet included Jim Chanos’ Kynikos Associates and John Griffin’s Blue Ridge Capital.
Peugeot’s unshakeable rise
The European auto industry is another topic that we have discussed repeatedly. A number of hedge funds bet against French automaker Peugeot SA (OTCMKTS:PEUGY) (EPA:UG). Unluckily, those bets haven’t worked out in their favor as Peugeot’s shares have risen over 100% this year. The company suffered a minor hiccup as the market expressed disapproval of its capital increase plan. The proposed fundraising could make it more dependent on Chinese automaker Dongfeng and would also grant the French government more control over the company; both outcomes were considered unfavorable by the market.
Hedge funds who have unsuccessfully bet against Peugeot include Odey Asset Management, Marshall Wace and Adage Capital.