Spain-based Melia Hotels International SA (MCE:MEL) (OTCMKTS:SMIZF) has experienced a flurry of short activity over the past month – shares out on loan rose from 5.5% at the end of 2013 to 9.1% in January 2014. Data from Novus Research shows that three new managers, including Citadel Investment Group, Arrowgrass Capital and D.E.Shaw Group, initiated shorts in the hotel and resorts manager, in January. Short interest has risen as the hotel chain is set to release its earnings statement on the 27th of this month.
Visit the European Short Observer Interactive by Novus Research, to see details of short positions in Melia Hotels International SA (MCE:MEL) (OTCMKTS:SMIZF), the tool is now updated through January 2014.
Melia undergoing slow recovery in Spain
In spite of new hotels that Melia Hotels International SA (MCE:MEL) (OTCMKTS:SMIZF) has launched in Austria and Morocco, Melia has struggled in its core business. The company has 45% of its hotels located in Spain, where the economy is slowly recovering. Melia is reporting consistent increase in occupancy and price/room ratio, a standard metric used to estimate the growth in hotel and lodging business. Occupancy was up in Spain by 4% y-o-y in 2013, still very far from the peak levels, but slowly edging up.
Analysts at UBS are bullish on Melia, Bosco Ojeda in his report from January reasons that since U.S-based hotel stocks have re-rated to a higher level, it is possible that Melia could undergo multiple expansion, even though it has hit the price target. In spite of this rosy picture, Ojeda admitted that full recovery to historical levels is unlikely until 2016-2017, at least not in Spain where most of Melia’s business is focused.
Even with the slow growth, Melia’s stock has been booming, shares have risen 51% over a 12-month period. Melia Hotels enjoys a market cap of 1.7 billion euros and it seems that shortsellers are convinced that a correction is in order.
Shortsellers expect travel stocks to fall
Melia Hotels is however not the only travel and tourism company that hedge funds are finding overvalued. Germany based TUI AG (ETR:TUI1) has been a long-term short bet of a bunch of well-known hedge funds. Davidson Kempner, Steve Kuhn’s Pine River Capital and Alan Fouriner’s Pennant Capital, have active short positions in the largest European tour operator. These managers have maintained their bearish bets in TUI for over an year now, shorts are now under pressure as the stock is breaking through record highs since recession hit Europe in 2008. Over a 12-month period, TUI’s shares have gained 65%.
TUI sells off assets to cut losses
TUI Travel PLC (LON:TT) (OTCMKTS:TTVLF) is in the early phase of implementing a turnaround plan which involves the sale of its assets, and investors remain apprehensive of the company’s profitability under the leadership of CEO Friedrich Joussen. TUI has so far sold five out of the 200 hotels it operates in different countries. The company reported €3.39 billion in Q1 revenue which was down 2.9% from the previous quarter and suffered an EBITDA loss of €159.8 million and reported an EPS of -€0.45. The company was downgraded from Buy to Sell by DZ Bank after the recent earnings release on Feb 12. The analysts noted that the travel company had reached a fair price valuation and further upside was unlikely. UBS was bullish on TUI in the latest note that was released last week and expected further increase in the stock price.
Other than Melia Hotels International SA (MCE:MEL) (OTCMKTS:SMIZF) and TUI Travel PLC (LON:TT) (OTCMKTS:TTVLF), hedge funds also shorted Thomas Cook Group plc (LON:TCG) and TUI Travel PLC (LON:TT) for a brief period. TUI AG owns 54% of TUI Travel.