After the market value of European short interest rose significantly in February, the region experienced a much quieter March. However, the period was rewarding for stock-pickers, says Novus, as their model value-weighted short portfolio returned 1.69% in the last month.
Gemalto continues to be the largest short
The France based manufacturer of secure digital solutions, Gemalto NV (EPA:GTO) (OTCMKTS:GTOMY), continues to be the top most shorted company across Europe. According to the European Short Observer from Novus, 12.5% of Gemalto’s shares are out on loan which amounts to a market value of $1.27 billion.
Most of the managers who have bet against Gemalto NV (EPA:GTO) (OTCMKTS:GTOMY) have been doing so for over a year now. Some of the largest positions are disclosed by Lee Ainslie’s Maverick Capital, Steve Mandel’s Lone Pine Capital and John Griffin’s Blue Ridge Capital. Other than the group of tiger cubs, D.E. Shaw, Kynikos Associates and Hoplite Capital all have shorts against the French manufacturer of microprocessor devices.
Gemalto’s joint venture, Trustonic, is a big plus
In one of their recent notes, Deutsche Bank called Gemalto NV (EPA:GTO) (OTCMKTS:GTOMY) the market leader in digital security companies. The analysts were optimistic about Gemalto’s future projects, they said the company is smoothly diversifying itself into a SaaS/cloud provider instead of being merely a software vendor. Johannes Schaller and Kai Korschelt said in the note,
“We believe Gemalto is making strong progress on growing its software P&S business (20% of group revenues) in areas like datacenter/Cloud, online banking, border control and M2M/IOT connectivity security that are so far largely underappreciated by the market but should remain strong growth drivers of the business going forward.”
DB’s analysts were particularly bullish about Gemalto’s joint venture with ARM Holdings plc (ADR)(NASDAQ:ARMH) and Giesecke & Devrient (G&D) called Trustonic. The joint venture’s Trusted Execution Environment (TEE) is quickly getting popular in the mobile security sector. The report notes that Samsung and Qaulcomm are already supporters of Trustonic. In this year, Trustonic will be truly launching to manage remote solutions. Moreover, banks are also looking into hiring Trustonic’s services, so the company has considerable unlocked value.
Deutsche Bank rates the company at Buy whereas Goldman Sachs rates Gemalto NV (EPA:GTO) (OTCMKTS:GTOMY) on its conviction buy list. The short call on Gemalto still has to play out as shares of GTO have risen 27% over a 12-month period.
Sainsbury rewards shortsellers
Other large short bets include Glencore Xstrata PLC (LON:GLEN), a London-based mining company. Lansdowne Partners, Davidson Kempner and Sunrise Partners have bet against Glencore. Another popular short has been The Weir Group PLC (LON:WEIR) (OTCMKTS:WEIGF), an engineering company that provides services to the mining industry. Being one of the big players in the mining industry, Glencore has suffered from the slowdown in the metal industry. Shares of the company are almost flat YTD.
According to Novus, $805 million or 8.9% of Weir’s shares were out on loan as of the end of March. Some of the hedge funds who have been betting against the company are Lansdowne Partners, Coatue Managemet and Steadfast Capital. Weir Group continues to be a difficult short to tackle, as shares of the company have gained 20% through this year so far.
We pointed out the rising short interest in Britain based grocery retailer J Sainsbury plc (LON:SBRY) (OTCMKTS:JSAIY) a couple of weeks ago. At the end of March, Sainsbury was the sixth largest short across Europe with 7% of its shares out on loan, according to data from Novus. There were eight managers who were betting against the company, the total market value of the short interest amounted to $710 million. Odey Asset Management, Maverick Capital, Eton Park and Lone Pine Capital are shorting the company. Sainsbury has rewarded its shortsellers as shares fell 15% in this year so far.
Data from Novus also showed that short interest in Melia Hotels International SA (MCE:MEL) (OTCMKTS:SMIZF) rose the highest in March, as two more managers disclosed positions against the Spanish hotel chain.