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It looked for a moment that it would emerge from under the cloud of COVID, but it looks like the virus has Cineworld [LON:CINE] by the neck, and the vultures are circling. Cineworld stock is now one of the most heavily shorted by hedge funds on the London market, according to latest data.
Although it is the world’s second largest cinema group, Cineworld has been heavily targeted by short sellers, with 9.51% of its stock held by investment firms shorting it. The leading bear on Cineworld is Adelphi Capital, which on its own accounts for over 2%.
Adelphi Capital is the London-based hedge fund founded by Roderick Jack and Marcel Jongen in 1997. They run a close-knit team of fund managers in London that specialise in big board European equities. Its core Adelphi Europe strategy likes to trade stocks on both the long and short side of the book. Adelphi is also running short positions on Whitbread Plc and Royal Mail.
When will cinemas reopen to the public?
Cineworld is obviously in dire straits: there were hopes that the group would be able to get its cinemas back up and working this autumn, but the new lockdown in the UK has seemingly put paid to that. As with other sectors heavily affected by the pandemic, the cinema industry is looking for various solutions that will keep companies alive until they can reopen for business. Part of the problem is that nobody has a clear idea of what that could be.
Cineworld is known to be discussing a company voluntary arrangement (CVA) with its bankers as its shareholders digest a loss of $1.6bn for the six months to the end of June. The company is facing some banking arrangements which will fall due at the end of this year, with others due in 2021. It is also talking to landlords about rent cuts at over 120 sites.
Despite rallying briefly in June, Cineworld shares are well off the pre-pandemic price of 223. Stock was trading at 44.20 at time of writing.
Hedge funds are short oil stocks
Oil prices are also encouraging some shorting activity in the sector, with Premier Oil [LON:PMO] and Tullow Oil [LON:TLW] both also being heavily shorted.
“Fuelled by a number of factors including the Coronavirus crisis and the US election, we have seen some of the highest levels of market volatility for years,” commented Will Rhind, CEO of GraniteShares, the ETF provider. “Many sophisticated investors and traders have used this to try and generate returns from large shifts in the price of individual stocks.”
GraniteShares has a range of ETPs that provide traders with the scope to leverage of short popular stocks, including the likes of Barclays, Royal Dutch Shell and BP.
“There is no sign that the heightened levels of volatility that we have seen this year will dissipate any time soon,” Rhind added. “Investors’ response to news is rapid, think of the price moves we saw on the back of the Pfizer vaccine announcement on 9 November. There are any number of potential catalysts for the next move up or down, whether it is an EU-UK trade deal, yes or no, the smoothness of the U.S. presidential transition, or potentially the impact of Tesla’s addition to the S&P 500 in December.”
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