Reception for Cineworld results sends short sellers a wake-up call
Short sellers experienced a wake-up call yesterday after their pandemic target Cineworld saw its share price shoot up 7 per cent on better-than-expected results.
Cineworld has consistently ranked as the most-shorted company in the UK for much of the last eighteen months, after it was forced to close its 9,518 cinema screens during Covid lockdowns.
Investors swooped in on the cinema operator and bet on its share price falling during its pandemic turmoil, and last month held 9.2 per cent of its stock shorted against it – up from 7.5 per cent in July.
But fund managers have since closed their positions and currently hold 7.94 per cent of its shares.
Short sellers place bets on stocks that they expect to fall in price. Investors pay a fee to borrow shares in a company and then sell them with the aim of buying them back and then returning them to the lender.
But because the share price shot up on good results yesterday, and not just on market volatility, the movement may have spooked the fund managers betting on a lacklustre outlook.
“It’ll be diffficult for the wrong end of this, because when you get a bounce in the share price, it hurts you if you’re betting the other way,” said Will Rhind, CEO of Granite Shares.
“The real question here is the manager’s individual strategy – how long they will stay in the trade,” he said.
This will all depend on whether the share price hike is short-lived, or the start of a more meaningful comeback. Cineworld’s shares dropped almost 5 per cent by mid-morning today, suggesting the market had focused in on what was missing from yesterday’s results.
Russ Mould, analyst at AJ Bell, said: “The one thing missing from Cineworld’s update is the profit figure. We know the company has been trying to strip out costs, but it also has inflationary pressures and oodles of debt that needs repaying.”
The world’s second-largest cinema operator yesterday reported UK and Ireland box office revenue was up 127 per cent compared to the same period in 2019 – which it said was driven by movie releases “Black Widow” and “No Time to Die.
CEO Mooky Greidinger was optimistc about the pipeline of releases and said: “Whilst there are challenges ahead, I believe these efforts have positioned us for great success in the future and we are all looking forward to continuing to welcome our customers to the best place to watch a movie.”