Lone Pine Capital Short Rolls Royce ~ market folly

Thursday, July 23, 2015

Lone Pine Capital Short Rolls Royce

Steve Mandel's hedge fund firm Lone Pine Capital has filed a regulatory disclosure in the UK regarding shares of Rolls Royce (RR.L), indicating they have a net short position. 

Lone Pine Short Rolls Royce

Lone Pine has disclosed they have a net short position to the tune of 0.59% of Rolls Royce shares.  This is a newly disclosed short position and the disclosure was triggered on July 10th, 2015.  Previously, they were short 0.35% of shares due to a filing on July 8th.

This comes only a few days after new CEO Warren East issued a profit warning, cut guidance, and noted that next year's results would also be weaker than expected.  Prior to joining Rolls, East was the CEO at ARM Holdings.  This is the fourth time Rolls has issued a warning since last early year.  The company also canceled its existing share buyback.

The company's marine division has been impacted by lower oil prices.  Additionally, Rolls Royce said its main segment, civil aerospace, would be impacted next year due to lower orders for its Trent 700 engines.

While it's harder to discern if this is an alpha short or a hedge to one of their longs, it still seems Lone Pine is looking for near-term pain to continue for the company.

On the other side of the trade, Ruane Cunniff (Sequoia Fund) has been long shares and in its year-end 2014 letter they bemoaned the company's move into marine engine and power generation.  They believe that "Rolls' wounds are self-inflicted and reversible" and love the company's "world class business making engines for wide body jets" as it enjoys a duopoly with General Electric with high barriers to entry. 

Short Selling Disclosure Rules in the UK

In 2012, the UK's Financial Services Authority (FSA) began requiring institutional investors to
to privately notify the FSA when their net short position eclipses 0.2% of the issued share capital of a company.  Notification is also required again at each 0.1% increment after that.  This applies to both increases and decreases in the position.  The Financial Conduct Authority (FCA) now monitors short sales.

Public disclosure of the short (as is the case above), is required when net short positions reach 0.5% of issued share capital.  Additionally, disclosure is required when the position subsequently falls below 0.5%.

Stay tuned this week and next as we'll be updating other short positions from prominent hedge funds.  Today we also posted about how Viking Global is short Peugeot.

For more from this hedge fund, we posted that Lone Pine almost doubled its stake in Charter Communications recently.

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