Fundamental Short Selling Research

Eric Fernandez, CFA

TwoRiversAnalytics

Equity Bottom-Up

<ul>
<li>This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short term maturities for additional input. </li>
<li>The companies may not be viable given cash flows and capital structures.  These shorts tend to have  higher betas  and can have strong down moves as the crisis is recognized.</li>
<li>This week we flag: Peleton, Life Time Group, Cano Health, Cinemark</li>
</ul>


This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows.  It considers interest expense, capex and short term maturities for additional input. 
The companies may not be viable given cash flows and capital structures.  These shorts tend to have  higher betas  and can have strong down moves as the crisis is recognized.
This week we flag: Peleton, Life Time Group, Cano Health, Cinemark


Solvency Risk Short Candidates: Peloton, Life Time Group, Cano Health, Cinemark

Pan-Asia Index Flows & Special Situations, Quiddity Advisors

Janaghan Jeyakumar, CFA

Pan-Asia Index Flows & Special Situations

Quiddity Advisors

Pan-Asia Catalysts/Events

Event-Driven

On June 1st, <a href="https://www.smartkarma.com/entities/cineplex-inc" target="_blank" data-smartkarma-citation="entities:25216:1" rel="noopener">Cineplex Inc (CGX CN)</a> provided <a href="http://irfiles.cineplex.com/Attachments/NewItems/Cineplex%20ICA%20Extension%20Release%20June%201%20FINAL_20200601121829_0.pdf" target="_blank" rel="noopener">an update on the status of Investment Canada review</a> in connection to the Cineplex-Cineworld Deal: <blockquote>
Cineworld and Cineplex are obligated to use reasonable best efforts to obtain the requisite ICA Approval so as to enable the closing of the Transaction to occur as soon as reasonably practicable (and in any event no later than June 30, 2020 (the “Outside Date”)). Receipt of the ICA Approval is a condition to closing the Transaction.
The process to obtain the approvals under the Investment Canada Act is ongoing and the period for review of the Transaction has been extended to June 15, 2020.
</blockquote>With less than a month to the Outside Date (30th June), the Deal remains conditional mainly on the ICA Approval, fulfilment of certain covenants in the arrangement agreement (<a href="https://www.sedar.com/CheckCode.do;jsessionid=0000d67H30V7XDVByUglDY_dfw9:188setvlh" target="_blank" rel="noopener">SEDAR link</a>), and Cineplex maintaining its debt level under C$725mn (the "Debt Condition"). In my previous insight, <a href="https://www.smartkarma.com/insights/cineplex-is-this-deal-broken" target="_blank" data-smartkarma-citation="insights:37588" rel="noopener">Cineplex: Is This Deal Broken?</a>, I discussed several ways of how this deal could potentially collapse. However, the Acquirer <a href="https://www.smartkarma.com/entities/cineworld-group-plc" target="_blank" data-smartkarma-citation="entities:21872:1" rel="noopener">Cineworld (CINE LN)</a> officially remains committed to completing this Deal at least as of a month ago. Here is what Cineplex's update on May 7th said:  <blockquote> Cineworld has advised Cineplex that it remains committed to closing the Transaction on or prior to the outside date of June 30, 2020 (the “Outside Date”). However, there can be no assurance that the conditions to closing the Transaction will be satisfied by the Outside Date.</blockquote>So can this Deal still go through? IF it does not go through what could possibly happen to Cineplex's share price? We provide our opinions to these questions below the fold.

On June 1st, Cineplex Inc (CGX CN) provided an update on the status of Investment Canada review in connection to the Cineplex-Cineworld Deal: 
Cineworld and Cineplex are obligated to use reasonable best efforts to obtain the requisite ICA Approval so as to enable the closing of the Transaction to occur as soon as reasonably practicable (and in any event no later than June 30, 2020 (the “Outside Date”)). Receipt of the ICA Approval is a condition to closing the Transaction.
The process to obtain the approvals under the Investment Canada Act is ongoing and the period for review of the Transaction has been extended to June 15, 2020.
With less than a month to the Outside Date (30th June), the Deal remains conditional mainly on the ICA Approval, fulfilment of certain covenants in the arrangement agreement (SEDAR link), and Cineplex maintaining its debt level under C$725mn (the "Debt Condition"). In my previous insight, Cineplex: Is This Deal Broken?, I discussed several ways of how this deal could potentially collapse. However, the Acquirer Cineworld (CINE LN) officially remains committed to completing this Deal at least as of a month ago. Here is what Cineplex's update on May 7th said:   Cineworld has advised Cineplex that it remains committed to closing the Transaction on or prior to the outside date of June 30, 2020 (the “Outside Date”). However, there can be no assurance that the conditions to closing the Transaction will be satisfied by the Outside Date.So can this Deal still go through? IF it does not go through what could possibly happen to Cineplex's share price? We provide our opinions to these questions below the fold. 

Portfolio Manager/Head of Equity Investment, Tandem Investors Limited

Jason Oh

Portfolio Manager/Head of Equity Investment

Tandem Investors Limited

Increase the weight in Asia Pacific model portfolio from 2.7% to 4.3% We increased the weight of <a href="https://www.smartkarma.com/entities/2885" target="_blank" data-smartkarma-citation="entities:2885:1">Cj Cgv Co Ltd (079160 KS)</a> in our Asia Pacific long-short model portfolio from 2.7% to 4.3% due to the followings; 1) The company's market share in China is on the rise backed by the successful penetration into 2nd and 3rd cities, while the nationwide B/O (box office) numbers are shrinking, 2) The Turkish business, acquired in Apr 2016, is likely to turnaround, given the high M/S over 40% and strong seasonality  of Turkish market, 3) Our quantitative technical score, TTS(Tandem Technical Score: more information below) is 1.09, implying that the share price is likely to rebound before long.Gaining M/S while China's negative growth is meaningful achievement The company's market share in China B/O is growing to 2.9% (ranked 7th) in 3Q16, which has been growing from below 1% and 20th since 2006. Particularly, the company's direct affiliates mainly in 2nd-3rd tier cities in China are turning black from last year's c. USD10mn deficit. Businesses in 1st tier cities are by JV with local companies and already making money due to prime location. Given the sluggish launching of the blockbuster premieres in 2016, we believe the company will show the meaningful earnings growth in 2017 in China business.Disappointing 3Q16 results were due to one-off cost from Turkey business and already priced-in The company announced the acquisition of No.1 multiplex company (M/S of 42%), Mars Entertainment Group, in Apr 2016. However, the company made a big loss over KRW 13bn in 3Q16 from the acquisition such as financial cost and one-off cost related to the acquisition. After the announce of the acquisition, the share price continues to slide down by c.50% for the past 6 months. We believe now the negatives are fully priced-in and Turkey business will show a strong earnings rebound in 4Q16, due to seasonal effect, high M/S in the market, and lowered interest rate resulting from the refinancing of the debts.

Increase the weight in Asia Pacific model portfolio from 2.7% to 4.3% We increased the weight of Cj Cgv Co Ltd (079160 KS) in our Asia Pacific long-short model portfolio from 2.7% to 4.3% due to the followings; 1) The company's market share in China is on the rise backed by the successful penetration into 2nd and 3rd cities, while the nationwide B/O (box office) numbers are shrinking, 2) The Turkish business, acquired in Apr 2016, is likely to turnaround, given the high M/S over 40% and strong seasonality  of Turkish market, 3) Our quantitative technical score, TTS(Tandem Technical Score: more information below) is 1.09, implying that the share price is likely to rebound before long.Gaining M/S while China's negative growth is meaningful achievement The company's market share in China B/O is growing to 2.9% (ranked 7th) in 3Q16, which has been growing from below 1% and 20th since 2006. Particularly, the company's direct affiliates mainly in 2nd-3rd tier cities in China are turning black from last year's c. USD10mn deficit. Businesses in 1st tier cities are by JV with local companies and already making money due to prime location. Given the sluggish launching of the blockbuster premieres in 2016, we believe the company will show the meaningful earnings growth in 2017 in China business.Disappointing 3Q16 results were due to one-off cost from Turkey business and already priced-in The company announced the acquisition of No.1 multiplex company (M/S of 42%), Mars Entertainment Group, in Apr 2016. However, the company made a big loss over KRW 13bn in 3Q16 from the acquisition such as financial cost and one-off cost related to the acquisition. After the announce of the acquisition, the share price continues to slide down by c.50% for the past 6 months. We believe now the negatives are fully priced-in and Turkey business will show a strong earnings rebound in 4Q16, due to seasonal effect, high M/S in the market, and lowered interest rate resulting from the refinancing of the debts. 

CJ CGV: Preparing for Blooming During Snowy Winter

United States

Cinemark Holdings, Inc. operates movie theaters.  The Company operates in the United States and Latin America.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

Cinemark Holdings (CNK US)

Solvency Risk Short Candidates: Peloton, Life Time Group, Cano Health, Cinemark

This model seeks companies facing dangerously high leverage coupled with negative or declining cash flows. This week we flag: Peloton, Life Time...

Eric Fernandez, CFA

Cineplex-Cineworld: The Final Countdown

On June 1st, Cineplex Inc (CGX CN) provided an update on the status of Investment Canada review in connection to the Cineplex-Cineworld...

Janaghan Jeyakumar, CFA

CJ CGV: Preparing for Blooming During Snowy Winter

Increase the weight in Asia Pacific model portfolio from 2.7% to 4.3% We increased the weight of Cj Cgv Co Ltd (079160 KS) in our Asia Pacific...

Jason Oh

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)