Short sellers target smaller gambling stocks

Last week’s Global Gaming Expo turned our attention to the casino giants. Rumors that Singapore is expected to out-earn Las Vegas, as Macau did in 2006, has led Las Vegas Sands to announce expansion plans across Asia and even Europe. Ahead of attempts by the Spanish Government to raise EUR 7.5 billion from a partial float of Loterias y Apuestas del Estado later this year, we look at the investor sentiment in the global gambling stocks. While short interest averages only 1.69% across the global sector, there are some notable exceptions including; Great Canadian Gaming Corporation (TSE:GC), Pinnacle Entertainment Inc (NYSE:PNK), Las Vegas Sands Corp (NYSE:LVS), Wynn Resorts (NASDAQ:WYNN), MGM Resorts International (NYSE:MGM), Betfair Group Plc (LON:BET), Ladbrokes Plc (LON:LAD), William Hill Plc (LON:WMH) and SportingBet (LON:SBT).

Roaming Bears push short interest to annual highs

Great Canadian Gaming Corporation (TSE:GC), owner of 10 casinos, holds a market capitalization of USD 635 million and appears as the most shorted stock in the global gambling sector. Short interest has since more than tripled from 4% in November to an unprecedented high of 18% of total shares outstanding on loan. Short interest has begun to level out as the supply became squeezed with almost three quarters of available shares already out on loan. Large funds who lend are also bearish toward this stock having reduced their holdings to just 16% of total shares.

Pinnacle Entertainment Inc (NYSE:PNK) is dabbling in Asia, having acquired a 26% stake in a casino developer in Vietnam. Although the share price fell on the back of this news short interest held steady at its annual high of 9.5% of total shares outstanding on loan. Shorts have surged in this stock from a low of 2% at the start of the year. In contrast, institutional ownership has increased by a third since the start of the year and represents 40% of total shares.

U.S. Giants stack their chips

The share prices of Las Vegas Sands Corp (NYSE:LVS) and Wynn Resorts may not be rallying as they did last year but shorts are sitting this round out. Short sellers sharply covered their short positions in Las Vegas Sands at the first sign of an end to the share price rally in November. Short interest fell from 9% of total shares to insignificant levels by the end of January and has remained at this level. Similarly, positive sentiment in Wynn Resorts (NASDAQ:WYNN) has bought short interest down from annual highs of 18% of total shares recorded last year to insignificant levels.

Short interest in MGM Resorts International (NYSE:MGM) has also been decreasing, but levels are still far above the sector average, having fallen from an annual high of 14% to 4.9% of total shares. However, with convertible bonds in issue, this stock may be subject to convertible arbitrage.

But UK betting slips

The key UK betting players, Betfair, Ladbrokes, William Hill and Sporting Bet all feature in the list of most shorted stocks globally.

Short interest in Betfair Group Plc (LON:BET), which floated in November has reached new annual highs with 8% of total shares out on loan. Almost all the lendable supply of shares is currently out on loan, making this a hard to borrow stock.

Short sellers rushed to cover their positions as shares in Ladbrokes Plc (LON:LAD) surged on news that it had broken off takeover talks with 888 Holdings. Short interest fell from 4.5% to 3% of total shares where it remains.

Short interest in William Hill Plc (LON:WMH) and SportingBet (LON:SBT) stands at 6.3% and 3.4% of total shares outstanding on loan respectively.

Bottom line

Negative sentiment is building in the smaller regional players, especially in the UK as the US giants remain unaffected amid expansion plans to conquer Asia.