Jim Chanos, founder of Kynikos Associates, presented his short case for Cheniere Energy (LNG) at the SkyBridge Alternatives (SALT) Conference in Las Vegas Thursday, calling it "financial engineering gone crazy." The company is "excessively expensive" compared to less-levered peers such as Chevron (CVX), Woodside Petroleum (WPL) and Royal Dutch Shell (RDS.A), which was his short idea at last year's conference.
Chanos criticized Cheniere's complex holding-company structure and its $2.1 billion in earnings before interest, tax, depreciation and amortization (EBITDA) guidance, of which nearly 25% is from uncontracted business.
In a media briefing after the presentation, Chanos addressed the difficulties facing the hedge fund industry, saying the usual two-and-twenty hedge-fund compensation structure was too high, given that many funds have strong correlation to the broader market.
Meanwhile, several other investment ideas were presented at the "Market Movers" panel.
Richard Chilton of Chilton Investment presented the long case for Sherwin-Williams (SHW), a company he's been invested in for seven years. While he's long had conviction, Chilton points out that Sherwin-Williams' upcoming merger with Valspar (VAL) presents even greater opportunity, given that they are "similar businesses in quality and stability."
John Lykouretzos of Hoplite Capital presented a short case for the U.S. airline industry but called American Airlines (AAL) "the most compelling short" in the industry. Of the broader industry, Lykouretzos pointed out that the airlines can only compete on price since most travelers fly only once a year, thus making customer loyalty programs less important. He added that 30% of airline costs are fixed, which makes adjusting the margins difficult.
Finally, John Burbank of Passport Capital presented a pair trade to play Chinese markets. He suggested going long Tencent, a China-based competitor to Action Alerts PLUS holding Facebook (FB), while shorting the iShares China Large Cap ETF (FXI). What makes Tencent attractive, Burbank said, is that it gets the majority of its revenue from gaming and only 17% from ads, compared to Facebook, which gets 95% of its revenue from ads.