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The Short Report

Australia | Apr 23 2015

This story features MONADELPHOUS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MND

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending April 16, 2015.

As the ASX200 continues to do its impersonation of a hamster in a wheel — running around a lot but not actually going anywhere — shorting interest has waned somewhat. Last week's Report highlighted a lot of red on our table but this was mostly minor bracket-creep. This week sees more green than red but again, it mostly represents small moves and bracket creep.

One is exception is WorleyParsons. Last week I noted that the bulk of the 10% plus shorted club is made up of resource and resources services stocks, with oil & gas servicer MMA Offshore last week's new addition. I also noted a stock on the move was another oil & gas servicer, Worley. Well this week Worley has also joined the elite, with a big jump in shorts to over 10%. Worley joins fellow servicers MMA, Monadelphous ((MND)), Mineral Resources ((MIN)), Orica ((ORI)), UGL ((UGL)) and Cardno ((CDD)) to ensure over half of all 10% shorted stocks on the ASX are now resource sector service companies.

G8 Education is new the new stock to watch, as shorts build ahead of whatever changes to child care subsidies the May budget might bring, while one stock we no longer have to watch is Cochlear ((COH)). After years of pain, the shorters have finally given up waiting for this market darling to slip up and now the once short superstar, rivalling Myer's position today, has left the building. Cochlear is no longer on our table.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   19.2
MTS    17.3
MND   13.7
MIN    13.4
ORI     13.1
FMG   11.7
UGL    11.4
FLT     11.2
PRY    11.9
CDD   10.3
AGO   10.3
WOR   10.2
MRM  10.0

In: WOR        

9.0-9.9%

ACR
 
Out: KAR

8.0-8.9%

ALQ, KAR, JBH, PBG, SGM, SUL, ILU

In: KAR          Out: ACR, SXY, MSB, MGX

7.0-7.9%

MGX, SXY, ARI, DSH, CAB, MSB, WHC, WOW, NXT, JHC, KCN, NWH

In: MGX, SXY, MSB                        Out: WOR, AWE

6.0-6.9%

GEM, AWE, VOC, KMD

In: AWE, GEM          Out: RRL

5.0-5.9%

DLS, TPI, VRT, ASL, RRL, GNC, BCI, TFC, PDN, TRS, OFX, NST

In: RRL, DLS, TFC, OFX, NST                    Out: GEM, COH, GWA, SIR
 

Movers and Shakers

In last week’s Report, I made this comment: “Worley shorts rose only 0.5ppt last week to 7.4% but if this were a music Top 40 chart, WOR would have a bullet”.

Well wouldn’t you know, WorleyParsons ((WOR)) shorts have increased another 2.8ppt from 7.4% to jump straight into the 10% plus club this week at 10.2%. Worley shares enjoyed a solid rally last week thanks to a growing belief the oil price may have bottomed, leading Macquarie to downgrade its rating to Neutral and the shorters to pile in. Last week’s new entrant to the 10% plus club was MMA Offshore ((MRM)) who, like Worley, will be impacted by diminishing business as the big LNG projects reach start-up.

With Worley now in the top bracket, and recent mover Woolworths ((WOW)) now seemingly comfortable in the 7% bracket, the next mover to keep an eye on is G8 Education ((GEM)).

G8’s April Fool’s joke was to place itself into a trading halt to announce a capital raising for the purpose of acquiring 20 new child care centres. Despite a slight discount, G8 shares leapt once trading recommenced. But the rally proved short-lived as attention turned to the possibility of federal budget tinkering with child care subsidies. This is likely the reason for building short attraction. G8 found itself on our table for the first time last week with a move into the 5% bracket, and this week sees a 1.1ppt short increase to 6.5% from 5.4%.

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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CHARTS

CDD COH GEM MIN MND MRM ORI WOR WOW

For more info SHARE ANALYSIS: CDD - CARDNO LIMITED

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: GEM - G8 EDUCATION LIMITED

For more info SHARE ANALYSIS: MIN - MINERAL RESOURCES LIMITED

For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED

For more info SHARE ANALYSIS: MRM - MMA OFFSHORE LIMITED

For more info SHARE ANALYSIS: ORI - ORICA LIMITED

For more info SHARE ANALYSIS: WOR - WORLEY LIMITED

For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED