The Short Report

This story features ENERGY WORLD CORPORATION LIMITED, and other companies. For more info SHARE ANALYSIS: EWC

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly and monthly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX).

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.

Summary:

Period: Week to, and month to, May 1, 2014.

In the handful of years since FNArena first launched the weekly Short Report, we have wrestled with ideas of how to maximise the value of the information therein and its presentation for the reader. Following another week of limited short activity outside the obvious — short covering post the Goodman Fielder takeover bid and increased shorts in Leighton given the stock will likely be delisted — and the repetition of tired old names among the monthly moves, FNArena has decided to revamp once again and shortly launch the Short Report Version 3.0. Watch this space.

Meanwhile, two weekly short increases of one percentage point or more met three decreases last week, and four monthly short increases of 2ppt or more met four decreases. Leighton snuck back into the Top 20 shorted to dislodge Ausdrill ((ASL)).
 

Weekly Short Increases

Shorts in Leighton Holdings ((LEI)) increased to 8.72% from 3.34%

Leighton saw a short covering scramble back in March when Hochtief offered to take its stake to 74% at a steep premium. It now looks like the shorters have decided Hochtief is not going to go for the full takeover anytime soon, Leighton may see its credit rating cut and will likely drop out of the index given reduced liquidity. Five of eight FNArena brokers rate the stock a Sell.

Shorts in Ausenco ((AAX)) increased to 2.41% from 1.18%

No new news for Ausenco since the result season but the stock has drifted off this month. The Age dissed the company in mining services article last week.

Weekly Short Decreases

Shorts in Goodman Fielder ((GFF)) decreased to 1.85% from 3.90%

Goodman received a takeover bid from a consortium last week at a decent premium which caught out the shorters.

Shorts in Aquarius Platinum ((AQP)) decreased to 1.82% from 3.73%

The shorters moved in looking for the arbitrage when Aquarius announced a right issue recently and are now closing out, job done.

Shorts in Energy World Corp ((EWC)) decreased to 1.08% from 2.49%

Energy World has controversially won a bid to build and operate a power station in Jamaica. The stock is not covered by FNArena brokers.

Monthly Short Increases

Shorts in Leighton Holdings increased to 8.72% from 4.16%

See above.

Shorts in Singapore Telecom ((SGT)) increased to 6.70% from 2.30%

SingTel reports its full year result next week but is a popular telco pairs trade play and fluctuates with currency movements.

Shorts in The Reject Shop ((TRS)) increased to 9.99% from 6.70%

Reject shares had a bit of a run last week on improved consumer sentiment but the shorters have nevertheless been taking the opportunity to build positions, as shorters love shorting retail. TRS has moved up the Top 20 most shorted list this week to 13.

Shorts in AMP Capital China Growth Fund ((AGF)) increased to 2.68% from 0.01%

AGF looks extremely strange on a chart given apparent sharp spikes, although that might be an error. The fund is more akin to an ETF and is not covered by FNArena brokers.

Monthly Short Decreases

Shorts in Kingsgate Consolidated ((KCN)) decreased to 3.10% from 5.98%

Short interest in Kingsgate will fall now the company has raised new capital.

Shorts in UGL ((UGL)) decreased to 11.93% from 14.13%

As uncertainty prevails around the likelihood company’s desired spin-off or sale of its DTZ business actually occurring, UGL has been sliding quietly down the Top 20 most shorted table, although this week is stable at 6.

Shorts in NRW Holdings ((NWH)) decreased to 4.55% from 6.71%

Shorters have been covering since NRW won a contract at Roy Hill.

Shorts in News Corp ((NWS)) decreased to 11.60% from 13.67%

We will assess exactly what the short interest is in News when Fox finally de-lists and the various non-ordinary shares consolidate.

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	QRE	517432	3022150	17.12
2	COH	9686950	57062020	16.98
3	SSO	124448	801304	15.53
4	NWSLV	408120	3115091	13.10
5	MND	11751189	92679570	12.68
6	UGL	19858651	166511240	11.93
7	NWS	2348123	20237280	11.60
8	MTS	100531466	888338048	11.32
9	MYR	65296638	585684551	11.15
10	AGO	101690108	915496158	11.11
11	JBH	11019207	100385400	10.98
12	BKN	17510844	171027249	10.24
13	TRS	2879770	28826248	9.99
14	BLY	45951768	461163412	9.96
15	ACR	15791783	166521711	9.48
16	ILU	39619165	418700517	9.46
17	PDN	91222658	964367284	9.46
18	MTU	15882250	179511351	8.85
19	WSA	20564078	232310014	8.85
20	LEI	11051480	126737133	8.72

To see the full Short Report, please go to this link

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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