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The Short Report

Australia | Jul 02 2015

This story features ARMADA METALS LIMITED, and other companies. For more info SHARE ANALYSIS: AMM

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 June 26, 2015.

The ASX200 began last week in solid rebound mode, recovering the 5700 mark. But then it all turned nasty on the back of Greece/China towards the end of the week.

Clearly the spiralling falls gave shorters the chance to take profits in some of the bigger names. While our 10% plus table has only lost UGL from the week before, there were some notable reductions amongst the most shorted stocks, including Myer, Metcash, Monadelphous and Flight Centre. Myer has regained the coveted number one position.

Acrux and Arrium were also amongst those experiencing decent reductions while Slater & Gordon saw a jump in shorts following its first big move down, but ahead of this week’s shock announcement.

Programmed Maintenance shot into the table following its takeover offer for Skilled Group ((SKE)). Following TPG Telecom’s ((TPM)) failed attempt to block the merger between Amcom ((AMM)) and Vocus, Vocus shorts have jumped up too.

Mesoblast ((MSB)) dropped a couple of percent the week before but put it all back on last week, which may suggest a reporting blip if it’s not a pairs trade with Acrux.
   

Weekly short positions as a percentage of market cap:

10%+

MYR   20.2
MTS    19.3
MND   13.7
ORI     13.4
MIN    12.3
MRM  11.9
WOR   11.0
FLT     10.7
AGO   10.0
PRY    10.6

Out: UGL

9.0-9.9%

DSH, FMG, CDD, UGL
 
In: UGL                     

8.0-8.9%

SGH, MGX, CAB, SXY

In: SGH, CAB                        Out: ACR, WOW

7.0-7.9%

WOW, VOC, GXL, NWH, KAR, NXT, ACR, MSB

In: WOW, ACR, VOC, MSB            Out: CAB, SGH, PBG, SUL

6.0-6.9%

OFX, SGM, PRG, SEK, SWM, SUL, KCN, PBG, JHC, WHC, GEM

In: SUL, PBG             Out: ARI, ILU, SGN

5.0-5.9%

ILU, ASL, GWA, TFC, AWE, SPO, SGN, DLS, KMD, PDN, DOW, NEC, BCI, BPT, ARI, JBH

In: ILU, SGN, ARI, DOW, NEC                  Out: VOC, MSB, VRT, TEN, TRS

Movers and Shakers

Last week’s peak and drop for the market on the back of Greece and then China has clearly prompted shorters into trimming some of their bigger positions for a profit. The top three most shorted stocks on the ASX all saw reductions last week. Metcash ((MTS)) dropped 1.7ppt to 19.3% from 22.0% to hand number one position back to Myer ((MYR)), despite that stock seeing a 0.8% reduction of its own to 21.5%. Monadelphous ((MND)) dropped 1.0ppt to 13.7%.

UGL ((UGL)) saw its shorts drop 1.2ppt to 9.2% from 10.4% to drop it out of the elite 10% plus club. Flight Centre ((FLT)) compounded market downside with stock-specific downside when it issued a profit warning, and its shorts fell 1.4ppt to 10.7% from 12.1%.

Steelmaker and iron ore producer Arrium ((ARI)) has been on a general downward spiral of late which was not halted by an announced strategic review a couple of weeks ago. Arrium shorts dropped 1.6ppt last week to 5.1% from 6.7%.

Biotech Acrux ((ACR)) has long banged around at the high end of the table and peer Mesoblast ((MSB)) has often moved up and down. Last week Acrux shorts fell 1.0ppt to 7.3% from 8.3% while Meso shorts rose 2.2ppt to 7.2% from 5.0%. This may suggest a pairs trade, but given Meso shorts fell by basically the same amount the week before, it might also reflect a reporting error.

Ambulance chaser Slater & Gordon ((SGH)) is now in serious trouble regarding false disclosure but its 25% share price drop occurred this week, not last. The stock was already under pressure regarding the risk potentially surrounding its big UK acquisition and last week SGH shorts rose 1.3ppt to 8.6% from 7.3%.

Service company Programmed Maintenance ((PRG)) made a takeover offer for Skilled Group ((SKE)) last week. A burst of shorting action has shot the stock into our shorted table at 6.8% from prior oblivion.

Finally, last week TPG Telecom ((TPG)) tried to block the merger between fibre specialists Amcom ((AMM)) and Vocus ((VOC)) by lifting its Amcom shareholding to almost 20%, but the two companies are undeterred. The shorters nevertheless appear to have responded to the potential risk of a successful block in lifting Vocus shorts by 2.4ppt to 7.6% from 5.2%.
 

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

ACR AMM FLT MND MSB MTS MYR PRG SGH TPG

For more info SHARE ANALYSIS: ACR - ACRUX LIMITED

For more info SHARE ANALYSIS: AMM - ARMADA METALS LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED

For more info SHARE ANALYSIS: MSB - MESOBLAST LIMITED

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

For more info SHARE ANALYSIS: PRG - PRL GLOBAL LIMITED

For more info SHARE ANALYSIS: SGH - SLATER & GORDON LIMITED

For more info SHARE ANALYSIS: TPG - TPG TELECOM LIMITED