The Short Report

This story features WORLEY LIMITED, and other companies. For more info SHARE ANALYSIS: WOR

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 March 16, 2017

Last week saw the ASX200 trade up to 5800 and yet again fail at that staunch resistance level, ahead of capitulation this week.

There’s quite a lot of red and green on the table below but it mostly reflects bracket creep, with a couple of exceptions.

WorleyParsons ((WOR)), now considered to be under takeover, has understandably slipped further down the table, last week falling to 6.5% shorted from 8.2% shorted. In its place, peer Monadelphous ((MND)), once a long-time incumbent of the 10% plus club but more recently sitting lower on the table, has been steadily on the climb again of late. It’s up to 9.6% from 8.3%.

Two more notable steady climbers of late have been Domino’s Pizza ((DMP)) and iSentia ((ISD)), both of which I have covered recently in this Report. Last week both turned up in the 10% plus club – Domino’s rising to 10.2% from 9.8% and iSentia rising to 10.6% from 9.5%.

It is otherwise interesting to note that Spotless ((SPO)) snuck back into the 5% plus table last week at 5.0% — unfortunate for someone given this week’s takeover bid from Downer EDI ((DOW)), which incidentally was itself 7.7% shorted last week. The bid was not well received by analysts and Downer shareholders, while long suffering Spotless shareholders are no doubt over the moon.

Weekly short positions as a percentage of market cap:

10%+

ACX   17.5
WSA   16.8
MYR   15.7
ORE    15.7
TFC     14.3
SYR    13.2
VOC   11.7
NEC    10.8
ISD     10.6
MTS    10.3
DMP   10.2

Out: IGO                   

9.0-9.9%

MYX, MND, IGO
 
In: IGO, MND            Out: ISD, DMP                                             

8.0-8.9%

OFX, GTY, ILU, FLT, PRU, BAL, SRX

In: OFX, GTY, ILU               Out: MND, AWC, AAD, WOR, NWS        

7.0-7.9%

NWS, AWC, DOW, NXT, RWC, AAD, RIO, MTR, A2M

In: NWS, AWC, AAD, RWC, MTR, A2M               Out: OFX, GTY, ILU, BKL

6.0-6.9%

HSO, IPD, CSV, BEN, BGA, WOR, EHE, PDN, SGH, IVC, SEK, IFL

In: WOR, CSV, IVC              Out: RWC, A2M, MTR

5.0-5.9%

CTD, MSB, MYO, GXL, KAR, BKL, AAC, AWE, RFG, CSR, OSH, JHC, SPO, LNG

In: BKL, AWE, SPO, LNG               Out: IVC, CSV

Movers and Shakers

We’re yet to hear any more about the revelation made by energy services provider WorleyParsons late in February that Dar Group had taken a stake, and indeed late last year had made a full bid that the board rejected. Shorters are understandingly backing out of their Worley positions, and last week saw a drop to 6.5% from 8.2%.

Given the Worley board’s failure to disclose the takeover approach, one can only assume we’ll be hearing more. Worley shorters certainly have an axe to grind.

Peer Monadlphous has in the meantime seen its shares rally over 50% from late last year on the back of the rebound in commodity prices. Mona had spent a very long time in the 10% plus shorted club as the company suffered through the prior commodity price collapse, only to begin a slide back down the table. But last week saw Mona shorts jump to 9.6% from 8.3%.

This likely reflects a belief Mona shares have run their course for now, because commodity prices have run their course, and perhaps those withdrawing from their Worley shorts want to remain short the sector.
 

ASX20 Short Positions (%)

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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