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 April 20, 2017

Last week saw the ASX200 bounce off 5800, led by the French election result and strength on Wall Street and aided by some stability in the iron ore price. The week prior saw commodity price weakness and the great telco upheaval.

To the latter point, we note TPG Telecom ((TPM)) has appeared at the bottom of the table for the first time at 5.3% shorted.

Last “week” consisted of only three trading days thanks to Easter. This is reflected in a lack of much movement in short positions as evident in the table below. However there were a couple movements of note.

In noted in last week’s report shorts in WorleyParsons ((WOR)) had leapt from under 5% to 11.2% on no new news regarding takeover speculation or anything else. I was suspicious of the accuracy of the data.

Sure enough, Worley has dropped out of the 10% club this week but only as far as 7.7%. So, either there’s a lot of sudden shifting around in Worley positions, for reasons unknown, or the ASIC data is still questionable.

It is also worth noting the arrival of two other newbies into the bottom of the table last week to join TPG, being Automotive Holdings Group ((AHG)) and Saracen Mineral Holdings ((SAR)), at 5.2% and 5.1% shorted respectively.

Weekly short positions as a percentage of market cap:

10%+

ORE    21.6
WSA   16.7
SYR    16.2
ACX   15.3
MYR   12.9
VOC   12.6
QIN     11.8
NEC    11.2
DMP   11.0
MYX   10.5

Out: WOR, IGO                    

9.0-9.9%

IGO, MTS, ILU, ISD, OFX,
 
In: IGO           Out: HVN                                                      

8.0-8.9%

HVN, FLT, AAD, BAL

In: HVN          Out: PRU

7.0-7.9%

RWC, JHC, WOR, GTY, PRU, EHE, NXT, NWS, MND, RFG

In: WOR, PRU, RFG            

6.0-6.9%

IPD, JBH, CSV, A2M, HSO, SGH, RIO, BGA, BKL, SEK, IFL, PDN, MTR, MYO

In: BKL                      Out: RFG

5.0-5.9%

BDR, CTD, AAC, GXL, KAR, BEN, TPM, IVC, AHG, OSH, CSR, SAR, LNG, SUL, AWC

In: TPM, AHG, SAR              Out: BKL

Movers and Shakers

Two weeks ago TPG Telecom announced the acquisition of spectrum and a subsequent capital raising, with the intention of becoming Australia’s fourth mobile provider. The news sent shares in mobile leader Telstra spiralling, along with sector colleague Vocus Communications, which has its own issues to deal with.

We note that Vocus remains significantly shorted at 12.6%, up from 11.3% the week before, Telstra merely 0.7% shorted (can’t fight those dividends), and that TPG appeared in the table for the first time last week on 5.3% shorted. There were two issues to deal with once TPG came out of its trading halt: (a), the dilution of the capital raising and (b), whether TPG was kidding itself it could become a genuine mobile player.

Competition has to date killed of any others who have tried.

Automotive Holdings Group has long been considered a pillar of retail strength, providing seemingly endless earnings “beats” from its auto division and growing constantly through dealership acquisitions. Anyone who considered shorting the stock would be doing so at considerable risk.

But all good things come to an end. Recent auto sales data shows an accelerating decline in WA, to which the company is 35% exposed. Well yes, the mining state is in recession. But powering along economically is NSW, which has also suffered two consecutive months of auto sales declines. Auto Holdings made a debut in our table at 5.2% shorted last week.

Saracen Mineral Holdings is set to become, in the opinion of analysts, a significant second-tier gold miner. It all depends on the Thunderbox project, which continues to show positive development. But with all new projects comes inherent risk, and a tendency for the market to get carried away and “price for perfection”. Valuations are gold price-dependent, and that’s been all over the shop lately.

Saracen also posted a weak March quarter production report last week, albeit the weather was to blame. Whatever the case, the stock has debuted in the table at 5.1% shorted.

Saracen joins Perseus Mining ((PRU)), owner of the notoriously trouble-prone Edikan mine in Africa, and Beadell Resources ((BDR)), which just posted weak quarterly numbers and has problems with an oxide only mill when sulphide ore is being produced, as the only other gold miners 5% or more shorted.

 
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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