The Short Report

This story features COCHLEAR LIMITED, and other companies. For more info SHARE ANALYSIS: COH

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, April 3, 2014.

After a brief cameo as Number One most shorted stock in the market, UGLy has now slipped further to third most shorted. Cochlear ((COH)) retains poll and Monadelphous ((MND)) has moved up to second spot. We ignore shorts in ETFs (SSO, QRE, OZR, IHD, IOZ) and News Corp-related non-ordinary listings (NWSLV).

The ASX 200 remained stuck around the 5400 mark last week while seemingly itching to press higher (it has now exploded higher), but short decreases continued to outnumber short increases. Increases of more than one percentage point or more numbered two this week to seven decreases. The Reject Shop is seeing shorts building, which is not unusual for retailers, While Qube Logistics saw a drop in shorts after its announced capital raising.

In the monthly moves, two short increases of 2ppt or more met six decreases. Most of the names are familiar as earlier weekly changes ease out. A bog drop in Kingsgate shorts has seen the stock spectacularly leave the Top 20 after a long tenure, perhaps given KCN has simply not yet announced a capital raising as many expect it will have to.
 

Weekly Short Increases

Shorts in Mesoblast ((MSB)) increased to 6.56% from 3.85%

The whole stem cell concept splits broker opinion. BA-Merrill Lynch has a Buy rating on Meso, for example, while Macquarie has a Sell. There has been no new news from the company since its February result which might be a reason for the non-believers to increase shorts.

Shorts in The Reject Shop ((TRS)) increased to 6.87% from 5.65%

The Reject Shop’s CEO resigned mid-March which sent the share price lower, although it has since recovered as expectations rise for the store roll-out to be rationalised. On the strength of the leadership vacuum, UBS downgraded to Sell.

Weekly Short Decreases

Shorts in Kingsgate Consolidated ((KCN)) decreased to 7.20% from 11.46%

This big drop in shorts has shot Kingsgate straight out of the Top 20 most shorted from the previous week’s number 12 position. As the weeks go by without KCN seeking to raise new capital, as is the distinct possibility given a stretched balance sheet, perhaps one big shorter lost interest.

Shorts in UGL ((UGL)) decreased to 13.61% from 15.44%

The struggling engineering services company is at risk of seeing its share price reach new 2014 highs after having been slaughtered post-result in February. This decrease takes UGL down to number 6 from number 4 in the Top 20, with some shorters perhaps feeling the pain.

Shorts in Forge Group ((FGE)) decreased to 3.15% from 4.95%

Forge is in administration, so presumably someone decided not to wait around to see if the company is wound up or not.

Shorts in Cabcharge ((CAB)) decreased to 7.28% from 8.97%

This week saw the NSW government deliver its new taxi policy proposal which sees the maximum allowed card surcharge dropped to 5% from 10%. It hits Cabcharge right where it hurts, but was not unexpected. A shorter or two may have elected to square up last week ahead of the announcement however.

Shorts in GUD Holdings ((GUD)) decreased to 4.08% from 5.40%

GUD’s share price has continued to drift since the company’s February result which has likely prompted some short profit taking.

Shorts in News Corp ((NWS)) decreased to 12.93% from 14.16%

Until the year-long rationalisation of News and Fox related instruments is complete we’re best to ignore NWS short positions.

Shorts in Qube Logistics ((QUB)) decreased to 2.53% from 3.58%

Qube announced a capital raising at the end of March which provided the shorters with the chance to pick up the discount on covering.

Monthly Short Increases

Shorts in Mesoblast increased to 6.56% from 3.93%

See above.

Shorts in Treasury Wine Estate ((TWE)) increased to 8.61% from 6.33%

Treasury Wine shares rose quietly over the past month and leapt up this week as the new CEO laid out his strategy to analysts. This increase precedes that conference call.

Monthly Short Decreases

Shorts in Silver Lake Resources ((SLR)) decreased to 4.48% from 8.71%

A jump in the gold price helped Silver Lake last week but since the announced closure of the Murchison mine, the shorters have elected to cash in.

Shorts in Leighton Holdings ((LEI)) decreased to 3.83% from 7.06%

Major Leighton shareholder Hochtief has bid to increase its shareholding to 74%, which sparked a significant surge in the stock price on the announcement last month.

Shorts in Fairfax Media ((FXJ)) decreased to 4.70% from 7.89%

It’s been over a month since Fairfax issued its surprisingly positive profit result but the short-covering is still working its way out of the system.

Shorts in Boral ((BLD)) decreased to 3.17% from 5.88%

Last week Boral and CSR announced a proposed cement JV which lifted the BLD share price but it had been rising for a month on apparent improvement in the building outlook.

Shorts in Singapore Telecom ((SGT)) decreased to 2.00% from 4.28%

SingTel shorts fluctuate with tedious regularity without noticeable reason beyond perhaps a telco pairs trade. The share price has been volatile of late despite no new information, suggesting likely more of a currency effect.

Shorts in GUD Holdings decreased to 4.08% from 6.21%

See above.
 

Top 20 Largest 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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