The Short Report

This story features ANSELL LIMITED. For more info SHARE ANALYSIS: ANN

By Andrew Nelson

This week’s short report is actually quite a short report, with only one stock moving by more than one percentage point (ppt) over the week from the twenty seventh of March to the third of April. There was a bit more action on a monthly basis, with four stocks shifting by more than two ppt or more.

Shorts increased across the base metals and other resources sectors, while capital goods, steel and chemicals sectors also attracted a little fresh short interest. Although falling from the sort of highs we saw prior to reporting season, short interest in the discretionary retail sector still remains elevated.

The one weekly mover was SingTel ((SGT)), with shorts lifting 1.31ppt from 0.76% to 2.07%. BA-Merrill Lynch noted a few weeks back that the company had announced a strategic review for Optus's satellite business, with optimising share holder value the stated goal. BA-Merrill Lynch pointed out this could end up turning into a 2%-6% special dividend if the holdings are sold down or listed. Sentiment for the stock remains in positive territory according to the FNArena Database.

We’ll also give a mention to Lynas Corp ((LYC)), its shorts up 0.99ppt from 10.3% to 11.29%. After a visit to the LAMP in Malaysia, Deutsche Bank is satisfied production is going to plan. The risk/return now looks more favourable, but the broker retained a Hold rating saying that for the-rate the stock, a successful ramp-up to 11,000 tpa is needed as well as rare earth pricing finding a floor. Also, upcoming elections need to be out of the way. The database shows a positive sentiment for the stock.

Just one stock saw its short position move up by two percentage points on a monthly basis and that was Atlas Iron ((AGO)). Shorts increased by 2.26ppt from 1.23% to 3.49% over the week. Credit Suisse upgraded its call to Buy from Sell in mid-March. Other than that, sentiment remains slightly positive, the same as it was at the end of February when the company reported what were fairly disappointing 1H numbers.

The rest of the monthly movers are on the downside and are lead by SingTel ((SGT)), its shorts coming off 4.66ppt from 6.73% to 2.07% over the month. Next comes Gryphon Minerals ((GRY)), its short position pulling back by 3.74ppt from 6.95% to 3.21% over the month in question. Both CIMB and Credit Suisse noted in mid-March that despite a sub-par interim report, Banfora remains on track and that’s where the value is. Sentiment is perfect on straight Buys in the FNArena Database.

Sundance Energy ((SEA)) comes next, with shorts down 3.37ppt from 3.66% to 0.29%. BA-Merrill Lynch lifted its price target mid-March after the company's acquisition of 7,812 acres in the volatile oil area of the Eagle Ford. The broker said this asset will now become core to Sundance's ramping up of production to 5,000 boepd over the next 15 months. The broker believes the asset has significant upside potential and was secured on attractive terms. Sentiment is positive.

We’ll cover one last stock despite its monthly move being less than 2ppt. Shorts in JB HiFi ((JBH)) came off 1.33ppt from 19.7% to 18.37% over the month. Despite the move, the stock maintains its positing on top of the Top 20 most shorted stocks in the market list.

That takes us to the Top 20 list itself. While there wasn’t much of a change to positions amongst the top 15, there were a number of compositional changes to the list amongst the more lightly shorted stocks. Bradken ((BKN)), Wotif.com ((WTF)), Buru Energy ((BRU)) and Acrux ((ACR)) all found themselves off of the Top 20 list. This week’s new entrants are Ansell ((ANN)), GUD Holdings ((GUD)), Sims Metal ((SGM)) and Western Areas ((WSA)).

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	18177440	98947309	18.37
2	FXJ	405409131	2351955725	17.24
3	ILU	69103834	418700517	16.50
4	MYR	77520425	583494551	13.29
5	PDN	109359569	836969286	13.07
6	MTS	102168746	880704786	11.60
7	FLT	11159793	100344792	11.12
8	LYC	215455227	1960801292	10.99
9	DJS	54595451	531788775	10.27
10	CSR	49354709	506000315	9.75
11	MND	8805509	90940258	9.68
12	KCN	13284575	151828173	8.75
13	TRS	2271476	26092220	8.71
14	HVN	86491508	1062316784	8.14
15	WSA	14961291	196843803	7.60
16	SGM	15012743	204309387	7.35
17	WTF	15392216	211736244	7.27
18	COH	3954535	57040932	6.93
19	GUD	4870937	71341319	6.83
20	ANN	8889334	130808652	6.80

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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