The Short Report

Array
(
    [0] => Array
        (
            [0] => ((JBH))
            [1] => ((ESV))
            [2] => ((PDN))
            [3] => ((MTS))
            [4] => ((WOW))
            [5] => ((WES))
            [6] => ((COH))
            [7] => ((ASL))
            [8] => ((KCN))
            [9] => ((TRY))
            [10] => ((AZH))
            [11] => ((NWH))
            [12] => ((CSR))
            [13] => ((ILU))
            [14] => ((RRL))
        )

    [1] => Array
        (
            [0] => JBH
            [1] => ESV
            [2] => PDN
            [3] => MTS
            [4] => WOW
            [5] => WES
            [6] => COH
            [7] => ASL
            [8] => KCN
            [9] => TRY
            [10] => AZH
            [11] => NWH
            [12] => CSR
            [13] => ILU
            [14] => RRL
        )

)

This story features JB HI-FI LIMITED, and other companies.
For more info SHARE ANALYSIS: JBH
The company is included in ASX100, ASX200, ASX300 and ALL-ORDS

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, August 8, 2013

Shorting activity remains relatively subdued with last week featuring the first real trickle of corporate earnings results. After a long incumbency as the most shorted stock in the market, JB Hi-Fi ((JBH)) has now been knocked off its perch with a big increase in shorts on Paladin Energy post the company's forced capital raising. Short decreases suggested some squaring up ahead of pending earnings releases as well as short covering on some improved share performance. The value hunters have been looking into beaten down mining services companies but early results from the sector look ominous, and Ausdrill appears to have gained short interest as a result. Prices of commodities such as gold, aluminium and zircon have influenced short movements while a less than inspiring outlook for Cochlear announced with its early-season profit release saw shorts increase.

Weekly Short Increases

Shorts in eServGlobal ((ESV)) increased to 2.86% from 0.18%

eServGolbal is a small provider of mobile money solutions across the globe and is not covered by brokers in the FNArena database.

Shorts in Paladin Energy ((PDN)) increased to 15.50% from 12.94%

Paladin is suffering from weak uranium prices which have led to insufficient interest from potential stake buyers in the company’s primary Langer Heinrich project. With financiers at the door, PDN was forced last week to raise capital to cover its debt problems. The amount raised nevertheless does not overcome PDN’s ongoing cash burn. Uranium prices need to rise.

Shorts in Metcash ((MTS)) increased to 9.86% from 8.60%

There was no new news from Metcash over the week, but the supermarket contender is a regular Top 20 incumbent. Broker views are mixed with the main stumbling block being whether MTS can sustain earnings growth in the face of the ever strengthening duopoly of Woolworths ((WOW)) and Coles ((WES)), particularly as they fight out a grocery discounting war.

Shorts in Cochlear ((COH)) increased to 9.59% from 8.47%

Cochlear tends to drift in and out of the Top 20 list, and last week sat at 16. The share price enjoyed somewhat of a bounce out of the June profit warning trough on a lower currency before waning again as results season approached. COH’s result matched reduced guidance but the outlook remains tough with market share risk the issue. A lot depends on a successful launch of the N6 device. No database broker has a Buy rating on the stock.

Shorts in Mirabela Nickel increased to 3.16% from 2.12%

Mirabela has been suffering from weaker nickel prices in the lead up to this week’s result, and if fresh shorts were punting on a “miss” they have since been rewarded. MBN’s loss was much greater than brokers expected and the company is burning cash at current nickel prices, with the debt spectres hovering.

Weekly Short Decreases

Shorts in Sirtex Medical decreased to 0.12% from 1.08%

Sirtex posted a healthy quarterly sales result back in July but a full-year earnings report is now pending. Brokers were a little cautious on growth but reduced shorts likely reflect a square-up ahead of the result release.

Monthly Short Increases

Shorts in Ausdrill ((ASL)) increased to 8.13% from 5.42%

Ausdrill is one of a handful of mining service companies appearing in the Top 20 and some early profit reports from the sector last week suggested things might be even worse than expected on falling capex spend. There has been no new news from ASL of late but with a profit result pending, the shorters appear to have made their call.

Shorts in Paladin Energy increased to 15.50% from 12.89%

Paladin is now the number one shorted stock in the market. See above.

Shorts in Kingsgate Consolidated ((KCN)) increased to 6.91% from 4.63%

Kingsgate last month reported strong gold production for the quarter but the impact of a weaker gold price was also felt, with the company reining in its earlier expansion plans. Lower grades aren’t helping and the company is guiding to flat earnings in FY14. Three database brokers cover the stock and they’re all on Sell.

Shorts in Cochlear increased to 9.59% from 7.60%

See above.

Monthly Short Decreases

Shorts in Troy Resources ((TRY)) decreased to 0.4% from 6.17%

Troy is not covered by database brokers but shorts have now fallen to almost zero post the company’s move to a full takeover of Azimuth Resources ((AZH)).

Shorts in SingTel decreased to 2.08% from 6.08%

SingTel shares have had a good run since June after dropping on the FY13 result in May. SGT this week released a decent first quarter FY14 result and the shorters appeared to back down last month ahead of the release.

Shorts in NRW Holdings ((NWH)) decreased to 6.57% from 8.93%

NRW shares have taken a battering this year given the company’s heavy exposure to mining capex but the value hunters appeared towards the end of July to provide for somewhat of a rebound ahead of reporting season. NRW issued a profit warning in June. The reduction in shorts suggests covering as the share price improves.

Shorts in CSR ((CSR)) decreased to 7.03% from 9.17%

The spectre of changes to US warehouse regulations hangs over CSR given its exposure to the aluminium price. On the other hand, aluminium prices are proving resilient and the weaker A$ is aiding CSR’s cause. It’s been a volatile couple of months but the share price has largely improved, likely forcing short covering ahead of the company’s earnings release.

Shorts in Iluka Resources ((ILU)) decreased to 9.31% from 11.44%

Iluka shares have continued to enjoy strong performance ever since the company’s June quarter production release suggested a bottom in zircon demand and prices may now have been seen. ILU has been sliding down the Top 20 rankings ever since, and has dropped to 17 from 14.

Shorts in Regis Resources ((RRL)) decreased to 2.30% from 4.43%

Regis is a small gold explorer not covered by database brokers.
 

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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