The Short Report

Array
(
    [0] => Array
        (
            [0] => ((SDF))
            [1] => ((COH))
            [2] => ((KAR))
            [3] => ((ASL))
            [4] => ((BRU))
            [5] => ((FWD))
            [6] => ((MSB))
            [7] => ((ESV))
            [8] => ((MMS))
            [9] => ((RRL))
            [10] => ((FXJ))
            [11] => ((ILU))
        )

    [1] => Array
        (
            [0] => SDF
            [1] => COH
            [2] => KAR
            [3] => ASL
            [4] => BRU
            [5] => FWD
            [6] => MSB
            [7] => ESV
            [8] => MMS
            [9] => RRL
            [10] => FXJ
            [11] => ILU
        )

)

This story features STEADFAST GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: SDF
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 15, 2013

The shorting scene on the Australian market was pretty straightforward last week, greatly influenced by profit results that were yet to be reported. There were only two weekly short increases of more than 1ppt and only four monthly increases of more than 2ppt. On the other side, there were eight weekly short decreases of 1ppt or more and six monthly decreases of 2ppt or more. The bulk of the decreases likely reflect a squaring up of positions ahead of that company's result release. The exceptions are Paladin Energy and Karoon Gas, which saw shorts reduced after share placement arbitrage plays closed. Cochlear reported in the week in question, and has seen its shorts increase on an unconvincing outlook, while perennial shorting favourite JB Hi Fi saw shorts reduce somewhat after posting a strong result.

Fairfax Media has replaced JB Hi Fi as the most shorted stock, ahead of today's result, with consumer discretionary still dominating the Top 20. Resource sector service providers remain well represented.

Weekly Short Increases

Shorts in Steadfast ((SDF)) increased to 2.49% from 0.49%

Steadfast is not covered by FNArena database brokers.

Shorts in Cochlear ((COH)) increased to 10.77% from 9.59%

Shorts in Cochlear had begun to increase ahead of the company’s profit result and while the result met expectations, brokers remain concerned with growing competition for devices and a lower growth outlook for COH. A lot hinges on a successful launch of the N6 with N5 malfunctions still being registered. COH has jumped to 6 from 16 on the Top 20.

Weekly Short Decreases

Shorts in Paladin Energy decreased to 6.77% from 15.50%

This reduction in shorts takes Paladin from number one to no longer in the Top 20. The previous week’s large short position clearly represented an arbitrage play on the company’s capital raising via discounted share placement.

Shorts in JB Hi Fi decreased to 12.48% from 15.24%

This reduction sees this perennial shorting favourite slip only to 3 from 2 on the Top 20. JBH posted a strong result but the share price has mostly fallen ever since, with brokers still pessimistic about the outlook for Australian discretionary retail. Some shorts have been covered, but clearly traders still agree with the brokers.

Shorts in Flight Centre decreased to 10.51% from 12.32%

Like JBH (above), Flight Centre is another shorting favourite and Top 20 incumbent, most likely to the detriment of shorters given the company just keeps on performing. We’re still in the discretionary retail space, but this time brokers are net positive. This reduction likely implies a square-up ahead of FLT’s upcoming result release.

Shorts in Karoon Gas ((KAR)) decreased to 0.66% from 2.23%

A week before, Karoon raised capital via a share placement to fund its drilling program. See Paladin Energy (above).

Shorts in Ausdrill ((ASL)) decreased to 6.76% from 8.13%

Ausdrill shares were hammered on the gold price fall until July, at which point the market decided the service provider had suffered enough. A subsequent bounce of some 90% would have included the influence of short-covering, which clearly was still happening last week.

Shorts in Buru Energy ((BRU)) decreased to 4.70% from 5.99%

The week before, Buru secured financing for its exploration program and the stock had a run up. The short decrease likely reflects covering, although the share price has fallen again subsequently.

Shorts in Fleetwood ((FWD)) decreased to 3.04% from 4.26%

Fleetwood has had a shocking year, as this week’s result release attested. Short covering last week likely reflects squaring up ahead of this release.

Shorts in Boart Longyear decreased to 8.80% from 9.84%

Boart issued another profit warning in July and the company is yet to report earnings. A winner for the shorters to date, but likely a little bit of squaring up ahead of the result.

Monthly Short Increases

Shorts in Cochlear increased to 10.77% from 8.00%

See above.

Shorts in Mesoblast ((MSB)) increased to 5.47% from 2.41%

Mesoblast issued some promising Phase 2 test results for its stem cell product back in April but there has been no news flow ever since. Biotechs trade in a binary fashion, flying up on drug approvals and down on rejections. Someone is sceptical.

Shorts in eServGlobal ((ESV)) increased to 2.91% from 0.17%

ESV is not covered by FNArnea database brokers.

Shorts in McMillan Shakespeare ((MMS)) increased to 3.73% from 1.38%

McMillan shares collapsed in July when the government changed the FBT rules with regard work travel and threatened around half of the company’s earnings. In early August the Coalition said it would, if elected, scrap the change. The shares have since rebounded 50% to recover around half the drop, and MMS has become a bet on the election outcome.

Monthly Short Decreases

Shorts in Paladin Energy decreased to 6.77% from 12.88%

See above.

Shorts in JB Hi Fi decreased to 12.48% from 18.23%

See above.

Shorts in Regis Resources ((RRL)) decreased to 1.61% from 4.23%

Regis is not covered by FNArena database brokers but is a junior goldminer and bounced hard during the period on the gold price bounce. Short covering helped.

Shorts in Fairfax Media ((FXJ)) decreased to 14.56% from 16.73%

With Paladin back out of the picture, Fairfax has replaced JBH as the most shorted stock in the market. The decrease, which is not much in the scheme of things, likely reflects squaring up ahead of today’s profit result. While FXJ is a member of the most shorted sector – consumer discretionary – it has the added appeal (to shorters) of being Old media struggling in a New Media world. How long will FXJ keep printing hardcopy newspapers?

Shorts in Flight Centre decreased to 10.51% from 12.64%

See above.

Shorts in Iluka Resources ((ILU)) decreased to 9.07% from 11.19%

Iluka reported yesterday and questions are being asked about whether the company really is seeing improved demand or whether increased production simply reflects increased zircon stockpiling. This decrease was likely a square-up ahead of the result.

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms