The Short Report

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(
    [0] => Array
        (
            [0] => ((KCN))
            [1] => ((BBG))
            [2] => ((ARI))
            [3] => ((AQG))
            [4] => ((SGT))
            [5] => ((JBH))
            [6] => ((FLT))
            [7] => ((SDF))
            [8] => ((SAI))
            [9] => ((SBM))
            [10] => ((ESV))
            [11] => ((MMS))
            [12] => ((COH))
            [13] => ((PDN))
            [14] => ((FLT))
            [15] => ((FXJ))
            [16] => ((BRU))
        )

    [1] => Array
        (
            [0] => KCN
            [1] => BBG
            [2] => ARI
            [3] => AQG
            [4] => SGT
            [5] => JBH
            [6] => FLT
            [7] => SDF
            [8] => SAI
            [9] => SBM
            [10] => ESV
            [11] => MMS
            [12] => COH
            [13] => PDN
            [14] => FLT
            [15] => FXJ
            [16] => BRU
        )

)

This story features KINGSGATE CONSOLIDATED LIMITED, and other companies.
For more info SHARE ANALYSIS: KCN
The company is included in 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 22, 2013

Shorting activity picked up a bit last week from the week before with pending company profit reports and delivered company profit reports sparking up the action. As might be expected in a results season, short increases and decreases were reasonably balanced on both a weekly and monthly basis given the beats and misses were prompting offsetting responses, to join squaring ahead of reports yet to be delivered. Most notable is long-term Top 20 member JB Hi-Fi's plunge to eighth position from a more familiar second position (or first if you don't count the brief Paladin arbitrage) after the company reported a result that wasn't, disappointingly for the shorters, a shocker. Billabong keeps being batted around as a punting stock while gold stocks have also become quite a punt as well. Mining service companies are still well represented in the Top 20 as are the perennial consumer discretionaries, while Cochlear has shifted up several places given other stocks have shifted down.

All up there were six weekly short increases of one percentage point or more to five decreases, and seven monthly increases of 2ppt or more to five decreases.

Weekly Short Increases

Shorts in Kingsgate Consolidated ((KCN)) increased to 9.24% from 7.29%

Three FNArena database brokers cover gold producer Kingsgate and following one downgrade, they all had Sell ratings post KCN’s June quarter production report given a back-down in the miner’s development plans. The stock has since rallied on the back of a stronger gold price, providing shorting scope for the unbelievers.

Shorts in Billabong International ((BBG)) increased to 5.26% from 3.57%

Billabong is a death or glory story, with glory being a takeover bid that actually gets accepted this time. BBG has since posted arguably the worst result of the earnings season, and given further refinancing will mean further equity dilution any bid will likely be jumped on. But last week the stock was still rising on speculation, encouraging more short interest.

Shorts in Arrium ((ARI)) increased to 3.28% from 1.27%

Arrium reported a well-received profit result in the period and the stock had a kick up as a result. Strong iron ore prices are providing support but weakness in the steel business remains as a cloud and shorters possibly see initial enthusiasm waning.

Shorts in Alacer Gold ((AQG)) increased to 2.04% from $1.02%

Alacer shares have risen steadily on the gold price rebound and the announcement of a new CEO ahead of last week also provided a boost. AQG is having trouble selling assets nevertheless, which likely draws the attention of shorters.

Shorts in UGL increased to 11.37% from 10.35%

As a services company with heavy exposure to mining, UGL has been among the most shorted stocks for a while. The week before the period in question UGL posted a result that just scraped into a downgraded guidance range, and announced a planned demerger of its engineering and property divisions. The market liked it, brokers are not so enthused, and clearly the shorters don’t see value upside either. UGL has moved from 12 to 5 in the Top 20.

Shorts in Singapore Telecom ((SGT)) increased to 3.26% from 3.25%

SingTel posted a result in the period that was roughly in line with consensus, but featured a downgrade to FY14 expectations with a weaker currency blamed. Brokers remain mostly upbeat but if SGT is a play on expectations of a weaker Aussie, then it is played from the short side.

Weekly Short Decreases

Shorts in JB Hi-Fi ((JBH)) decreased to 10.40% from 12.48%

If we don’t count a brief arbitrage play on the Paladin Energy capital raising, JBH has been top of the pops for shorters for ages now. Not this week however, with a notable plunge from number two to number eight on the Top 20. The company is still at risk from weak consumer sentiment but posted a reasonable result ahead of last week when the shorters were probably hoping for a decent miss.

Shorts in Flight Centre ((FLT)) decreased to 8.97% from 10.51%

Buyers don’t always get it right and nor do shorters. With Flight Centre having sat in the Top 20 now for ages while its share price has kept going up and up, there would have been a few burnt shorters prepared to square up last week ahead of this week’s result release. Just as well, as FLT delivered another cracker, belying “overvalued” calls yet again. FLT plunged from 6 to 18 on the Top 20, even before the result.

Shorts in Steadfast ((SDF)) decreased to 1.04% from 2.49%

Shorts in Steadfast jumped up the week before and fell back last week but the stock is not covered by FNArena database brokers.

Shorts in SAI Global ((SAI)) decreased to 4.34% from 5.49%

SAI posted its profit result in the period and while in line with consensus, brokers agreed that it appears the tide has turned for the company and blue skies are smiling ahead. The result prompted no less than four upgrades to Buy in the FNArena database and likely caught the shorters out.

Shorts in St Barbara ((SBM)) decreased to 4.39% from 5.46%

Gold miners have been fodder for the shorters of late but a bounce in the gold price has sparked a bounce in the sector. If last week’s reduction in shorts represented covering ahead of this week’s result release from St Barbara then it was a premature call. SBM posted a shocker.

Monthly Short Increases

Shorts in Singapore Telecom increased to 3.26% from 0.43%

See above.

Shorts in Kingsgate Consolidated increased to 9.24% from 6.49%

See above.

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

eServ is not covered by FNArena database brokers.

Shorts in McMillan Shakespeare ((MMS)) increased to 4.28% to 1.73%

Shorts in McMillan have steadily increased since the stock began bouncing back from its tailspin prompted by the federal government’s FBT bombshell in late July, increasing another 0.55ppt last week. The stock is now a punt on the election, but has a Coalition win now been factored into the MMS price, ahead of a sell-the-fact?

Shorts in Cochlear ((COH)) increased to 10.51% from 8.01%

Cochlear has spent some time in the Top 20 of late given market enthusiasm for its leverage to a lower Aussie despite threats from growing competition in devices. COH’s profit result the week before last did little to change the shorters’ tune and the stock has moved up to 6 this week from 16 last week as other stocks have moved down.

Shorts in UGL increased to 11.37% from 9.15%

See above.

Shorts in Billabong International increased to 5.26% from 3.12%

See above.

Monthly Short Decreases

Shorts in JB Hi-Fi decreased to 10.40% from 17.49%

See above, but note a very substantial reduction in short position on a monthly basis post a reasonable profit result. The stock rallied strongly from its result release and short-covering has clearly been a scramble.

Shorts in Paladin Energy ((PDN)) decreased to 7.38% from 13.00%

Last week Paladin was the top shorted stock in the market and this week it’s disappeared out of the Top 20. The capital raising (discounted share placement) arbitrage has now closed so the monthly numbers are simply catching up.

Shorts in Flight Centre ((FLT)) decreased to 8.97% from 12.39%

See above.

Shorts in Fairfax Media ((FXJ)) decreased to 14.34% from 16.70%

Fairfax is a long term Top 20 member and the double-digit numbers tend to just shift around a bit. Its short position didn’t move last week and the monthly dip represented a square up the week before ahead of FXJ’s result release, which did little to change the picture. Despite this slight monthly dip, FXJ has moved up to 2 from 3 on the Top 20 this week.

Shorts in Buru Energy ((BRU)) decreased to 3.92% from 5.99%

Buru shorts began reducing the week before last after the company secured a new financing deal, which this monthly move reflects.
 

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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