The Short Report

Array
(
    [0] => Array
        (
            [0] => ((DJS))
            [1] => ((MYR))
            [2] => ((TSE))
            [3] => ((FLT))
            [4] => ((BKN))
            [5] => ((RCR))
            [6] => ((HVN))
            [7] => ((ARI))
            [8] => ((PDN))
            [9] => ((BWP))
            [10] => ((KCN))
            [11] => ((JBH))
            [12] => ((SBM))
            [13] => ((ASL))
            [14] => ((SDF))
            [15] => ((WHC))
            [16] => ((BRU))
            [17] => ((ALQ))
            [18] => ((SAI))
            [19] => ((PRU))
        )

    [1] => Array
        (
            [0] => DJS
            [1] => MYR
            [2] => TSE
            [3] => FLT
            [4] => BKN
            [5] => RCR
            [6] => HVN
            [7] => ARI
            [8] => PDN
            [9] => BWP
            [10] => KCN
            [11] => JBH
            [12] => SBM
            [13] => ASL
            [14] => SDF
            [15] => WHC
            [16] => BRU
            [17] => ALQ
            [18] => SAI
            [19] => PRU
        )

)

This story features MYER HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: MYR
The company is included in 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, September 12, 2013.

Result season is starting to fade in the memory but for the consumer discretionary stocks, many of whom report on a later cycle. Hence we've had reports recently from David Jones ((DJS)), Myer ((MYR)) and Harvey Norman. Analysts are beginning to feel a little more comfortable about the sector now with rates falling and the election over, and this is evident in a reasonable report from Harvey Norman forcing short-covering while long time short favourite Flight Centre is now out of the Top 20 and JB Hi-Fi is not far behind. The same is not quite so true for the department stores nevertheless, with MYR still at 2 and DJS at 7 (down from 4) this week. Dead model?

Short decreases continued to far outweigh short increases on both a weekly (seven to one of more than one percentage point) and monthly (twelve to two of more than two ppts) in the period in question. Aside from consumer discretionary, the other sector to figure strongly is mining services. When talk of a mining capex peak was rife, traders sold off the whole sector indiscriminately. Since reporting season however, traders have realised that some names are less exposed than others and still boast strong cashflows. Thus shorts have continued to be covered in the likes of Bradken, RCR Tomlinson, Ausdrill and ALS. The same cannot be said for Transfield, which has moved up the Top 20 from 18 last week to 6 this week, with a bullet.
 

Weekly Short Increases

Shorts in Transfield Services ((TSE)) increased to 10.92% from 7.97%

Will Transfield have to raise equity to cover debt obligations? That is the question. TSE jumped into the Top 20 at 18 last week following its full year result release and has shot up to 6 this week as the shorters continue to circle. Deutsche Bank and Macquarie both think TSE is out of the woods and upgraded to Buy post result, but JP Morgan went the other way to Sell.

Weekly Short Decreases

Shorts in Flight Centre ((FLT)) decreased to 3.35% from 5.77%

Flight Centre shares have mostly risen post another impressive result which caught out the shorts, and subsequently FLT has dropped out of the Top 20 most shorted, where it had spent plenty of time, and continues to fall down the table.

Shorts in Bradken ((BKN)) decreased to 8.04% from 9.71%

Bradken shares have bounced strongly since July and a positive result added to the rebound. While BKN eased in the week in question shorts have gradually been decreasing, with the stock slipping further to 18 in the Top 20 from 11 last week.

Shorts in RCR Tomlinson ((RCR)) decreased to 0.27% from 1.59%

RCR shares have run up over 50% since July and the result showed the potential for margin growth. Not good shorting material.

Shorts in Harvey Norman ((HVN)) decreased to 5.72% from 6.90%

Some brokers are beginning to feel the tide is turning for Australian consumer discretionary, and here Harvey Norman is a flagship. The result showed the sales decline has been arrested, although earnings are yet to turn around. UBS and JP Morgan both upgraded to Buy post result, but Citi, BA-Merrill Lynch and Credit Suisse all maintain Sells on franchise problems. The shorters are becoming unsure.

Shorts in Arrium ((ARI)) decreased to 1.65% from 2.75%

Arrium shares have had a solid run since July as a beneficiary of a weaker Aussie dollar, and on well supported iron ore prices. Only one of eight FNArena database brokers (Macquarie) has a Buy on the stock nevertheless.

Shorts in Paladin Energy ((PDN)) decreased to 5.20% from 6.25%

A chart-topping short position was built up in Paladin when the company announced a capital raising via share placement, and post placement the shorts have been falling ever since. The arbitrage window is closed so ongoing weekly short reductions likely suggest profit-taking as the stock price continues to trend lower.

Shorts in BWP Trust ((BWP)) decreased to 1.10% from 2.13%

BWP shares have been trending steadily lower since July as investor focus turned to risk and away from yield, although on a forecast FY13 yield of 6.3% now BWP will start to come back onto the radar.

Monthly Short Increases

Shorts in Transfield Services increased to 10.92% from 5.84%

See above.

Shorts in Kingsgate Consolidated ((KCN)) increased to 9.74% from 6.88%

Kingsgate guided to no growth in production in FY14 and the company’s debt is increasing in low gold price environment. Three FNArena database broker cover KCN and they all have Sell ratings post the FY13 result. Fodder for shorters.

Monthly Short Decreases

Shorts in Flight Centre decreased to 3.35% from 11.73%

See above.

Shorts in Paladin Energy decreased to 5.20% from 13.45%

See above.

Shorts in JB Hi-Fi ((JBH)) decreased to 9.04% from 13.96%

Once number one, JB Hi-Fi is quietly moving down the top 20 list – albeit this week has stalled at 16 – post a solid earnings result and improving consumer confidence in the wake of RBA rate cuts.

Shorts in St Barbara ((SBM)) decreased to 1.75% from 5.75%

St Barbara shares have been falling steadily since late August. As a high-cost producer SBM is extremely leveraged to the gold price, which why on “Fed No Taper” day (outside the period in question) the stock is up 15% on a US$50 jump in gold.

Shorts in Ausdrill ((ASL)) decreased to 4.51% from 7.98%

Ausdrill shares eased off last week but only after a 100% appreciation beginning in July, which caught out the shorters in the month in question.

Shorts in Steadfast Holdings ((SDF)) decreased to 0.02% from 3.38%

Steadfast only listed in early August and what was probably an IPO play appears now to have run its course.

Shorts in Whitehaven Coal ((WHC)) decreased to 7.26% from 10.32%

Whitehaven slipped to 20 in the top 20 last week and has now dropped out, but approval for the Maules Creek mine continues to be delayed in a climate not too inspiring for coal. WHC draws no Buy ratings from FNArena database brokers.

Shorts in Harvey Norman decreased to 5.72% from 8.22%

See above.

Shorts in Buru Energy ((BRU)) decreased to 3.78% from 6.16%

Buru is making its way down the monthly list now that the company’s refinancing deal is complete.

Shorts in ALS ((ALQ)) decreased to 6.46% from 8.75%

ALS shares have bounced strongly since July, forcing short-covering.

Shorts in SAI Global ((SAI)) decreased to 3.46% from 5.70%

Four brokers upgraded to Buy making five from seven in the FNArena database after SAI reported in August. The tide is turning for SAI, brokers have decided, and the risk now is to the upside.

Shorts in Perseus Mining ((PRU)) decreased to 1.46% from 3.57%

Perseus’ result earlier this month suggested problems at the company’s Edikan mine have now been resolved, allowing for a more positive outlook in FY14, gold price notwithstanding.
 

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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