The Short Report

Array
(
    [0] => Array
        (
            [0] => ((DXS))
            [1] => ((SGM))
            [2] => ((NWS))
            [3] => ((FOX))
            [4] => ((TSE))
            [5] => ((SGT))
            [6] => ((TLS))
            [7] => ((MBN))
            [8] => ((RCR))
            [9] => ((CPA))
            [10] => ((COH))
            [11] => ((PDN))
            [12] => ((FXJ))
            [13] => ((EHL))
        )

    [1] => Array
        (
            [0] => DXS
            [1] => SGM
            [2] => NWS
            [3] => FOX
            [4] => TSE
            [5] => SGT
            [6] => TLS
            [7] => MBN
            [8] => RCR
            [9] => CPA
            [10] => COH
            [11] => PDN
            [12] => FXJ
            [13] => EHL
        )

)

This story features DEXUS, and other companies.
For more info SHARE ANALYSIS: DXS
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, October 17, 2013.

Shorting activity was relatively quiet last week as the AGM season steps up a gear and the usual suspects still dominate the monthly moves. There were some new faces in the weekly moves however, with the Dexus bid for Commonwealth Property inspiring some action, RCR Tomlinson running on new contract wins and Mirabela Nickel in suspension after failing to make an interest payment on its bonds. Otherwise the argy-bargy surrounding the News Corp demerger is still working its way through the numbers and otherwise, Cochlear remains the most shorted stock in the market.

There were only two short increases of one percentage point or more last week to six decreases, while on a monthly basis, three short increases of two percentage points or more matched three decreases.

Weekly Short Increases

Shorts in Dexus Property Group ((DXS)) increased to 1.63% from 0.35%

In the week in question, Dexus combined with a Canadian pension fund to make a bid for the Commonwealth Property Office Trust, having previously established a 14.9% stake. The stake followed Commonwealth Bank’s announcement it intended to internalise the management of Comm Property. A popular trade with regard to takeovers is to short the suitor and buy the target, on the assumption a suitor usually has to increase its bid. Such a trade is reflected in last week’s numbers with an increase in Dexus shorts being matched with a similar reduction in Comm Property shorts (see below).

Adding spice for the shorts was a rally in Dexus on the basis a takeover would be a good move. However Comm Property has since rejected the bid, not even allowing DXS access to its books for due diligence purposes.

Shorts in Sims Metal Management ((SGM)) increased to 5.15% from 3.91%

Sims appointed a new CEO the week before who was well-received by analysts and the market as the stock railed thereafter. But with SGM posting a big miss at its August result and conditions not improving in the near term, the shorters have responded.

Weekly Short Decreases

Shorts in News Corp ((NWS)) decreased to 8.32% from 18.74%

This sharp reduction in News shorts suggests we are still working through arbitrage trades surrounding the complicated demerger of the old News and related A and B voting shares rather than a significant pairs trade against the spun off 21^st Century Fox ((FOX)).

Shorts in Transfield Services ((TSE)) decreased to 7.80% from 9.63%

Transfield shot up the short table a month ago following a result release which did not assuage fears of another equity raising being needed. The problem for shorters is the stock has rallied this month and hence TSE has now dropped out of the Top 20 on short-covering.

Shorts in Singapore Telecom ((SGT)) decreased to 0.81% from 2.42%

SingTel shares have been falling ever since Telstra ((TLS)) updated the market on its strength in mobile subscriptions, which presumably have come at a cost to Optus. The shorts appear to have cashed in last week.

Shorts in Mirabela Nickel ((MBN)) decreased to 2.67% from 3.92%

Having missed an interest payment on its bond issue, Mirabela hangs in the balance and the shares are now in voluntary suspension.

Shorts in RCR Tomlinson ((RCR)) decreased to 0.23% from 1.37%

RCR was awarded $125m in new service contracts during the period and thus saw a run in its share price, which would have caught out the short positions.

Shorts in Commonwealth Property Office ((CPA)) decreased to 0.39% from 1.46%

See Dexus above.

Monthly Short Increases

Shorts in News Corp increased to 8.12% from 0.20%

This monthly increase encompasses the action (noted above in the weekly section) around the News demerger but belies the weekly reduction in shorts.

Shorts in Cochlear ((COH)) increased to 15.57% from 11.75%

Cochlear is back in effective number one spot on the table with News Corp dropping out (not counting News A shares). The company’s AGM last week suggested confidence but analysts didn’t buy it.

Shorts in Paladin Energy ((PDN)) increased to 8.37% from 5.37%

Paladin shorts continue to rise on a monthly basis, having previously fallen from lofty levels after the company secured fresh funding. Every day the spot uranium price fails to improve the company burns more cash.

Monthly Short Decreases

Shorts in Fairfax Media ((FXJ)) decreased to 10.77% from 14.14%

The Fairfax share price continued to falter post the result in August and while reducing on this weakness, the short old media trade remains robust with FXJ sitting at 8 on the Top 20 table.

Shorts in Transfield Services decreased to 7.80% from 10.85%

See above.

Shorts in Emeco Holdings ((EHL)) decreased to 1.80% from 4.17%

Amendments to Emeco’s debt covenants mean that while conditions remain difficult for the service provider, an equity raising is no longer on the cards short term.
 

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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