The Short Report

This story features G.U.D. HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: GUD

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, December 5, 2013.

It was a mixed bag of short-side activity during the week in question, with Fairfax again returning to favour on the short side, and Perseus and Buru joining the mix from the resource sector. Share price falls in the likes of Ansell (capital raising), Virgin and Incitec allowed shorters to take profits. OZ Minerals made an interesting appearance among the monthly increases ahead of this week's profit warning.

Five weekly short increases of one percentage point or more met four decreases, while six monthly increases of 2ppt or more met three decreases. Most of the usual suspects featured. GUD Holdings ((GUD)) has snuck into the Top 20 at 19 this week, replacing Boart Longyear ((BLY)). BLY shares have wallowed and the shorters have begun pocketing the gains.
 

Weekly Short Increases

Shorts in Fairfax Media ((FXJ)) increased to 11.15% from 8.58%

Will Fairfax be forced to spin off its digital business? This is a question brokers are now asking as last month’s AGM revealed revenue improvement but little in the way of a significant turnaround. The share price rallied sharply and caught out the shorts but positions have again been re-established. Fairfax sits at 10 in the Top 20 most shorted.

Shorts in New Corp ((NWS)) increased to 12.79% from 10.94%

Shorts in News remain elevated, with the stock sitting at 8 in the Top 20 this week. A combination of demerger hangover and pairs trading is likely influencing these numbers.

Shorts in Perseus Mining ((PRU)) increased to 3.38% from 2.00%

Lower than expected production, higher than expected costs and a weak gold price have conspired to send Perseus share price south, with the shorts moving in.

Shorts in Buru Energy ((BRU)) increased to 5.64% from 4.55%

Buru’s fortunes rest on progress in the Ugani development, which has been solid to date. BRU shares slipped a little over the week in question on lower oil prices.

Shorts in Kingsgate Consolidated ((KCN)) increased to 15.41% from 14.41%

Kingsgate has effectively become the second most shorted stock in the market after Cochlear, if we don’t count News Corp-related untangling and ETFs. The market is clearly anticipating a capital raising will be required to fund the company’s ongoing development plans in a weak gold market.

Weekly Short Decreases

Shorts in Ansell ((ANN)) decreased to 2.95% from 5.87%

Ansell announced a capital raising via a share purchase plan during the period in order to help fund its acquisition of BarrierSafe in the US. The shorters played the placement arbitrage.

Shorts in Bradken ((BKN)) decreased to 11.03% from 12.23%

Shorts in Bradken have been on the rise for a while. A shorters’ favourite, sitting at number 11 on the Top 20, Bradken’s AGM suggested a heavy reliance on an expected second half skew. Traders don’t like backing skews (witness WorleyParsons). The shares fell in the period to allow some short profit taking.

Shorts in Virgin Australia ((VAH)) decreased to 4.47% from 5.51%

Virgin shares have dropped on suspicion following the Qantas downgrade bombshell, allowing shorters to cash in.

Shorts in Incitec Pivot ((IPL)) decreased to 1.59% from 2.60%

Incitec shares have fallen since the result release which itself was reasonable, but commentary was cautious. Shorters have cashed in.

Monthly Short Increases

Shorts in News Corp increased to 12.79% from 8.39%

See above.

Shorts in Ausdrill ((ASL)) increased to 7.43% from 4.40%

October’s profit warning and further warnings in the mining services sector remind is that volatile Ausdrill is a shorter’s favourite albeit not quite enough to put the stock in the Top 20 shorted list at present.

Shorts in Kingsgate Consolidated increased to 15.41% from 12.71%

See above.

Shorts in Atlas Iron ((AGO)) increased to 7.62% from 5.11%

Atlas is rapidly becoming a shorters’ favourite although has not quite reached the Top 20 table just yet. Atlas shares continue to ride high on solid iron ore prices, but despite iron ore prices being volatile, shorters may well be eyeing off the company’s dire need to secure rail access in order to convert its production into sales.

Shorts in OZ Minerals ((OZL)) increased to 5.67% from 3.43%

This one was timely. OZ Minerals dropped 14% after a profit warning and clearly some in the market could see it coming.

Shorts in St Barbara ((SBM)) increased to 3.82% from 1.72%

St Barbara’s production report last month was not well-received, while weakness in the gold price ensures junior gold miners are popular with shorters.

Monthly Short Decreases

Shorts in Cokal ((CKA)) decreased to 0.02% from 4.34%

A short position was established last month in Cokal then quickly withdrawn on a share price rally.

Shorts in Whitehaven Coal ((WHC)) decreased to 6.16% from 8.44%

Whitehaven shorts are basically a play on the Maules Creek mine not being granted approval but an analysts’ trip to the Narrabri mine last month prompted some positive reports and a rise in the share price. Despite talk an opportunistic capital raising might be a possibility, the shorters bailed.

Shorts in Ansell decreased to 2.95% from 5.03%

See above.
 

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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