The Short Report

This story features COKAL LIMITED, and other companies. For more info SHARE ANALYSIS: CKA

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, March 12, 2014.

Weekly short increases of one percentage point or more numbered seven last week to six decreases. With the result season now fading into the distance, short position movements have returned to being more stock-specific. This week we see an inexplicable jump in Cokal shorts and more interest in shorting Retail Food and Treasury Wine, for example. On the decrease side, the previous week's short increases in both Beach Energy and Paladin Energy reversed out last week.

Monthly movements will continue to reflect result season impacts until we clear March. The theme of those posting strong results (eg, Fairfax, Seek) and thus seeing gradual short decreases continues to play out, while on the increase side there may well be evidence of "pairs" trading (long/short) in stocks such as M2 Telecoms and Shopping Centres Australasia. Monthly short increases of 2ppt or more numbered 14 last week to only 5 decreases, with old favourites such as Cochlear and Kingsgate joining new favourites such as Dick Smith on the increase side.
 

Weekly Short Increases

Shorts in Cokal ((CKA)) increased to 9.45% from 0.00%

There is no obvious news available nor broker reports to suggest as to why this short position has suddenly been established in Cokal. This increase has put CKA at number 20 in the Top 20 shorted list.

Shorts in Retail Food Group ((RFG)) increased to 4.79% from 2.29%

Retail Food’s share price has slid since the company’s interim result release in early March which highlighted that Project Evo is progressing more slowly than hoped.

Shorts in Suda ((SUD)) increased to 3.27% from 1.43%

Suda is not covered by FNArena database brokers.

Shorts in Treasury Wine Estate ((TWE)) increased to 7.96% from 6.15%

Treasury’s February result was the most recent in a line of disappointing announcements from a company in which few brokers now have faith. JP Morgan downgraded to Underweight at the end of last month, suggesting arguments about locked up value (ie Penfolds) were flimsy. Five of seven FNArena brokers rate TWE a Sell or equivalent.

Shorts in Hillgrove Resources ((HGO)) increased to 1.41% from 0.04%

Hillgrove is not covered by FNArena brokers but as a junior copper producer will have been impacted by recent copper price weakness (despite hedges in place).

Shorts in News Corp ((NWS)) increased to 17.02% from 15.72%

Until the year-long rationalisation of News and Fox related instruments is complete we’re best to ignore NWS short positions.

Shorts in Mineral Resources ((MIN)) increased to 3.29% from 2.15%

Last week questions were raised after it was revealed Mineral Resources’ CEO bought $700k worth of shares two days before a positive interim result was announced. The news sent MIN’s price tumbling.

Weekly Short Decreases

Shorts in Beach Energy ((BPT)) decreased to 1.85% from 4.35%

Shorts in Beach increased the week before from around 3% to around 4% and, as we see, fell last week to around 2% despite the share price not falling much. Perhaps a change of heart.

Shorts in Paladin Energy ((PDN)) decreased to 9.21% from 11.60%

As with Beach above, this decrease in Paladin shorts almost matches the previous week’s increase despite no new news and little share price movement.

Shorts in Leighton Holdings ((LEI)) decreased to 5.23% from 7.45%

Major Leighton shareholder Hochtief has bid to increase its shareholding to 74%, which sparked a significant surge in the stock price last week.

Shorts in Bradken ((BKN)) decreased to 10.47% from 12.25%

Bradken remains firmly in the Top 20 shorted list at number 14, but recent share price volatility as brokers adjust their target prices has offered the chance to either take profits or cover short positions.

Shorts in The Reject Shop ((TRS)) decreased to 4.51% from 5.89%

The Reject Shop’s MD resigned last week, sparking a slide in the TRS share price and potentially providing a profit-taking opportunity from the short side.

Shorts in NRW Holdings ((NWH)) decreased to 7.28% from 8.36%

NRW’s share price has fallen steadily after posting a weak profit result at the end of February.

Monthly Short Increases

Shorts in Cokal increased to 9.45% from 0.00%

See above.

Shorts in Kingsgate Consolidated ((KCN)) increased to 10.38% from 4.58%

Short interest in Kingsgate has been rekindled in the wake of the company’s result which showed a fall in cash balance and increase in gearing. Kingsgate's funding capacity with regard its development plans is becoming less viable as the months go past. The shorters smell a raising. KCN has this week moved to 15 from 19 on the Top 20 most shorted.

Shorts in Treasury Wine Estate increased to 7.96% from 3.72%

See above.

Shorts in M2 Telecommunications ((MTU)) increased to 7.16% from 3.46%

M2’s share price has drifted lower since the company’s February result release which showed a sharp contraction in earnings margins. Given the number of listed telco juniors, MTU is a strong candidate for pairs trading.

Shorts in Singapore Telecom ((SGT)) increased to 4.75% from 1.33%

SingTel shorts fluctuate with tedious regularity without noticeable reason beyond perhaps a telco pairs trade. An announced restructure of the Singapore business has prompted a share price rally since a reasonable quarterly result.

Shorts in Ausdrill ((ASL)) increased to 10.48% from 7.26%

While Ausdrill posted a decent result last month, its share price has drifted lower. ASL’s fortunes are inexorably linked to gold mining service demand and miners are reining in their capex.

Shorts in Cochlear ((COH)) increased to 16.96% from 13.95%

Outside of ETFs and non-ordinary share listings, Cochlear is the most shorted stock on the market and has been on the podium for a very long time. Despite constant talk of market share attack following the N5 recall, COH has defied the shorters and held up as a market favourite. One day, perhaps, the shorters will win.

Shorts in Atlas Iron ((AGO)) increased to 10.92% from 8.38%

Recently volatility in the iron ore price, to which Atlas is highly leveraged, has seen the share price mostly lower these last couple of weeks. Too low an iron ore price and AGO burns cash. AGO has moved up to 11 from 16 in the Top 20.

Shorts in Dick Smith Holdings ((DSH)) increased to 4.93% from 2.43%

Brokers like Dick but for the stoic band of bricks & mortar retail shorters, Dick’s listing represented a new toy in the toy box. A prospectus-beating result failed to stir up market excitement.

Shorts in Retail Food Group increased to 4.79% from 2.29%

See above.

Shorts in Boart Longyear ((BLY)) increased to 9.80% from 7.36%

Boart’s weak result shocked no one but even though the company has avoided covenant breaches, its outlook remains challenged. A strategic review is underway and might involve capital restructuring. Five of seven FNArena brokers rate BLY a Sell. The stock sits at 17 on the Top 20.

Shorts in Acrux ((ACR)) increased to 9.72% from 7.34%

US testosterone sales have continued to fall since the FDA announced a product review. This puts Acrux’ Axiron product under a cloud.

Shorts in Shopping Centres Australasia ((SCP)) increased to 6.55% from 4.22%

Shopping Centres’ share price has risen somewhat since the February result release. As a retail REIT among many, SCP is a good candidate for pairs trading.

Shorts in Horizon Oil ((HZN)) increased to 7.45% from 5.13%

Horizon’s Maari project is now back online but reserves have been downgraded. HZN posted a messy result two weeks ago.

Monthly Short Decreases

Shorts in Fairfax Media ((FXJ)) decreased to 6.21% from 10.62%

Fairfax shocked the nation at its result release last month by reporting an increase in earnings and a lift in dividend. Two weeks ago FXJ departed the Top 20 after a long tenure.

Shorts in Western Areas ((WSA)) decreased to 9.74% from 13.49%

Western Areas posted a decent result last month but also completed a share placement. This reduction in shorts represents the closing trade on a placement play.

Shorts in Perpetual ((PPT)) decreased to 2.59% from 4.92%

Perpetual was for some time seemingly a perpetual loser even as the stock market rose all last year but last month’s solid result represented a turnaround for the fund manager, and along with the earlier Trust Co acquisition, and the stock has risen ever since.

Shorts in Seek ((SEK)) decreased to 0.99% from 3.29%

The odds were against Seek posting a strong profit result given the weakening employment situation in Australia, but it’s hard to keep a good online pioneer down. Seek’s stock price has skyrocketed since.

Shorts in GUD Holdings ((GUD)) decreased to 5.47% from 7.57%

GUD reported very early in the result season and enjoyed 15 minutes of fame but its share price has since trailed off again as the company struggles with its premier brands. Having once been a Top 20 stalwart, GUD has fallen well out of the running as the shorters cash in.
 

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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