The Short Report

This story features SILVER LAKE RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SLR

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 26, 2014.

Well the new King did not indeed live long. After a brief cameo as Number One most shorted stock in the market, UGLy has slipped back to Number Two to allow the indignant incumbent, Cochlear, to regain poll. We ignore shorts in ETFs (SSO, QRE, OZR) and News Corp-related non-ordinary listings (NWSLV).

With the ASX 200 now stuck around the 5400 mark but seemingly itching to press higher, short decreases are currently outnumbering short increases. Increases of more than one percentage point or more numbered four this week to nine decreases. Cabcharge has returned to shorting favour and Silver Lake shorts continue to build, while individual share price weakness appears to have been behind most of the short decreases as shorters close positions.

In the monthly moves, three short increases of 2ppt or more met four decreases. Most of the names are familiar as earlier weekly changes ease out. There was a bit of jostling for position in the Top 20 list last week but at the end of the day, no promotions or relegations.
 

Weekly Short Increases

Shorts in Cabcharge ((CAB)) increased to 8.97% from 7.23%

Cabcharge enjoyed a brief boost following its result in February but the stock has faded more recently. Living under a persistent cloud of potentially damaging regulatory changes, Cabcharge is returning to popularity as a short sell.

Shorts in Silver Lake Resources ((SLR)) increased to 5.23% from 3.97%

Silver Lake shares have stagnated this month in the wake of the Murchison closure, which means the company will not be generating anymore cash for around another 18 months.

Shorts in Beadell Resources ((BDR)) increased to 6.15% from 5.10%

Beadell’s share price has been drifting lower with the gold price and while cashflow is not an issue for the company, a suspension at its Duckhead mine has interrupted production.

Shorts in OzForex ((OFX)) increased to 1.98% from 0.96%

OzForex is not covered by FNArena brokers but after enjoying a good run since its listing last year, this Western Union-style service has seen its share price wane more recently.

Weekly Short Decreases

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

FNArena’s previous Short Report noted this close-out of Cokal’s brief short position in the monthly data but not the weekly. Somehow the weekly acknowledgement has shown up a week later and as to why, well only ASIC could tell you (and then likely not).

Shorts in Mesoblast ((MSB)) decreased to 3.85% from 6.20%

Meso shares have faded lately in the absence of any new news which is likely a prompt for shorters to reduce.

Shorts in UGL ((UGL)) decreased to 15.44% from 17.22%

UGL shares tumbled from over $7 to almost $6 in February on the result release but have since clawed their way back towards the $7 mark. The company announced a contract win at Ichthys late in February but UGL can’t buy a Buy from the FNArena database where 5 Holds and 3 Sells prevail. UGL has not been able to sell its DTZ business and the balance sheet is stretched.  This reduction mostly reverses the short increase of the week before, sending UGL back into the number two most shorted position.

Shorts in SMS Management & Technology ((SMX)) decreased to 3.30% from 4.84%

IT services companies have been struggling for some time and SMS is no exception, with a recent share price drift providing some opportunity to take short profits.

Shorts in Singapore Telecom ((SGT)) decreased to 1.76% from 3.29%

SingTel shorts fluctuate with tedious regularity without noticeable reason beyond perhaps a telco pairs trade. The share price has been volatile of late despite no new information, suggesting likely more of a currency effect.

Shorts in Kingsgate Consolidated ((KCN)) decreased to 11.46% from 12.74%

This tick down in shorts sees Kingsgate drop to 12 from 8 in the Top 20 most shorted but short sellers are still keen to bet on the company needing to raise fresh capital in a weak gold price environment.

Shorts in Hillgrove Resources ((HGO)) decreased to 0.05% from 1.30%

Hillgrove is not covered by FNArena brokers but the share price dropped last week with the gold price.

Shorts in Myer ((MYR)) decreased to 12.53% from 13.69%

Despite this tick down, Myer remains at number 7 in the Top 20. It’s membership in the club relates largely to a play on the slow death of the department store but more recently the company’s cap in hand approach to David Jones has heightened short attention.

Shorts in Ausdrill ((ASL)) decreased to 9.62% from 10.62%

ASL’s fortunes are inexorably linked to gold mining service demand and miners are reining in their capex. This link thus also links ASL to gold price movements, which last week were down and allowed shorters to profit from a subsequent fall in the ASL price.

Monthly Short Increases

Shorts in Kingsgate Consolidated increased to 11.46% from 8.33%

Kingsgate shorts had been quietly building before a slight tick down last week (see above).

Shorts in Atlas Iron ((AGO)) increased to 11.48% from 9.29%

Longer term forecasts see the iron ore price headed lower but last week did see a bit of a spurt on Chinese stimulus hopes, matched by the Atlas share price. An opportunity for more shorting.

Shorts in Transfield Services ((TSE)) increased to 7.86% from 5.74%

While Transfield’s prospects have improved it’s still a tough environment for construction companies and TSE has a stretched balance sheet.

Monthly Short Decreases

Shorts in Fairfax Media ((FXJ)) decreased to 5.19% from 8.30%

Fairfax shocked the nation at its result release in February by reporting an increase in earnings and a lift in dividend. Three weeks ago FXJ departed the Top 20 after a long tenure, although the shares have begun to drift lower again more recently.

Shorts in Leighton Holdings ((LEI)) decreased to 4.12% from 7.14%

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

Shorts in HFA Holdings ((HFA)) decreased to 0.00% from 2.61%

HFA is not covered by FNArena brokers and with this short close-out, requires no further discussion.

Shorts in Singapore Telecom decreased to 1.76% from 4.35%

See above.
 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	SSO	147078	801304	18.35
2	COH	9965340	57062020	17.46
3	QRE	517432	3022150	17.12
4	UGL	25701595	166511240	15.44
5	NWS	2734634	19315405	14.16
6	MND	12707329	92308047	13.77
7	MYR	73397250	585684551	12.53
8	JBH	12453353	100385400	12.41
9	NWSLV	405303	3390091	11.96
10	MTS	103905872	888338048	11.70
11	AGO	105116999	915496158	11.48
12	KCN	18818327	164154349	11.46
13	SXA	9651064	88970180	10.85
14	BKN	18201708	171027249	10.64
15	BLY	46931873	461163412	10.18
16	ILU	40539301	418700517	9.68
17	PDN	92930281	964367284	9.64
18	ASL	30033013	312277224	9.62
19	ACR	15842071	166521711	9.51
20	WSA	21122519	226392226	9.33

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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