The Short Report

This story features REJECT SHOP LIMITED, and other companies. For more info SHARE ANALYSIS: TRS

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, April 17, 2014.

It was another volatile week last week for the ASX 200 as it dipped under 5400 before bouncing hard on Wall Street's lead. Either way, shorting activity in general and short interest in particular continues to wane, with only two weekly short increases of one percentage point or more meeting three decreases, and one monthly increase of 2ppt or more meeting five decreases. Note that EFTs are not included in this report nor anything to do with News Corp until the Fox de-listing is completed.

The Reject Shop is rapidly becoming the new shorter's darling, entering the Top 20 most shorted list this week at 20, at the expense of M2 Telecommunications. Shorters love retail, which is why JB Hi-Fi and Myer are among the most heavily shorted. The David Jones takeover offer has nevertheless caught out DJs shorters as well as Myer shorters, given the stock rallied on the death of the merger proposal.

Meanwhile, old short favourites UGL and Kingsgate continue to see diminishing short interest.
 

Weekly Short Increases

Shorts in The Reject Shop ((TRS)) increased to 8.45% from 7.36%

Reject shares received a boost late last month on the resignation of the company’s CEO, but have since plateaued. The shorters have nevertheless taken the opportunity to continue to build positions, as shorters love shorting retail. TRS has entered the Top 20 most shorted at 20.

Shorts in Acrux ((ACR)) increased to 10.33% from 9.28%

One FNArena database broker covers Acrux and Macquarie retains a Sell rating on the basis of declining US testosterone market volumes and prices and uncertainty regarding an FDA review. ACR has moved to number 12 from 14 on the Top 20 most shorted.

Weekly Short Decreases

Shorts in UGL ((UGL)) decreased to 12.89% from 15.97%

As uncertainty prevails around the likelihood company’s desired spin-off or sale of its DTZ business actually occurring, UGL continues to slide quietly down the Top 20 most shorted table, moving this week to 7 from 4.

Shorts in Kingsgate Consolidated ((KCN)) decreased to 4.72% from 6.14%

The gold price fell last week so perhaps the shorters cashed in, but otherwise short interest in Kingsgate has been declining as each week passes without an anticipated need for the company to raise capital manifesting.

Shorts in David Jones ((DJS)) decreased to 4.34% from 5.31%

There’ll be a few wounded shorters in the wake of Woolworths of South Africa’s takeover bid for DJs at a hefty premium.

Monthly Short Increases

Shorts in The Reject Shop increased to 8.45% from 4.71%

See above.

Monthly Short Decreases

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

Weird. This exact same number has popped up in the monthly data yet again without registering in the weekly data. No FNArena brokers cover Cokal and this looks suspiciously like some sort of error anyway.

Shorts in Kingsgate Consolidated decreased to 4.72% from 11.15%

See above.

Shorts in Myer ((MYR)) decreased to 10.61% from 14.00%

With the David Jones takeover offer killing off any possibility of a Myer merger, MYR shares have responded positively and the stock has slipped to 10 from 8 in the Top 20 most shorted.

Shorts in SMS Management & Technology ((SMX)) decreased to 3.00% from 5.21%

SMS shares have seen a healthy rally over the month without any particular news of note, although investors have been looking for perceived value in beaten down contractors of late.

Shorts in UGL decreased to 12.89% from 14.83%

See above.

Shorts in Forge Group ((FGE)) decreased to 2.95% from 4.95%

Forge Group is in administration.

 

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	QRE	517432	3022150	17.12
2	COH	9597874	57062020	16.82
3	SSO	132228	801304	16.50
4	MND	12999974	92679570	14.03
5	NWSLV	407826	3115091	13.09
6	JBH	12970282	100385400	12.92
7	UGL	21457293	166511240	12.89
8	MTS	100602528	888338048	11.32
9	NWS	2255218	20237280	11.14
10	MYR	62166206	585684551	10.61
11	AGO	94839182	915496158	10.36
12	ACR	17193854	166521711	10.33
13	ILU	42779768	418700517	10.22
14	BKN	17316756	171027249	10.13
15	BLY	45287283	461163412	9.82
16	PDN	91904231	964367284	9.53
17	ASL	29113076	312277224	9.32
18	WSA	20070206	232310014	8.64
19	TWE	55179053	648937948	8.50
20	TRS	2435006	28826248	8.45

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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