The Short Report

This story features MARONAN METALS LIMITED, and other companies. For more info SHARE ANALYSIS: MMA

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

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.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending April 9, 2015.

Last week saw the ASX200 make another attempt at reaching the 6000 mark before failing again. With every assault on the summit comes renewed talk of an overvalued market, and this is usually borne out by net increases in short positions over the week. While significant short moves were few last week, we can see by the see of red below that bracket creep was clearly to the short increase side.

We currently have twelve stocks with short positions in excess of 10%, having last week welcomed MMA Offshore into the fold. The inclusion of MMA underscores the theme-based make-up of the 10% plus table at present. Outside of Primary Health Care, which is likely being shorted ahead of whatever the federal budget may bring with regard GP payments, every other stock in the table represents either the retail or resources/resources services sectors.

In retail, Myer and Metcash still stand at one and two. Flight Centre chimes in at number eight, and is mainly an Aussie dollar story.

Thereafter, we have miners Fortescue Metals and Atlas Iron (now in suspension), and servicers Monadelphous, Orica (explosives), UGL, Cardno and MMA Offshore. Mineral Resources offers both mining and mining services.

No one is expecting the commodity price cycle to turn suddenly, or any time soon. But based on the level of shorts, watch out if it does.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   18.7
MTS    17.3
MND   13.8
MIN    13.0
FMG   12.5
ORI     12.4
PRY    11.9
FLT     10.7
UGL    10.6
CDD   10.6
MRM  10.4
AGO   10.3

In: MRM        

9.0-9.9%

ACR, KAR
 
In: ACR                      Out: MRM, JBH

8.0-8.9%

JBH, SGM, PBG, ALQ, ILU, SUL, SXY, MSB, MGX

In: JBH, SUL, MSB, MGX               Out: ACR

7.0-7.9%

WHC, NWH, NXT, WOR, DSH, KCN, JHC, WOW, ARI, CAB, AWE

In: NWH, WOR, ARI, CAB              Out: MGX

6.0-6.9%

KMD, RRL, VOC

Out: NWH, WOR, ARI, CAB

5.0-5.9%

TPI, ASL, GEM, COH, BCI, GNC, PDN, VRT, TRS, GWA, SIR

In: GEM                      Out: NST
 

Movers and Shakers

We have yet another new entrant to the elite 10% shorted club, in the form this week of MMA Offshore ((MMA)), the old Mermaid Marine. Like many of the once market darlings amongst the resources services sector, MMA is a company brokers cannot say a bad word about, other than their market shows no signs of life. The stock has been jumping up the shorted table steadily over past weeks.

For MMA the issue is one of a diminishing offshore WA gas servicing business as the big LNG projects such as Gorgon reach completion. MMA shorts rose 1.4ppt last week to 10.4% from 9.0%.

We might also make mention of WorleyParsons ((WOR)) with regard the same theme. Those companies servicing mining have seen their markets evaporate over a couple of years now but for companies more connected to oil & gas, such as Worley, evaporation is now in progress as big LNG projects reach start-up on both coasts over the next 2-3 years.

Worley shorts rose only 0.5ppt last week to 7.4% but if this were a music Top 40 chart, WOR would have a bullet.

Finally I’ll also make mention that Mesoblast ((MSB)) shorts have leapt back from nowhere to over 8% in this Report, having shot to nowhere from 8% the week before that. Previously, biotech peer Acrux ((ACR)) did exactly the same thing. Either there’s some big plays going on in the sector, or there are blips in the ASIC data.

To view ASIC’s more comprehensive short tables, click here. [Please note, FNArena cannot guarantee ASIC’s tables are always up to date]
 

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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