The Short Report

Array
(
    [0] => Array
        (
            [0] => ((MND))
            [1] => ((UGL))
            [2] => ((MRM))
            [3] => ((WOR))
            [4] => ((NWH))
            [5] => ((MGX))
            [6] => ((SXY))
            [7] => ((ALQ))
            [8] => ((DLS))
            [9] => ((PRY))
            [10] => ((SUL))
            [11] => ((GEM))
        )

    [1] => Array
        (
            [0] => MND
            [1] => UGL
            [2] => MRM
            [3] => WOR
            [4] => NWH
            [5] => MGX
            [6] => SXY
            [7] => ALQ
            [8] => DLS
            [9] => PRY
            [10] => SUL
            [11] => GEM
        )

)

This story features MONADELPHOUS GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: MND
The company is included in ASX200, ASX300 and ALL-ORDS

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 23, 2015.

Last week began with the ASX200 completing its pullback from its third attempt to breach 6000 before beginning a sharp run at a fourth attempt, driven by ongoing strength in oil prices and a sudden rebound in the iron ore price. For a couple of weeks I have been highlighting the increasing domination of resource sector service stocks in the 10% shorted club, notwithstanding a strong representation throughout our 5% plus table. Well last week's commodity-driven turnaround sent the shorts scrambling. And our week does not include the final big push last Friday.

Monadelphous, UGL, MMA Offshore, WorleyParsons and NRW Holdings all saw sharp reductions in short positions. Within the resource sector itself, Mt Gibson Iron and Senex Energy both saw significant covering.

Beyond resources, Primary Health Care fell out of the 10% plus club despite still being at risk of federal budget changes, after the new CEO outlined a strategic review. Super Retail was another to see a sharp drop in shorts. And speaking of the budget, I have been noting the steady rise in shorts on G8 Education these last couple of weeks. G8 crept up again last week, into the 7% bracket. Elsewhere, the green tinge to the table below emphasises a general short-covering element to last week's rally which, as today's ticker indicates, proved short-lived.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   19.0
MTS    16.4
MIN    13.2
ORI     12.6
FLT     12.3
MND   11.3
FMG   11.1
CDD   10.6
AGO   10.3

Out: PRY, UGL, WOR, MRM         

9.0-9.9%

WOR, ALQ, UGL, ACR
 
In: WOR, UGL, ALQ                       

8.0-8.9%

MRM, KAR, ILU, PBG

In: MRM         Out: ALQ, JBH, SGM, SUL

7.0-7.9%

PRY, CAB, ARI, DSH, JBH, SGM, JHC, GEM, KCN, NXT, WOW, MSB

In: PRY, JBH, SGM, GEM                Out: MGX, SXY, WHC, NWH

6.0-6.9%

SUL, AWE, WHC, DLS, KMD

In: SUL, WHC, DLS              Out: GEM, VOC

5.0-5.9%

VOC, VRT, ASL, TFC, GNC, BCI, GWA, SXY

In: SXY, VOC          Out: DLS, TPI, RRL, PDN, TRS, OFX, NST
 

Movers and Shakers

The overwhelming theme of last week was short-covering amongst the heavily shorted resource sector service stocks, many of which had been steadily climbing to giddy heights on the back of low iron ore and oil prices. Last week saw belief growing that oil prices had seen a bottom, and also featured a sudden rebound in the iron ore price.

As investors moved in to bargain hunt amongst the many beaten-down service names, the shorts were forced to scramble.

Monadelphous ((MND)) remains in the 10% club but saw positions trimmed by 1.4ppt to 11.3% from 13.7%. UGL ((UGL)) dropped out with a 2.1ppt fall to 9.3% from 11.4%. After a brief two-week visit to the 10% club, MMA Offshore ((MRM)) saw its shorts fall 1.4ppt to 8.6% from 10.0%. Last week’s club newcomer WorleyParsons ((WOR)) slipped out again with a 0.7ppt fall to 9.5% from 10.2%.

Lower down the table, NRW Holdings ((NWH)) dropped from 7.1% right out of the 5% plus table. Also to vanish was Mt Gibson Iron ((MGX)), from a previous 7.9%. Gas producer Senex Energy ((SXY)) joined in the fun, dropping 2.9ppt to 5.0% from 7.9%.

It was not all beer & skittles in the space however, with both service provider ALS ((ALQ)) and gas producer Drillsearch ((DLS)) bracket-creeping higher as shorts increased.

Among other sectors, Primary Health Care ((PRY)) was another stock to spectacularly depart the 10% plus club last week with a 2.9ppt drop in shorts to 7.8% from 10.9%. Fears have been growing regarding just what nasties the federal budget might hold for the health sector, but a strategic update from Primary’s new CEO highlighted major changes afoot at the company. While this did little to spark interest in the share price, it clearly scared off a few shorters.

And despite no new news and not a lot of share price movement, Super Retail ((SUL)) shorts fell 1.6ppt to 6.7% from 8.3% last week.

Finally, I have been noting the steady move up the table for G8 Education ((GEM)), which is also at risk of possible budget changes, this time in child care. Last week G8 crept up into the 7% bracket from the 6%.

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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