The Short Report

This story features WORLEY LIMITED, and other companies. For more info SHARE ANALYSIS: WOR

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 May 22, 2015.

Last week was a volatile one for the ASX200. The index ended the week roughly where it started but traded over 5700 and almost down to 5600 before getting there.

There was not a great deal of overall movement in short positions, with the 10% plus and 9% plus brackets seeing no constituent changes and the 8% plus seeing only one, for example, but there were some sharpish moves up and down amongst individual stocks. For once there was not much in the way of a common theme.

WorleyParsons moved further up the 10% plus club rankings after acknowledging a tough market while Drillsearch slipped down into the 5% bracket, possibly due to much M&A talk with regard Cooper Basin juniors. STW Communications continues to find short fans as it finds to going tough as well, while Japara Healthcare enjoyed a short-covering rally, likely as a result of pairs trading in the aged care space.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   20.6
MTS    18.2
MND   14.3
MIN    14.3
ORI     13.7
FLT     12.5
WOR   12.2
UGL    12.1
MRM  12.0
CDD   10.9
PRY    10.4
AGO   10.3

No changes

9.0-9.9%

FMG, ALQ
 
No changes                

8.0-8.9%

CAB, SXY, MGX, PBG, ACR

Out: JHC

7.0-7.9%

DSH, WOW, KAR, ARI, SGN, SGM, NWH, NXT, SUL, ILU

In: SGN                      Out: GEM, DLS

6.0-6.9%

AWE, JHC, MSB, WHC, KCN, GEM, SWM, ASL, JBH, GXL

In: JHC, GEM, GXL              Out: SGN

5.0-5.9%

DLS, SGH, BPT, BCI, GWA, SPO, SIR, OFX, KMD, VRT, SEK, TFC

In: DLS, SPO, SIR, SEK                   Out: GXL
 

Movers and Shakers

Brokers like WorleyParsons ((WOR)) as a company and believe there will be a time to buy the stock, but that’s just not now. Worley provided an update last week that acknowledged ongoing tough conditions and some one-off costs, and while the balance sheet is reasonable and the company is attempting to shift more downstream under the circumstances, earnings visibility remains limited.

Last week Worley shorts rose 1.8ppt to 12.2% from 10.4%, making it the seventh most shorted stock in the market.

Worley mostly services the energy sector and one member of that sector saw its shorts drop by 1.2ppt last week to 5.9% from 7.3%. Shorters are possibly concerned that Drillsearch Energy ((DLS)) is one Cooper Basin junior now oft cited as a potential takeover/merger target.

Advertising, production and media company STW Communications Group ((SGN)) snuck into the bottom of our 5% table recently but having early last week signalled a soft start to 2015, the stock has seen its shorts jump 1.2ppt to 7.3% from 6.1%. Shorters are clearly not concerned STW’s share price has been steadily declining this year.

Japara Healthcare ((JHC)) is one of a slew of newly listed aged care facility operators and as such has been an early candidate for what has likely been pairs trading against rivals such as Estia Health ((EHE)), which brokers had initially considered the better value of the two. But in the past couple of weeks the stock has sharply recovered lost ground.

The fact Japara shorts fell 1.5ppt to 6.7% to 8.2% would suggest short-covering, but the rally is interesting in the context. Japara voluntarily admitted to an administrative error that meant its aged care workers had been underpaid for some years, and proceeded to make good on back pay. While this will hit FY15 profit, presumably the market thought better to get it out of the way, voluntarily, than to be caught out later down the track.

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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