The Short Report

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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 December 8, 2016

Last week saw the ASX200 drop to 5400 before bouncing back up to 5500.

One of the features of last week’s trade was the jump in the oil price, as both OPEC and then a group of non-OPEC producers announced oil production cut plans. Energy sector services provider WorleyParsons has been incumbent in the 10% plus shorted club for about as long as this Report has been published. Someone has capitulated – Worley shorts fell 2 percentage points last week to 9.8% from 11.8%.

Two stocks that have been in the news this week have been Bellamy’s Australia and Syrah Resources ((SYR)). The former has gone into suspension and there are rumours of a takeover bid for the latter from South32 ((S32)).

Ahead of both pieces of news, Bellamy’s shorts dropped to 9.0% from 11.4% last week and Syrah shorts ticked up slightly to put the stock back in the 10% plus shorted club. Both those moves now appear unfortunate from the shorters’ perspective.

It’s been a rough year for foreign exchange services company Ozforex. The past month has seen a bit of a share price recovery but the shorters are moving in. Last week saw Ozforex shorts increase to 7.8% from 6.7%.

It’s also been a difficult year for SaaS company iSentia ((ISD)). Despite a relatively stable stock price last week, iSentia has reappeared in the table below at 6.1% shorted from under 5%.

Heading the other way last week, out of the 5% plus table, was Boral ((BLD)). Boral briefly found itself 6% shorted the week before as hedge funds played the rights issue arbitrage game.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.7
ACX   14.3
WSA   13.5
NEC    11.6
TFC     11.1
SYR    10.4
MTS    11.5
MND   10.1

In: SYR           Out: WOR, BAL

9.0-9.9%

WOR, VOC, ORE, BAL, JHC, HSO
 
In: WOR, BAL, JHC, HSO               Out: SYR       

8.0-8.9%

AWC, NWS, MTR, IGO, GEM, FLT, DOW

In: IGO, FLT, DOW              Out: HSO, JHC, GEM                                  

7.0-7.9%

OFX, EHE, NXT, MYO, BEN, IVC, GEM, GTY, CVO

In: GEM, OFX           Out: FLT, IGO, DOW

6.0-6.9%

SGH, SEK, IFL, BKL, ILU, MSB, RWC, PRY, RIO, ISD, OSH, MLX

In: ISD, MLX             Out: OFX, AWE, BLD

5.0-5.9%

BGA, AWE, WOW, ORI, CAB, SUL, CSV, GXL, CSR, DMP, SPO

In: AWE, GXL                       Out: MLX, GOR, PDN

Movers and Shakers

How strange it is to no longer see energy sector services provider WorleyParsons ((WOR)) in the 10% plus shorted club. Since the oil price started heading south from above US$100/bbl, Worley has been a permanent member.

But not anymore. As the oil price has recovered over the course of 2016, Worley’s share price has recovered to $10 from a low of $3. Last week saw Worley shorts drop to 9.8% from 11.8%, suggesting one or more shorters may have bitten the bullet. They probably don’t have much to be upset about – back in 2012 Worley was trading at $30.

I noted last week that Bellamy’s Australia ((BAL)) shorts had dropped a little prior to the company issuing a profit warning that saw its stock fall 40%. Last week saw some shorters taking profits, sending Bellamy’s to 9.0% from 11.4%. Those profit-takers will likely be ruing their impetuousness. Now in suspension due to be unable to satisfy ASX disclosure requirements, Bellamy’s is not likely to rally when it comes back on.

Ozforex ((OFX)) shares started the year at $2.20 and hit a low of $1.30 last month on a weak first half earnings report. Brokers were nonetheless not concerned with the report, believing that while the company still had issues to work through, there was longer term upside to be had at such a valuation. Macquarie upgraded to Outperform.

Ozforex is now back up at $1.80 but short positions have been quietly building over past weeks. They rose to 7.8% last week from 6.7%.

 

ASX20 Short Positions (%)

 

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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