Tag Archives: Uranium

article 3 months old

The Short Report

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By Chris Shaw

Earlier this month Western Areas ((WSA)) lifted production and sales guidance for FY12 but the news was not enough to stop the company from experiencing the largest increase in short positions for the week from May 15. Shorts in the stock rose to 6.07% from 4.66%.

The next most significant increase occurred in Goodman Fielder ((GFF)), where shorts rose to 2.9% from 1.63% the week prior. The increase preceded news Cargill was again showing interest in acquiring Goodman's Integro edible fats and oils business. The revived interest from Cargill was seen as something of a surprise given the previous approach had been rejected by the ACCC.

Among the falls in short positions for the week from May 15 the largest was in Mirabela Nickel ((MBN)), the change in positions to 2.97% from 5.17% coinciding with a capital raising by the company. An equity issue of $120 million was announced, Credit Suisse expecting the move will allay some of the market's concerns with respect to Mirabela's balance sheet.

SingTel ((SGT)) also enjoyed a fall in short positions, the total declining to 3.79% from 5.58% previously. The change followed a full year earnings result that broadly met market expectations, though Citi notes guidance for the coming year was somewhat uninspiring.

The next largest decline in shorts for the week was in M2 Telecommunications ((MTU)), where positions fell to 0.15% from 1.59% previously. As with Mirabela the change in positions in M2 follows a capital raising, as an entitlement offer raised more than $83 million to partially fund the recent acquisition of Primus Telecoms Holdings.

With none of the top 20 short positions experiencing much change over the week the consumer discretionary sector continues to dominate, with large short positions remaining in JB Hi-Fi ((JBH)), Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)) and Harvey Norman ((HVN)).

For the week from May 15 Flight Centre ((FLT)) and Carsales.com ((CRZ)) were the second and third largest short positions in the market behind JB Hi-Fi, Flight Centre seeing shorts increase in the month from April 20 to 11.66% from 10.09%.

Other significant increases for the month from April 20 were seen in both the aforementioned Western Areas and Paladin ((PDN)), the latter given the view in the market attention in coming months would focus on balance sheet and cash flow issues rather than production performance. For the month Paladin's shorts increased to 8.21% from 5.74% previously.

Dart Energy ((DTE)) experienced a doubling in shorts for the month from April 20 to 4.43% from 2.16% previously, this despite the company lifting its shale gas estimates to as much as 143TCF and indicating during the period its European business remained on track.

Whitehaven Coal ((WHC)) enjoyed the largest fall in short positions for the month, positions declining to 1.94% from 7.26% previously at the same time as the company announced a takeover attempt for Coalworks ((CWK)), in which Whitehaven already held a 17% stake.

Spark Infrastructure ((SKI)) also saw shorts decline significantly for the month to 2.19% from 5.42% the month prior, this as brokers continue to adjust models and opinions on the stock to account for Spark's interest in acquiring the Sydney Desalination Plant.

Having previously indicated its intention to acquire Hastings Diversified ((HDF)) the need to address ACCC concerns saw Australian Pipeline Trust ((APA)) make some revisions to its proposal that Credit Suisse at least sees as increasing the likelihood the acquisition is allowed to proceed. As this was playing out shorts in APA fell for the month to 0.96% from 3.2% previously.

RBS Australia notes shorts in Telecom Corporation ((TEL)) have been edging higher over the past two months, the broker seeing this as reflective of ongoing earnings concerns over the medium-term. According to RBS, it will likely take around two years for Telecom to establish a solid base for operating gains, while an eventual re-focus on growth is likely to be somewhat painful shorter-term and require additional resources to be fully implemented. 

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 23018840 98850643 23.29
2 FLT 11678508 100031742 11.66
3 CRZ 27060531 233684223 11.60
4 ISO 650567 5703165 11.41
5 MYR 65516262 583384551 11.21
6 FXJ 259056138 2351955725 11.04
7 COH 6238534 56929432 10.90
8 DJS 55607570 528655600 10.51
9 LYC 167718400 1714846913 9.78
10 BBG 23327926 257888239 9.02
11 HVN 95272471 1062316784 8.95
12 EGP 60321600 688019737 8.76
13 PDN 68323012 835645290 8.21
14 GNS 63345192 848401559 7.46
15 CSR 37024145 506000315 7.31
16 WTF 15263261 211736244 7.21
17 ILU 29689294 418700517 7.08
18 WSA 10906664 179735899 6.07
19 ELD 26464169 448598480 5.91
20 TRS 1516903 26071170 5.83

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The Short Report

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By Chris Shaw

The week commencing May 9 saw a number of changes in short positions on both sides of the ledger and on stocks from a number of different industries.

The largest increase for the week was in CSR ((CSR)), where total positions rose to 6.78% from 4.87% prior to the company's full year profit result. While headline earnings for CSR were better than expected the result was helped by a low tax rate and post result broker opinions on the stock remain mixed.

Shorts in Mirabela Nickel ((MBN)) rose to 4.99% from 3.57% in the week, the increase coming ahead of the announcement of a $120 million capital raising that is hoped will address concerns over the company's liquidity levels as projects such as Santa Rita continue to be developed.

Primary Health Care ((PRY)) saw shorts essentially double in the week from May 9 to 2.8% from 1.44% previously, despite little in the way of news from the company. The most recent update has been the announcement an existing co-payment initiative will be reversed given it flattened growth rates and impacted on referrals.

APN News & Media ((APN)) is undertaking a review of its New Zealand assets but this has not prevented shorts in the stock rising to 3.96% from 2.84% previously, while shorts in Nufarm ((NUF)) increased to 2.06% from less than 1.0% previously as tough operating conditions in markets outside of Australia persist.

While there had been some concerns about slower growth in some of Boral's ((BLD)) Asian markets post site visits to the region, the major news is the current CEO has announced plans to step down. This comes after shorts in the stock rose to 5.61% in the week from May 9 from 4.54% previously.

Among the falls in short positions were Spark Infrastructure ((SKI)), where total positions declined sharply to 2.61% from 5.24% as brokers reiterated the stock is a Buy at current levels given an attractive valuation. The potential acquisition of the Sydney Desalination Plant remains a key issue for the company in the market's view.

Among retail plays both Myer ((MYR)) and David Jones ((DJS)) saw shorts fall in the week from May 9, for Myer to 9.76% from 11.65% previously and for David Jones to 9.5% from 10.32%. This followed a further cut in interest rates by the Reserve Bank of Australia.

Despite the falls in positions retail stocks continue to dominate the top 20 list of short positions, with Myer and Davis Jones joined on the list by the likes of JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Billabong ((BBG)) and The Reject Shop ((TRS)). The top 20 also contains stocks exposed to discretionary spending such as Carsales.com ((CRZ)) and Wotif.com ((WTF)), media plays Fairfax ((FXJ)) and Ten Network ((TEN)), resource stocks Lynas Corporation ((LYC)), Paladin ((PDN)) and Iluka ((ILU)) and others such as Cochlear ((COH)) and Gunns ((GNS)).

While fund flows remain lacklustre, Henderson Group ((HGG)) enjoyed a fall in short positions in the week from May 9, total shorts declining to 1.65 from 2.91% previously. Unlike the increase in CSR's shorts there was a decline in total positions for James Hardie ((JHX)) in the week, the fall to 2.98% from 3.54% previously.

In terms of monthly changes the largest increase has been in Paladin, where shorts for the month from April 16 rose to 8.6% from 5.1%. The view of brokers is cash flows and balance sheet issues will be the main driver of the stock in coming months given upcoming refinancing commitments.

Aside from Myer the largest monthly decline in shorts was in Atlas Iron ((AGO)), where the total fell to 0.5% from 1.59% previously. This change came ahead of an update on development plans for the Horizon 1 project, which suggested lower capex than the market had been expecting.

Elsewhere in the market, RBS Australia notes shorts in Echo Entertainment Group have been building since Crown ((CWN)) acquired a 10% stake in February, increasing by nearly two percentage points in that time.

In RBS's view Crown took the stake to extract required concessions for the Barangaroo development and is not a precursor to a takeover for Echo. As well, the broker expects the Star redevelopment will fall short of guidance in FY14, which implies some downside risk to Echo.

In general terms, RBS notes average short interest across the SAP/ASX200 index is presently at a record high of 2.25%. Shorts have been building in the resources, capital goods, gold and building materials sectors.

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 23598659 98850643 23.86
2 MYR 70790766 583384551 12.13
3 CRZ 27174114 233684223 11.63
4 COH 6599878 56929432 11.57
5 FXJ 270611364 2351955725 11.53
6 FLT 11294232 100031742 11.28
7 DJS 57621335 528655600 10.87
8 LYC 169785266 1714596913 9.93
9 HVN 95229443 1062316784 8.95
10 BBG 22629088 257888239 8.77
11 EGP 59945003 688019737 8.70
12 PDN 68555693 835645290 8.20
13 WTF 15483681 211736244 7.33
14 GNS 61511210 848401559 7.24
15 ILU 27769260 418700517 6.61
16 CSR 33219739 506000315 6.56
17 TRS 1561062 26071170 5.99
18 GWA 17288975 302005514 5.76
19 TEN 60037329 1045236720 5.75
20 SGT 8823031 158218641 5.58

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Uncertainty Clouding Uranium Market

By Greg Peel

Only three transactions were conducted in the uranium spot market last week, industry consultant TradeTech reports, totalling 350,000lbs. The market is awaiting news on who the winners and losers might be as term contract buyers reach the tender decision stage for some sizeable supply deals for the next year to two years ahead. Interest in term supply tenders continues to be solid but the initial excitement from the spot market has eased, with TradeTech's weekly spot price indicator remaining at US$52.00/lb.

Ahead of price news on term contracts, TradeTech's indicative term prices remain at US$54.00/lb (mid) and US$61.00/lb (long).

Buyers and sellers remain lined up on either side of the spot bid-offer spread, TradeTech notes, but uncertainty has led to neither being in a great hurry to meet the other. Aside from awaiting term tender results, other developments are adding to current market reluctance.

Most influential is the announcement by the US Department of Energy that it will extend by another year its program of selling stockpiled UF6 tailings for enrichment into commercial uranium to be used in reactors. The government has been selling UF6 on a incremental basis since last year and using the proceeds to fund various environmental clean-up operations. While the government has attempted to assure the uranium production industry its sales will be conducted in a way as to not impact on open market pricing, producers are objecting strongly to the program.

Earlier this year the spot uranium market, which has been trying to recover from the Fukushima fallout, was hamstrung by a price dislocation emerging between U3O8 demand for European delivery and UF6 on offer for US delivery, such that equated pricing produced a reverse global bid-offer spread and led to minimal spot transactions. Term market interest has grown strongly since, but the DoE sells some of its supply into the term market as well as the spot market. The current program represents sales of around 5mlbs of U3O8 equivalent per year which, on TradeTech's estimation, potentially represents some 25% of annual end-user demand.

On the positive side of the price equation, yet also introducing some uncertainty, global diversified miner BHP Billiton ((BHP)) has announced an intended scale-back in its significant capex program for the expansion of various global commodity projects due to a changing global macroeconomic climate. Under reconsideration is BHP's massive Olympic Dam project in central Australia which, aside from copper, boasts one of the world's most significant uranium resources.

And good news on the demand side is that China is expected next month to approve new post-Fukushima development and safety plans which will permit the recommencement of new nuclear plant projects. The Czech Republic has also decided to eschew the revised nuclear policies of neighbouring Germany and Austria by committing to build the country's fifth state-owned reactor.

There was also good news for investors in Australian-listed production major Paladin Energy ((PDN)) last week as analysts now see a light at the end of the tunnel on the company's cash burn. Difficulties and delays at Paladin's two Namibian uranium projects along with the Fukushima impact on spot pricing has seen Paladin going backwards for some time but analysts now believe the company will return to positive cashflow if not in the third quarter, at least in the fourth. (See Paladin Turning The Corner)

Analyst predictions are assisted by a generally bullish view on the uranium price in the shorter term.
 

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

In the past week downgrades to recommendations from the eight brokers in the FNArena database have again outweighed upgrades to the tune of 14 to eight, the result being total Buy ratings now stand at 49.16%.

Among the positive ratings changes was RBS Australia shifting to a Buy rating on Campbell Brothers ((CPB)) from Hold previously, the broker taking the view there is now a buying opportunity in the stock given recent macro-driven selling across the market. Supporting the upgrade is RBS's expectation the upcoming full year result will include some positive commentary from management.

Gloucester Coal ((GCL)) has been upgraded by Macquarie to Neutral from Underweight previously, this a valuation call following changes to the broker's forex and commodity price assumptions. Similarly Macquarie has been busy changing ratings elsewhere among resource plays, with Paladin ((PDN)), Western Areas ((WSA)) and Whitehaven Coal ((WHC)) also upgraded post the review. Paladin is lifted to a Neutral recommendation, while both Western Areas and Whitehaven have been upgraded to Outperform from Neutral.

Macquarie also made a change among industrial stocks by upgrading Woolworths ((WOW)) to Buy from Neutral, this as the broker sees potential upside now the company is putting together a solid strategy to deal with increased competition from the Wesfarmers ((WES)) owned Coles. Along with the upgrade Macquarie lifted its price target for Woolworths.

For JP Morgan, GPT ((GPT)) is now worthy of a Buy rating following relative underperformance against the REIT sector of late and given potential from the unlisted wholesale funds market. Some changes to earnings estimates mean an increase in price target.

Primary Health Care ((PRY)) is well placed to enjoy some margin recovery given improved market dynamics in the view of BA Merrill Lynch, and with the stock offering value at current levels the broker has upgraded to a Buy from Neutral previously. Price target has been lifted slightly.

On the downgrades side Toll Holdings ((TOL)) caught most attention, both UBS and Deutsche Bank lowering ratings to Hold from Buy following updated profit guidance from the company. Tough market conditions mean greater earnings volatility and UBS in particular doesn't see this as likely to attract investors at present. The revision to guidance saw brokers across the market adjust earnings estimates and price targets for Toll.

A below expectations quarterly from Alacer Gold ((AQG)) saw BA-ML lower earnings estimates and cut its price target, while the broker also downgraded to a Neutral rating from Buy previously given some uncertainty with respect to future capital allocation decisions. 

Valuation was behind Macquarie downgrading both Cabcharge ((CAB)) and Coca-Cola Amatil ((CCL)) to Neutral ratings from Outperform previously, while earnings estimates for the latter were trimmed post a trading update. 

Macquarie also downgraded Charter Hall Retail ((CQR)) to Sell from Buy on a similar valuation basis as the stock is now trading above the broker's price target, while Dexus (DXS)) was another property play to be downgraded by the broker on valuation grounds following recent gains. Macquarie has moved to a Neutral rating on Dexus from Buy.

Recent share price moves were also behind UBS's decision to downgrade Hastings Diversified ((HDF)) to Neutral from Buy, while Credit Suisse has made the same change for Industrea ((IDL)) as the share price has responded to a proposed takeover offer from GE of the US. 

A lack of earnings certainty with respect to Pacific Brands ((PBG)) has prompted Credit Suisse to downgrade the stock to Hold from Buy, a change reinforced by management cutting off potential M&A talks. 

Sonic Health Care ((SHL)) has acquired some additional pathology assets and the deal itself is a positive in the view of Credit Suisse, but again valuation has driven a downgrade to a Neutral rating from Buy previously. It is a similar story with SP Ausnet ((SPN)), Credit Suisse happy enough with the recent full year earnings result and capital raising but downgrading its rating to reflect recent share price gains. 

Given Incitec Pivot ((IPL)) is more exposed to soft explosives demand at present and following a somewhat lower quality profit result JP Morgan has downgraded to a Sell rating from Neutral previously, while others to cover the stock have generally trimmed earnings forecasts and price targets.

Over the week the most significant increase in price target was enjoyed by Cabcharge, while the largest cuts were for Toll, Alacer, CSR and Lynas Corporation ((LYC)). Centro Retail has seen earnings forecasts increased the most, while CSR, Toll Holdings and Australian Infrastructure ((AIX)) have experienced the most significant reductions in earnings estimates across the market.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup
Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,RBS<*br*>Australia,UBS&b0=118,99,109,102,79,140,151,122&h0=76,107,89,118,97,86,138,116&s0=41,22,25,6,32,32,11,15" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 Campbell Brothers Limited Neutral Buy RBS Australia
2 GLOUCESTER COAL LTD Sell Neutral Macquarie
3 GPT Neutral Buy JP Morgan
4 PALADIN ENERGY LTD Sell Neutral Macquarie
5 PRIMARY HEALTH CARE LIMITED Neutral Buy BA-Merrill Lynch
6 WESTERN AREAS NL Neutral Buy Macquarie
7 WHITEHAVEN COAL LIMITED Neutral Buy Macquarie
8 WOOLWORTHS LIMITED Neutral Buy Macquarie
Downgrade
9 ALACER GOLD CORP Buy Neutral BA-Merrill Lynch
10 CABCHARGE AUSTRALIA LIMITED Buy Neutral Macquarie
11 CHARTER HALL RETAIL REIT Buy Sell Macquarie
12 COCA-COLA AMATIL LIMITED Buy Neutral Macquarie
13 CSR LIMITED Buy Neutral UBS
14 DEXUS PROPERTY GROUP Buy Neutral Macquarie
15 HASTINGS DIVERSIFIED UTILITIES FUND Buy Neutral UBS
16 INCITEC PIVOT LIMITED Neutral Sell JP Morgan
17 INDUSTREA LIMITED Buy Neutral Credit Suisse
18 PACIFIC BRANDS LIMITED Buy Neutral Credit Suisse
19 SONIC HEALTHCARE LIMITED Buy Neutral Credit Suisse
20 SP AUSNET Neutral Sell Credit Suisse
21 TOLL HOLDINGS LIMITED Buy Neutral UBS
22 TOLL HOLDINGS LIMITED Buy Neutral Deutsche Bank
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 CRF 17.0% 50.0% 33.0% 6
2 WHC 83.0% 100.0% 17.0% 7
3 WSA 33.0% 50.0% 17.0% 6
4 CQO - 40.0% - 25.0% 15.0% 4
5 GPT 14.0% 29.0% 15.0% 7
6 PDN 29.0% 43.0% 14.0% 7
7 PRY 38.0% 50.0% 12.0% 8
8 MGX 13.0% 25.0% 12.0% 8
9 WOW 38.0% 50.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 CQR 17.0% - 17.0% - 34.0% 6
2 TOL 43.0% 14.0% - 29.0% 7
3 NWS 57.0% 29.0% - 28.0% 7
4 HDF 75.0% 50.0% - 25.0% 4
5 CAB 60.0% 40.0% - 20.0% 5
6 LYC 100.0% 80.0% - 20.0% 5
7 AQG 86.0% 71.0% - 15.0% 7
8 DXS 29.0% 14.0% - 15.0% 7
9 IPL 63.0% 50.0% - 13.0% 8
10 CCL 38.0% 25.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 CAB 6.000 6.532 8.87% 5
2 SPN 1.003 1.030 2.69% 8
3 CRF 1.958 2.005 2.40% 6
4 SHL 13.324 13.559 1.76% 8
5 NWS 22.407 22.750 1.53% 7
6 CCL 12.911 13.100 1.46% 8
7 WOW 27.129 27.450 1.18% 8
8 WSA 5.858 5.908 0.85% 6
9 WHC 6.342 6.393 0.80% 7
10 GPT 3.353 3.364 0.33% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 CSR 2.279 1.983 - 12.99% 8
2 TOL 5.766 5.087 - 11.78% 7
3 AQG 10.196 9.067 - 11.07% 7
4 LYC 1.933 1.740 - 9.98% 5
5 PDN 2.084 1.956 - 6.14% 7
6 NAB 26.314 26.103 - 0.80% 8
7 CQO 3.502 3.478 - 0.69% 4
8 IPL 3.530 3.519 - 0.31% 8
9 CQR 3.313 3.310 - 0.09% 6
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 CRF 8.850 10.367 17.14% 6
2 TWE 19.271 19.986 3.71% 7
3 AMP 31.463 32.225 2.42% 8
4 NWS 131.424 133.151 1.31% 7
5 MIO 22.575 22.833 1.14% 4
6 CWN 57.363 57.900 0.94% 8
7 WPL 252.592 254.595 0.79% 8
8 CQO 24.667 24.860 0.78% 4
9 CPA 7.514 7.557 0.57% 7
10 BHP 323.398 325.065 0.52% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 CSR 17.488 14.775 - 15.51% 8
2 TOL 42.388 38.438 - 9.32% 7
3 AIX 18.467 16.933 - 8.31% 6
4 SUN 67.425 63.975 - 5.12% 8
5 WHC 7.267 6.914 - 4.86% 7
6 AQG 66.642 64.050 - 3.89% 7
7 IPL 27.275 26.456 - 3.00% 8
8 SWM 35.525 34.513 - 2.85% 8
9 PBG 7.688 7.475 - 2.77% 7
10 ILU 208.063 203.525 - 2.18% 8
 

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Paladin Turning The Corner

 - Paladin's share price weak in recent months
 - Concerns over key financial measures are contributing factor
 - Some signs of improvement in financials emerging
 - Value on offer if cash flows and uranium market sentiment improve
 

By Chris Shaw

Balance sheet and cash flow concerns have contributed to uranium play Paladin Energy's ((PDN)) share price falling by more than 30% in recent months, but there are signs the company is starting to generate some improvement in these key financials.

In JP Morgan's view, while cash flow were again negative for Paladin in the March quarter there were some positive signs with respect to the ability to generate positive cash flow in coming periods. These include cost reductions at both the Kayelekera project and in administration, an upcoming moderation in capex and the fact cash commitments for finished goods have all but stopped.

The improvement in cash flows won't be immediate, as JP Morgan continues to forecast negative cash flow in the June quarter given higher receivables, but by the September quarter Paladin should be back into the black from a cash flow perspective in the broker's view. BA Merrill Lynch is a little more conservative with its timing, suggesting it may be the fourth quarter of 2012 when cash flows turn positive.

This is important as it suggests to JP Morgan that Paladin won't need to raise equity over the next 12 months. On the broker's numbers, Paladin currently has around US$171 million in cash available and over the next 12 months a balance of a minimum of US$100 million should be maintained. There could also be some asset sales during the period, which would further strengthen Paladin's balance sheet.

UBS agrees with JP Morgan's assessment, estimating at the current run rate Paladin will maintain a cash position good enough to just cover its upcoming refinancing commitments. 

The quarterly update from Paladin indicated cash costs are trending higher, causing the likes of UBS to cut earnings estimates for the company. but BA-ML expects this will be temporary as costs should tick back down in coming periods as cost optimisation processes are executed.

JP Morgan similarly trimmed its earnings estimates, in part to account for the one-year delay to the start-up of the stage four expansion at Langer Heinrich. First production from the expansion is now expected in the September quarter of 2014.

Looking forward, UBS suggests it will be cash flows and Paladin's balance sheet and not earnings that will drive share price performance over the coming year. This largely reflects the fact investors have been nervous with respect to Paladin's ability to meet refinancing commitments, especially given a history of disappointing with respect to the meeting of production targets.

As well, JP Morgan suggests part of the decline in the Paladin share price of late can be attributed to general negative sentiment towards uranium. This sentiment is somewhat misplaced in the broker's view, as the outlook for uranium appears stronger than is being priced in at present.

In support of this argument, JP Morgan notes incentive prices for new production in uranium is around 60% above the current spot price and cost curve support at US$50 per pound limits downside price risk. As well, the market's deficit is growing as Russian secondary sources of material are coming off the market.

Given this more positive view on the outlook for uranium, and to reflect Paladin's strong leverage to spot uranium prices, JP Morgan retains a n Overweight rating on the stock. BA-ML shares a positive view, suggesting Paladin's outlook now is far brighter than was the case 12 months ago given the expectation of improving costs and cash flows and price support from a tight supply environment.

The more cautious argument from UBS and others is cash flows for Paladin, while likely to improve, continue to look tight for the next 12-15 months. Non-core asset sales could alleviate this to some extent and if debt was reduced UBS sees scope for the stock to re-rate closer to valuation. UBS has a valuation on Paladin of $2.43 on a discounted cash flow basis. 

Overall, the FNArena database shows Paladin is rated as Buy three times and Hold four times, with a consensus price target of $1.96. Targets range from UBS at $1.25 to JP Morgan at $2.75.

Shares in Paladin today are weaker in a down market and as at 10.40am the stock was 7c lower at $1.205. This compares to a trading range over the past year of $1.11 to $3.33, the current share price implying upside of more than 50% relative to the consensus price target in the database.


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article 3 months old

Nuclear Demand A Reality

By Greg Peel

Industry consultant TradeTech reports five transactions in the uranium spot market last week totalling 500,000lbs of U3O8 equivalent. While speculators dominated the buy-side, utilities were also involved. With no transactions occurring last week in the term market, near-term upward price pressure has eased a little, TradeTech suggests. The consultant's spot price indicator remains unchanged at US$52.00/lb.

Another term buyer is set to enter the market shortly nevertheless, TradeTech notes, and could exert further upward pressure on prices. In the meantime, InvestmentU has been chatting to market participants and finds a fairly bullish outlook.

According to the World Nuclear Association, 60 nuclear plants are currently under construction across the globe, 150 are in the works and another 340 are in various stages of proposal. While the developed world is shunning nuclear at present, emerging markets have no such constraints. China plans to add the equivalent of a new reactor to its grid every one or two months over the next fifty years.

While Japan is at the centre of nuclear energy controversy and is expected to continue stepping up its consumption of LNG, the Japanese Atomic Industry Forum suggests the country faces a 12% shortage of electricity this summer. Additional fossil fuel consumption is now costing around US$40bn per year and carbon emissions are now 14% above 1990 levels. It is understood that Japan will soon be restarting undamaged reactors.

Japan has always stored enough uranium to secure five to six years worth of energy, but has been reducing stockpiles in the wake of Fukushima. It is those sales which are ultimately responsible for the fall in the spot uranium from US$70/lb before the tsunami to stabilise around US$52/lb today. Yet for small but densely populated nations like Japan, Korea, Taiwan and Singapore, which have high energy consumption but limited natural resources, nuclear energy is almost essential. Nuclear reactors require a lot of uranium to fire up but comparatively little to keep running. Thus years of energy security can be achieved on relatively low volume stockpiles. Electricity itself cannot be viably stored, and stockpiles of oil, coal or LNG would have to be enormous by comparison.

“The world is saying, as a consequence of Fukushima, that we need to rely less and less on nuclear power,” says Global Resource Investments' Rick Rule. “But that isn't what's happening on the ground. Many parts of the world, including ironically Japan, are or will be investing heavily in nuclear power on a going forward basis for a very simple reason – when people hit a switch they want the lights to go on”.

France's new president Francois Hollande favours a move away from nuclear energy and specifically campaigned on an intention to close down the country's oldest nuclear power facility. However back in January the French Court of Audit declared that investing in new nuclear reactors or any other form of energy would be too expensive an option, TradeTech notes. Extending the operating lives of its existing commercial reactors would be the best option.

The bottom line is commentators see the price of uranium on an upward trajectory as a supply deficit meets growing demand, which should see US$70/lb reached once more. It just won't happen overnight. A breaching of the pre-Fukushima price level would likely bring a fresh round of speculation into the market, they suggest.

TradeTech's uranium term price indicators remain at US$54/lb (mid) and US$64/lb (long).
 

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article 3 months old

The Short Report

By Chris Shaw

For the week from May 1, cuts in short positions outweighed increases in shorts by around double based on a one percentage point cut-off measure. The largest change for the week was in Whitehaven Coal ((WHC)), where shorts fell to 1.72% from 5.61% the week before.

The change came post a quarterly production report that resulted in some cuts to earnings estimates in the market but prior to the company announcing a $1.00 per share bid for Coalworks ((CWK)). Success in the acquisition would offer potential for synergies at the Vickery project.

APA ((APA)) saw short positions fall to 1.44% from 3.8% the week before, this as the market continues to factor in a potential acquisition of Hastings Diversified Utilities ((HDF)). While the ACCC has raised some concerns with respect to the proposed acquisition, APA has responded with some revised undertakings that Credit Suisse suggests increases the likelihood the proposal receives regulatory approval.

Shorts in SingTel ((SGT)) declined to 3.97% from 5.89% in the week from May 1 as the market adjusted positions leading into the full year result, which largely met broker expectations. Paladin Energy ((PDN)) also saw a decline in shorts of more than one percentage point to 7.12%, this post the announcement of a convertible bond issue that brokers viewed as reducing refinancing risks for the company.

Beach Energy ((BPT)) delivered a better than expected March quarter production report and early shale fraccing is showing some promise, the report being followed by shorts in the stock declining for the week to 2.16% from 3.22%.

In terms of increases in short positions for the week from May 1, the largest was in David Jones ((DJS)) where total shorts rose to 10.83% from 8.88%. The change came as the stock continues to underperform, down almost 40% over the past year. The increase in shorts came before the announcement of some head office changes that should deliver some cost savings going forward.

The lift in short positions for David Jones confirms the company's place among the top-20 short positions on the Australian market. This list continues to be dominated by consumer discretionary stocks as the top 20 includes the likes of JB Hi-Fi ((JBH)), Myer ((MYR)), Billabong ((BBG)), Carsales.com ((CRZ)), Flight Centre ((FLT)) and Harvey Norman ((HVN)).

Also in the top 20 are media plays Fairfax ((FXJ)) and Ten Network ((TEN)), resource stocks Paladin and Iluka ((ILU)) and industrials such as CSR ((CSR)) and Gunns ((GNS)).

In terms of monthly changes from April 5, the largest increase is in Spark Infrastructure ((SKI)), positions rising to 6.29% from 1.43% previously. The market remains unconvinced of the benefits of the proposed acquisition of the Sydney Water Desalination plant, as while the deal would be earnings accretive management have little experience in the business.

The other largest monthly increase was in Paladin, where shorts rose to 7.12% from 3.92%. The increase comes after the company completed a convertible note issue to alleviate some refinancing risks but doesn't address some operational issues the company is dealing with.

Largest declines in shorts for the month from April 5 were in Beach Energy and Carsales.com. While the move to acquire a stake in Torpedo7 in New Zealand raised some questions about strategy for Carsales.com, brokers continue to expect solid growth in online display ads.

Among other changes in short positions, RBS Australia notes shorts in Leighton Holdings ((LEI)) have risen to 3.1% from 2.3% prior to the company releasing revised earnings guidance. A major issue for the company in the view of RBS is the group's capital position as there remains risk with respect to the need for further cash requirements.

RBS suggests Leighton will continue to underperform both its peers and the market and the broker recommends reducing exposure to the group.

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 22332469 98850643 22.60
2 ISO 733044 5703165 12.85
3 MYR 67399279 583384551 11.56
4 FXJ 271035010 2351955725 11.55
5 DJS 56939484 524940325 10.83
6 COH 6118023 56929432 10.73
7 FLT 10009250 100031742 9.99
8 LYC 164111757 1714496913 9.58
9 CRZ 21143568 233684223 9.03
10 BBG 22990501 257888239 8.91
11 EGP 59491110 688019737 8.64
12 HVN 85880186 1062316784 8.07
13 ILU 32518188 418700517 7.75
14 GNS 61449507 848401559 7.23
15 PDN 59608465 835645290 7.12
16 CSR 33703822 506000315 6.64
17 SKI 83340340 1326734264 6.29
18 WTF 13114831 211736244 6.19
19 TEN 64363201 1045236720 6.16
20 TRS 1578168 26071170 6.07

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

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article 3 months old

Crisis in Mining

Richard (Rick) Mills of Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

A combination of mass retirements and increasing natural resource demand from emerging economies has created a crisis in the resource extraction sector - one which is definitely not on investor’s radar screens.

Currently there is a “massive talent gap” that is going to get worse because the global mining industry is experiencing the biggest wave of workforce retirements in 70 years - the oldest baby boomers turned 65 years old in 2011.

The Mining Industry Human Resources Council (MIHRC) has recently said that about 40% of the resource extraction industry’s workforce is at least 50 years old and one third of them are expected to retire by 2022.

The organization also forecasts that the Canadian mining industry will face a shortage of 140,000 workers by 2021 – this number of workers being needed just to maintain current levels of production.

The Petroleum Human Resources Council of Canada warned a severe oil patch labor shortage is looming and that the “patch” will need to hire 24,000 new employees by 2014.

Increased resource demand is driving demand for skilled workers. A shortage of skilled workers was the second biggest business risk for mining in 2011 (as it was in 2010) and is forecast to be the number two risk (resource nationalism/country risk is the number one risk) for miners again in 2012. In the coming years a lack of skilled workers is going to be the major cause for concern in the resource extraction industry.

“Government or industry reports in the past few years in Australia, the U.S. and South Africa all highlight growing skills shortages in the mining industry.”Recent HSBC commodities report

"A lot of people ask me what is my biggest concern. What keeps me awake? Having skilled people available to do the job… That is one of the biggest challenges. We are looking to build a whole lot of mines in the future. And getting the right skills to build those mines is a challenge, not only for us, but for the various engineering companies… The baby boomers are starting to get to retirement age. And there is a whole lot of them that are going to disappear very quickly… If you look at the youngsters coming through, they are looking at other industries."Gold Fields CEO Nick Holland at  the Reuters Global Mining and Metals Summit

The skills shortages are global, shortages are happening in South Africa, Australia, Canada and South America. Costs are increasing, projects are being deferred or perhaps even cancelled outright due to the inability to staff operations - tighter labor markets also provide unions with greater bargaining powers when dealing with companies over wage settlements and other disputes.

“Given the ageing profile of the current workforce and a lack of engineers and geologists with enough experience, the labour resourcing requirements for new mining projects at various stages of development across the globe are simply not going to be met. Production targets and project deadlines are inevitably going to slip. The time taken to train a mining professional can be up to five years, but it is the candidate with around ten years experience who is in particularly short supply. A failure by the mining industry to recruit and train during the tough times in the 1990s, when the price of metals plummeted, has led to particular shortages of mid-career professionals.”Mining Global Employment Review 2011, Faststream Recruitment

Analysts say attracting and retaining increasingly scarce skills will:

• Accelerate cost increases

• Squeeze profit margins

• Threaten the viability of some marginal projects

Cause for Concern

Mine production of many metals is showing a number of similarities:

• Slowing production and dwindling reserves at many of the world’s largest mines

• The pace of new elephant-sized discoveries has decreased in the mining industry

• All the oz’s or pounds are never recovered from a mine - they simply becomes too expensive to recover

Increasingly we will see falling average grades being mined, mines becoming deeper, more remote and come with increased political and nationalization risk. Extraction of metals from the mined ore will become increasingly more complex and expensive, even more so when one considers the effects of Peak Oil – the cost of technology innovation to power mining will be very high.

Broad spectrum peak commodities is a cause for concern over the longer term.

In the shorter to medium term there are several serious concerns in regards to global resource extraction that we need to consider:

  • Resource nationalism/Country risk
  • A looming skills shortage
  • Smaller areas open for exploration
  • Competition with Chinese mining investment
  • Low hanging fruit, the high quality large deposits have already been found
  • Lack of financing options for smaller deposits
  • Lack of innovation and technological advancements
  • Incredibly difficult and lengthy permitting processes

Just when we need it the most the mining industry is starting to suffer a massive loss of accumulated wisdom, knowledge and field experience. This loss of experience, when combined with labor shortages, means future mineral output will be constrained and that has bullish implications for prices.

Conclusion

Who is going to teach the aspiring mining engineers, metallurgists, and geologists when most of the professors and academics are also at, or close to, retirement age? And when they do get trained whose going to mentor and guide the green, fresh out of school, workers in the field – whose going to be left to pass on the years of accumulated wisdom and knowledge, the practical hands on experience - garnered over decades of pounding rocks and actually building mines – that’s so necessary to reduce the drastic learning curve and achieve success?

The existing shortage of skilled personnel, the imminent retirement of so many baby boomers and the skills supply gap in the 1980’s and 1990’s combined with the mining sector being in direct competition with the energy sector for people to train means prospects are bleak for either industry to obtain the necessary bodies and minds.

The coming crisis in the resource extraction sector needs to be on all our radar screens. Is it on yours?

If not, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com


If you're interested in learning more about the junior resource and bio-med sectors please come and visit us at www.aheadoftheherd.com. 

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Richards articles have been published on more than 400 websites including: 

Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Pinnacledigest, Uranium Miner, Beforeitsnews, SeekingAlpha, MontrealGazette, Casey Research, 24hgold, Vancouver Sun, CBSnews, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, Financial Sense, Goldseek, Dallasnews, Vantagewire, Resourceclips and the Association of Mining Analysts.

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

 Content included in this article is not by association necessarily the view of FNArena (see our disclaimer).

article 3 months old

The Short Report

By Chris Shaw

Changes in short positions for the week from April 24 were modest, only five companies seeing their total short positions change by more than 1.0 percentage point. Increases slightly outweighed decreases by three to two.

Among the increases was a 1.25 percentage point lift in Cochlear's ((COH)) shorts to 11.17% from 9.92% previously, which came ahead of a conference that led UBS to conclude the company's market share is likely to come under pressure in coming years as competitors introduce new products.

Shorts in Billabong ((BBG)) also rose for the week, climbing to 9.65% from 8.63% the week prior despite no new news from the company. Other discretionary retailers such as Harvey Norman ((HVN)) have struggled and delivered weak sales data in recent weeks, so the top short positions in the market continue to be dominated by stocks in this sector of the market.

As examples, the top 20 short positions include JB Hi-Fi ((JBH)), Myer ((MYR)), Flight Centre ((FLT)), David Jones ((DJS)) and Wotif.com ((WTF)). The media sector is also well represented with both Fairfax ((FXJ)) and Ten Network ((TEN)) in the top 20, while resource stocks are also included in the top 20 via the likes of Lynas Corporation ((LYC)), Iluka ((ILU)) and Paladin ((PDN)).

While not in the top 20, shorts rose in M2 Telecommunications Group ((MTU)) to 2.06% from 1.06% in the week from April 24 as the market adjusted to an entitlement offer from the company to help finance the acquisition of Primus Telecom Holdings.

Among the declines in short positions for the week the largest was in Carsales.com ((CRZ)), where total positions fell to 9.19% from 11.5%. This adjustment in positions came prior to a better than expected update on online advertising revenues, which was enough for Credit Suisse to lift earnings estimates modestly.

Shorts in Whitehaven Coal ((WHC)) declined to 5.61% from 6.87% previously, brokers such as Citi remaining positive on the company given Whitehaven is now a rare breed as an independent coal producer with exposure to seaborne prices, making it the go to stock in the sector in that regard in the broker's view.

Monthly changes in shorts were more significant, both Paladin ((PDN)) and Spark Infrastructure ((SKI)) seeing increases of more than 4.0 percentage points for the month from March 30. For Paladin the changes were likely a reaction to a convertible note issue that helps address some short-term funding concerns, while for Spark the market continues to have mixed views on the proposed move to acquire the Sydney desalination plant.

Among the top 20, Myer, David Jones and Carsales.com (((CRZ)) all saw shorts decline by 1.5-2.1 percentage points in the month, while Wesfarmers partly protected shares ((WESN)) have seen shorts decline from more than 2.5% the month before to 0.1% now.

Beach Energy ((BPT)) saw shorts fall to 3.22% from 5.43% from the month before, this prior to better than expected March quarter production. On the flip side, some in the market viewed Beach's exploration performance during the March quarter as disappointing.

As noted, Ten Network is among the top 20 short positions on the market and RBS Australia sees this as reflective of ongoing TV ad market weakness and poor ratings for the network. The broker recently lowered earnings estimates to reflect these issues, which reinforced a Sell rating on the stock.
 

 

Top 20 Largest Short Positions

?
ank Symbol Short Position Total Product %Short
1 JBH 21969268 98850643 22.21
2 ISO 725044 5703165 12.71
3 COH 6368476 56929432 11.17
4 MYR 64755077 583384551 11.10
5 FXJ 257611720 2351955725 10.96
6 FLT 10014423 100024697 10.00
7 BBG 24947895 257888239 9.65
8 LYC 159919500 1714496913 9.33
9 CRZ 21511549 233684223 9.19
10 DJS 46526079 524940325 8.88
11 EGP 57950189 688019737 8.41
12 PDN 69893003 835645290 8.36
13 GNS 61609897 848401559 7.25
14 HVN 76815948 1062316784 7.17
15 ILU 26640399 418700517 6.33
16 WTF 13180059 211736244 6.22
17 TEN 64330218 1045236720 6.13
18 CSR 30892376 506000315 6.09
19 TRS 1543849 26071170 5.93
20 SGT 9725769 165074137 5.89

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 simple 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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Uranium Begins To Move

By Greg Peel

Japan shut down its last operating commercial reactor over the weekend. To put this event into context, before the Fukushima disaster Japan boasted 54 operating commercial reactors providing around one third of the country's electricity needs. The shut-down marks the first time Japan will be without any nuclear power since 1966.

The Tomari 3 plant has not been shut down for good, rather for regular maintenance as is required by the Japanese government every thirteen months. However, every reactor in Japan shut down for maintenance since Fukushima remains out of service for the time being as the government ponders public perception and remains unsure over the country's nuclear future. Some 17 reactors were directly damaged by the earthquake/tsunami.

Japan's nuclear blackout is not, nevertheless, considered permanent. Whether or not the government is allowing time to pass and wounds to heal post-tsunami before moving to restart reactors is not particularly clear, but many an analyst is of the belief the deflated Japanese economy simply cannot afford to replace its nuclear capacity with that of more expensive and dirtier fossil fuels. A swing towards more LNG imports is believed to be very likely, but no combination of LNG, oil and coal alone is considered commercially viable an alternative to at least some nuclear power generation. Analysts are as yet unsure as to just when Tokyo will be forced to take the potentially unpopular step of restarting any undamaged reactors.

With Japan currently out of the equation, the world's largest uranium producer, Canada's Cameco, has suggested at its quarterly earnings result that the near-term uranium outlook remains subdued, although the company has been seeing an increase in interest from long-term customers looking for supply over five years. Demand is spread evenly across the US and Europe, with China and India adding to the mix and even one Japanese utility sniffing around, thus adding weight to analyst expectations noted above.

Cameco's Cigar Lake project will ultimately be the biggest uranium project on the planet ahead of any significant expansion at BHP Billiton's ((BHP)) Olympic Dam, and is currently 70% complete ahead of expected first production in 2013 and full capacity in 2017. The start-up is timely given it roughly coincides with the expiry of the Highly Enriched Uranium agreement between Russia and US which sees nuclear warheads dismantled as a source of uranium for peaceful purposes. Cigar Lake would have been up and running a lot sooner were it not for a significant flooding event several years ago.

Which brings us to Energy Resources of Australia ((ERA)). Last week ERA began long awaited exploration drilling with the hope of proving up the Ranger Deeps underground resource base. A commercial decision on Ranger Deeps is a life or death call for ERA given last year's flooding of the open pit mine.

The growing demand for uranium on term contracts as noted by Cameco has been reported by industry consultant TradeTech for several weeks now. With uranium pricing remaining not much above Fukushima fallout levels, it is apparent utilities across the globe are now reemerging to secure supply contracts into the future. Such demand interest has begun to impact on spot pricing.

The spot uranium market remains thin, with TradeTech reporting 17 transactions totalling 3.2mlbs of U3O8 equivalent over the month of April, down from March's 22 transactions for 4.2mlbs. Interest in the term market has nevertheless encouraged spot sellers to back of their offer prices, such that TradeTech's indicative spot price for end-April was up US40c from end-March to US$51.50/lb.

Last week's activity resulted in four transactions totalling 475,000lbs of U3O8 equivalent, and while buyers are playing somewhat of a cat and mouse game with sellers, each transaction was settled at a successively higher price over the week. TradeTech has lifted its weekly spot price indicator by US50c to US$52.00/lb. The buyers mostly represented speculative interest.

With term market interest building but yet to provide a significant number of transactions TradeTech's term price indicators remain at US$54/lb (medium) and US$64.lb (long).
 

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