Short Stories

Short interest in Rentokil

According to our data, there has been a recent rise in the short interest of Rentokil (RTO). The company’s %Market Cap on Loan (%MCOL) rose from 3.8% on December 20^th to 4.7% today. On December 17^th the volume of shares traded rose from the company’s average of 10m to 50m, so presumably this is when short sellers really started to increase their positions.

The FT’s Lex column reported today that the services conglomerate’s shares fell by a fifth in 2007, enough to see the company drop out of the FTSE 100 at the next rebalancing. As you can see from this graph, the price started to fall in late October, down from 175GBP then, to today’s price of 120GBP.

Although Utilisation has decreased since mid-July, from 30% down to 10%, like the %MCOL, it has increased in the last week, from 10% to 17% today. The company’s demand for supply has now overtaken the rest of the EMEA Commercial Services and Supplies sector, so it will be interesting to see if investors believe the share price will fall further, which could also mean a further surge in the borrow.

Japanese Banks warning!

The knock-on effect from the Northern Rock Bank is being severely felt in the Japanese market and shows no sign of letting up.

In the last 7 days:

Origami Bank has folded, Sumo Bank has gone belly up and Bonsai Bank has announced plans to cutback some of its branches. Yesterday it was announced that Karaoke Bank is up for sale and more than likely will go for a song.

Today shares in Kamikaze Bank were suspended after they nose-dived and 500 back-office staff at Karate Bank also got the chop. Analysts report that there is something fishy going on at Sushi bank and staff fear they may get a raw deal.

We hope you have enjoyed our 2007 blogs and we look forward to writing about  all the interesting shorts of 2008.

Merry Christmas from all at Data Explorers.

Short interest in insurance stocks

There has been a significant increase in the borrow of Amlin (AML). The insurance group’s %Market Cap on Loan (MCOL) rose from 2% to 12% between November 10 and the 29, and has since risen again to 15% today (please see graph). Utilisation has also risen sharply; from 4% to 50% over the same time period. The volume of shares traded in Amlin is double its average, at 20million today.

At the same time as the borrow began to rise, so the share price plummeted; from 330p to 300p today, with an inverse correlation in early December. A report in the FT suggests that marine insurance companies, of which Amlin is a member, have had to pay out a total of $1bn in marine hull claims.

Amlin has the highest %MCOL for the UK Insurance sector. Benfield is second at 12.39% and Jardine Lloyd Thompson Group at 9.3%. Benfield’s share price dropped on October 4 by 4.4% to 290½p as recent takeover speculation faded. The borrow rose from 12% to 13%.

Jardine Lloyd Thompson’s shares slumped 11.5 per cent to 374p on August 1^st after the insurance broker's interim figures contained a downbeat assessment on its outlook. A month later, the borrow rose from 8% to 11%. The share price has now fallen further to 300p, and the borrow remains around the 10% mark .

Short interest in Emap

There has been a recent rise in the borrow of Emap (EMA), who were downgraded by Panmure Gordon from “buy” to “hold” last Monday, with a target price reduction from 925p to 800p.

The media conglomerate announced on December 7 that it had failed to find an attractive offer for its business-to-business division. Today its percentage Market Cap on Loan stands at 21.31%, up from 14% in early November.

The share price has also dropped from 875.00GBP in late October to 750.00GBP today, and for those who started to increase their positions around late November, it will have proved to be a very profitable trade. The company’s Utilisation stands today at 57.4%, considerably higher than the rest of the EMEA Media sector’s 15%, as people's love affair with the business-end of the media tails off. For those short sellers who wish to buy back their shares from the market, there are 21 Days to Cover.

What does the future hold for Rank?

The percentage of Market Cap on Loan for Rank Group (RNK) remains stubbornly high, at 11.71% latest compared to the FTSE average of 3.8%. This is despite a recent rise in share price, from 75.00GBP on December 1st to 110.00GBP today.

Institutions who lend stock have been selling it in large volumes since the beginning of October. The amount of stock which they make available to lend has fallen from 100m shares in May to 86m today (please see graph). For those investors who closed out their shorts before the end of November it would have been a very profitable trade.

Washington Mutual

According to Bloomberg, Washington Mutual (WM) fell as much as 7.75% in New York trading, after saying it will write down the value of its home lending unit by $1.6 billion and slash the dividend 73 %.

Freddie Mac, who we blogged on in November, fell more than WM at 8.22% today amid more reports of sup-prime mortgage difficulties.

Our data says that short sellers started to increase their positions in WM in late September 2007, when the %Market Cap on Loan, which was already reasonably high at 8%, rose to 16% (please see graph). Since then it has ebbed and flowed around that mark. As the borrow began to increase, the share price fell from 36.00USD to 17.00USD, so for some it has been a very profitable trade.

Utilisation has increased with the %MCOL, but the stock is still fairly easy to borrow as the supply out on loan now stands at 40%, with the gross Lendable Quantity at 260.00million shares. The Utilisation in WM is much higher than the rest of the North Americabanks sector, which has an average of 17%.

It will be interesting to see whether or not the rumoured takeover from JP Morgan Chase will affect the amount of stock being borrowed.

Short interest in the mining sector

Takeover speculation in the mining sector reached fever pitch yesterday, with BHP, Rio Tinto and Xstrata all in the spotlight.  One stock which did not see higher than average volume yesterday was Lonmin (LMI) which has underperformed the FTSE 100 by 18% over the last six months.  Lonmin appeared on one of our internal alerts today due to a sharp rise in the percentage of Market Cap on Loan (%MCOL) from 4.23% on 4^th December to 5.13% on Friday 7^th December (please see graph).  Stock borrowers first started increasing their positions in Lonmin in early September and Utilisation has risen from 6% to 17.5% over this period.  

BHP Billiton’s (BHP) % Market Cap on Loan (MCOL) today stood at 4.68%, up from 3% in early December. Utilisation has also risen from 3% to 5% over the same period.

Rio Tinto’s (RIO) %MCOL stands today at 4.87%, with a heavier short than BHP’s; down slightly from early December when it stood at 5%, but generally up since early September from 2%. Utilisation is still relatively low at 5.3%.

The %MCOL has decreased in Xstrata (XTA) over the past two years, down from 17% in March 2006 to 3% today. There has been a slight increase in the borrow since June. Utilisation is also down from 60% in March when it was difficult to borrow, to 3% today.

Short interest in Satnav products

According to the FT, SatNav systems are set to take the honours as the breakthrough consumer electronic gift this Christmas, and as well as TomTom (TOM2), rapid volume increases in Garmin (GRMN) were more than making up for falling market prices.

Short sellers appear to have started closing their short positions in TomTom (TOM2), the European market leader, as well as in Garmin, one of its leading U.S. counterparts.

We blogged on the rising short in TomTom on October 10. At the end of September, Utilisation increased from 36% of available supply to 80% during early November, which meant the stock was very difficult to borrow and investors were anticipating a fall in share price, which occurred in early November, from 67.00EUR to 54.00EUR on November 5. Traders who closed out their positions at this time would have made a profitable trade. TomTom now has 4.13 Days to Cover, so it is fairly easy to close out positions on this stock.

Over the past week, the %Market Cap on Loan (MCOL) has decreased slightly; from 7.8% to 6.7% today, which could mean that investors believe that the surge in Christmas spending may push the price up. The price has also risen slightly, from 60.00EUR to 62.00EUR today.

Garmin have reduced the average price for its devices to $270, down nearly 20 per cent from a year ago, which may mean the product is more accessible to the already suffering US Consumer. The %MCOL has decreased from 5.5% on September 6 to 3.7% today, although at one stage in mid-November the %MCOL dropped down to 2.5%.

Utilisation for Garmin has also decreased – down from 52% on June 5 to 38% today. Utilisation has also dropped from 40% to 37% in the last few days, juxtaposed with an increase in share price, presumably for the same reason as an increase in price for TomTom. For those wishing to close out shares in Garmin, there is 3.12 Days to Cover so like TomTom it is fairly easy to return shares.

It will be interesting to see how many shorts are closed out during the run up to Christmas, as well as if the share price will increase for both companies.

Short interest in Laurus NV

Investors have increased their short positions in Dutch retailer Laurus NV (LAU) in the past week. The company reported a decline in net sales in September for the first nine months of 2007, which they say was mainly due to the divestment of two big supermarket stores.

Laurus’ percentage of market cap on loan (MCOL) rose from 1.6% on December 3, to nearly 3% today (please see graph).  Laurus’ Lendable shares as a percentage of Market Cap stands at 3.57%, so there is very little left to borrow.  Utilisation stands at 73.4%, up from 35% on December 3, so supply is running out fairly fast.  The stock is up 4.52% in today’s trading.

Laurus has risen 45.1% over the last twelve months, compared with a rise of 8.1% in the AEX.

Short interest in US automobile stocks

Two US companies involved in the motor industry, Thor (THO) and Noble (NOBL) have seen a surge in short interest in the last three months, which has coincided with a falling  share price. 

Short sellers are widening the net beyond the obvious targets (housebuilders, retailers) in the search for companies which may suffer if the US consumer finally shows signs of wilting.  Falling demand for pick-ups and SUVs in Canada caused GM to close a factory for two weeks yesterday in order to reduce inventories. Please click here to read more.

Traders really started to increase their positions in Noble, who provide parts for the automotive industry, in the last three weeks. On November 21^st the %MCOL rose from 12%, to 21% today. Noble’s share price dropped earlier than Thor’s - from 22.00USD in mid-September to 15.00USD today. 

On Tuesday 4^th December (the most recent date for which we have information), 0.15million Noble shares were traded, as opposed to an average of 0.05million shares over the past three months.  The number of Days to Cover is high at 42.47 Days.

According to our data, traders started to borrow Thor, the recreational-vehicle and bus maker, in mid-November, when the %MCOL rose from 6%, to 14% today (please see graph). The share price of Thor plummeted from 50.00USD to 35.00USD at about the same time as people started to borrow, so for those who have closed their positions, it has been an extremely profitable trade. Thor is due to pay a dividend on December 14, however, all of the owners of Thor stock in our group pay 100% tax on the dividend which means that the rise in the borrow is more likely to be an accurate proxy for short interest.

Newsflow in Thor has been  positive over recent days, which could cause a few sleepless nights for stock borrowers.