Short Stories

Short interest in U.S Marketing Stocks

R.H. DONNELLEY Corp (RHD) has made the most substantial decline by per cent in price on the New York Stock Exchange (NYSE) today. Forbes said 11 hours ago that: "Shares of R.H. Donnelley Corp. dropped sharply Thursday after the phonebook publisher and search engine operator posted fourth-quarter results and a first-quarter outlook below Wall Street's expectations, and said a key executive is leaving."

By looking at this chart, it is clear to see that short investors increased their positions in the U.S "Yellow Pages" giant late last year. In early December RHD's percentage of Market Cap on Loan (%MCOL) was 12%, and by early January it had climbed up to 15%. Since then it has ebbed around the 20% mark, and stands today at 18%.

Utilisation, however, is still relatively low at 30% today, up from up from 20% in late December. It reached 36% on February 3rd. This low percentage means that there is still plenty left to borrow should investors wish to increase positions. The average Utilisation for the rest of the US Equity (Others) is 19%, and for the rest of the North America Media Sector it is 16%. For those investors wishing to buy back shares there are 10.21 Days to Cover.

Other stocks with a high %MCOL include Idearc (IAR), another Yellow Pages distributor. Idearc's %MCOL today stands at 13%, but this is down from 18.5% a week ago. However Idearc's shares have plunged from $16 in early February to $7 today and it is the fifth biggest decliner on NYSE. Utilisation also stands at 30%, down from 40% a week ago.

The %MCOL in Harte-Hanks (HHS), the U.S marketing company, has also decreased, from 6.8% in mid-January, to 4.8% today. The price has risen from $14 on January 24th to $17 today.

Australian MidCaps

On Tuesday we blogged on A.B.C Learning Centre (ABS). As you can see from this graph, short positions have been closed out and the percentage of the company's Market Cap on Loan (%MCOL) has dropped from 11.5% on Tuesday to 8% today. Utilisation has also decreased, from 54% on Monday to 39% today. For those wishing to buy back shares there are 9.38 Days to Cover. A.B.C's share price has rebounded slightly from 3.8AUD on February 21st to 3.95AUD today.

Another Australian MidCap, Bendigo Bank (BEN) has seen a decrease in its %MCOL, down from 17% on February 20th to 14.3% today. The company's Utilisation was also high at 72% on February 20th, dropping down to 65% yesterday. There are 18.36 Days to Cover. The bank's share price has rebounded from 11AUD on February 15th to 11.4AUD today.

However, Bendigo is still the most shorted stock in the ASX MidCap, with the average Utilisation for the market standing at 30%. Other ASX MidCaps with a high %MCOL are Paladin Energy (PDN) at 13.45%, and James Hardie (JHX), one of our best-timed shorts of 2007, at 13.4%.

Bendigo is also the most shorted in the Australian Bank's Sector, whose average Utilisation is 16%. The second most shorted bank is St George Bank (SGB) - with a considerably lower %MCOL at 4.18%, then Bank of Queensland (BOQ) at 4.08%.

Short interest in China Everbright

According to our data, short investors have increased their positions in China Everbright (0165). The percentage of the holding company's Market Cap on Loan (%MCOL) has risen from 2% on February 26th 2007 to 6.5% today (please click to enlarge graph).

Utilisation is high at 72%, and the %MCOL is not particularly big, which means there was never that much stock available to borrow originally (this is typical of many Asian stocks). For those wishing to buy back shares there are 9.32 Days to Cover.

The Utilisation for the rest of the HK Equity (Others) is 20%, and for the rest of the Asia Diversified Financials it is 18%.

China Everbright's share price rose in February 2007 from 7HKD, to 35HKD in late November 2007, and from there it has fallen back down to 17HKD today. Since early February this year there has been a general decrease in the %MCOL, which means that short positions have been closed out and profits have been made.

Stock lending in the FTSE 250 outstrips the FTSE 100

Stock borrowing in the FTSE 250 continues to outstrip the FTSE 100, a trend which began in July 2007 and shows no signs of abating (click on the attached chart for details.)  In July 2007, 4.2% of the Market Cap (%MCOL) of the FTSE 100 and FTSE 250 was on loan but since then, lending in the FTSE 250 has risen to 6.6% while lending in the FTSE 100 has fallen slightly and currently stands at 4.06%

These figures would suggest that there is very little sign of midcaps coming back into favour any time soon.  Lending in the FTSE 100 has picked up in 2008, but not as fast as the FTSE 250. 

In the US, mid and smallcaps (as represented by the Russell 2000) still show considerably higher levels of borrowing than the S&P 500 which we first reported back in July 2007.  In the Russell 2000, we saw  Utilisation levels rise from 27% in February 2007 to 38% in August.  But since then, Utilisation levels have fallen slightly to just under 35%.  In the S&P 500, Utilisation levels have oscillated between 6% and 8% during the same period.  However, since Jan 1st 2008 utilisation levels in the S&P 500 have risen from 6.2% to 7.35%.  Utilisation in the Russell 2000 has remained flat during this period.

To summarise, stock borrowers have been increasing their positions in UK mid- and largecaps and US largecaps, but not the Russell 2000 in 2008.  (AH)

Shorting: Is it all A.B.C?

Reuters reported this morning that the ASX MidCap stock A.B.C Learning Centres (ABS) had fallen 70%, amid talk that its founder "had been forced to sell shares."

"A third of the stock changed hands," continued Reuters, "with A$759 million ($702 million) wiped off its value, after traders said rumours swept the market of selling by hedge funds, while the company issued two statements denying it was in breach of loan covenants."

According to our data, short investors were borrowing a significant amount of A.B.C a year ago, when the Utilisation percentage was 80%. Since then it has remained high and stands today at 54.91%. In the summer of last year there were 70m shares traded compared to the company's two year average of 5m.

As you can see from this graph (please click to enlarge), the percentage of A.B.C's Market Cap on Loan (%MCOL) started to rise on November 14th - from 8% then to 11.5% today. In early January the %MCOL reached 13%. The share price has dropped from 7AUD on October 17th to 3.94AUD today.  Although A.B.C remains heavily utilised, the %MCOL remains relatively low, which could indicate it has been difficult to borrow this stock. For those wishing to buy back shares now, there are 13.71 Days to Cover, also known in the U.S as "short interest ratio."

The Utilisation percentage for the rest of the ASX MidCap is 30%, and for the rest of the Australia Consumer Services Sector it is 28%.

Short interest in US retail

According to our data, short investors have significantly increased their positions in Gaylord (GET) and Polo Ralph Lauren (RL). The percentage of the Market Cap on Loan (%MCOL) of Gaylord has risen from 9% to 14% since January 21st, and from 11% since February 18th (please click to enlarge graph).

Ralph's %MCOL has risen from 4.5% to 6.5% since January 21st and from 2.7% since November 22nd. (please click to enlarge graph).

On 22nd January, there were 1m shares traded in Gaylord, approximately double the usual amount for the company's one year average. At the same time 3m shares were traded in Ralph, almost double the amount for its one year average too.

Both companies are consumer driven. Gaylord, a hospitality and entertainment company who boast the Radisson Hotel Orpyland among their brands, is a member of the North America Consumer Services Sector. Ralph is a member of the North America Consumer Durables and Apparel Sector. Both companies have considerably higher Utilisation levels than the rest of their sector and their market. Utilisation for Ralph stands at 42%, its sector's Utilisation is 30% and the S & P 500's Utilisation is 8%. Gaylord's Utilisation is double that of its sector at 40% - the rest of the Russell 2000 is 34%. For those investors wishing to buy back shares in Ralph, there are 6.51 Days to Cover (known in the U.S as "short interest ratio"). For Gaylord there are 17.52 Days to Cover.

Is the housing market on the up?

Our blog yesterday (please see below) documented the short interest in Hammerson and other property-related companies in the FTSE Financial Services Sector.

Persimmon (PSN), another property company, falls under the Personal and Household Goods Sector in the FTSE, and it is the second most borrowed stock in that sector, with a % Market Cap on Loan of 16.47%, after AGA, at 16.75%. However, according to our data, short investors have decreased their positions in the UK house builder, and the company's %MCOL has dropped down from 19% on February 1st (please click to enlarge graph). The FT reported this morning that Persimmon was up 1.9% after it reported annual profit slightly ahead of forecasts and provided an "upbeat assessment of the housing market." After dropping down from 880p on January 26th to 700p on February 19th, the share price has now rebounded to 725p today.

The short interest in Persimmon increased significantly between December 17th, when the %MCOL was 10%, and February 1st at 19%. There was in inverse correlation in early January when the %MCOL increased and the share price dropped from 800p to 650p, so for those investors who increased their positions at the correct time, a very profitable trade would have been made.

After Persimmon, the most shorted stocks in the Personal and Household Goods Sector are all property related companies, aside UMBRO at 8.66% (%MCOL), and Burberry at 6.66%. The other property related companies include Bovis Homes at 15.81%, Barratt at 13.25%, Redrow at 11.3%, Bellway at 7.04%, and Taylor Wimpey at 6.49%. However, without exception, there has been a general decrease in the short positions in all of these property related companies, and their share price has risen, especially in the past two weeks.

Hammerson: The short side of the story

"Hammerson reported a steep decline in pre-tax profit for 2007," said the FT today, "as it warned of the 'most difficult conditions in financial and UK property investment markets in recent years,' but shares rose after the results beat expectations."

The company's chairman John Nelson said he was pleased with the results, considering the difficulties in the UK property market at this time.

According to our data, short investors have increased their positions in Hammerson (HMSO) over the past week. The percentage of the company's Market Cap on Loan (%MCOL) has risen from 7.2% to 7.4% since Monday February 18th, after it decreased from 7.4% to 7.2% between February 15th and 18th (please click to enlarge graph). The %MCOL increased significantly on February 14th - from 6.4% to 7.4% in one day. Apart from in mid-January, when the %MCOL dropped from 7.5% to 6% on February 8th, Hammerson's short interest has increased steadily since November 7th when the company's %MCOL stood at 5.5%. For those wishing to buy back shares, there are 4.09 Days to Cover.

Some of the most borrowed stocks in the UK Financial Services Sector include other commercial property companies such as Shaftesbury (SHB) at 18.17% (%MCOL), Liberty International (LRY) at 14.92%, Grainger (GRI) at 9.97% and Great Portland Estates (GPOR) at 9.43%.

Short interest revs up in Volkswagen

According to our data, short sellers have increased their positions in Volkswagen (VOW) over the past fortnight. The percentage of the automobile company's Market Cap on Loan (%MCOL) increased from 9.3% to 13% between February 6th and 18th. It has now dropped slightly to 12.8%.

This is surprising, as the company announced today that their January sales were up 11%. However since in mid-November the company's share price dropped from 200EUR to 151EUR latest.

Volkswagen's Utilisation stands at 40%, a general decrease from 50% in August last year. The average Utilisation percentage for the rest of the DAX is 16%, and for the rest of the EMEA Automobiles and Components it is 23%. For those wishing to buy back shares in Volkswagen, there are 18.59 Days to Cover.

Volkswagen is the third most shorted stock in the DAX, after Siemens (SI), who have a %MCOL of 15.74%, and Bayer (BAY), at 13.64%. Volkswagen is the most shorted stock in its sector, ahead of Fiat (F), who have a %MCOL of 12.06%, and a Utilisation percentage of 35%, and Porsche (POR3), with a %MCOL 10.6% and a Utilisation percentage of 12%.

Barclays: The short side of the story

The FT reported yesterday that John Varley, Barclays' (BARC) CEO had hailed a "resilient peformance" from the bank in torrid times.  However, since then stories have begun to emerge about the "small print" of the bank's results.

Although Barclays is about to pay a dividend on March 7th, which can indicate a rise in the short interest, our data reveals that there is probably some genuine short interest in the company. Barclays is the fourth most shorted UK bank in its sector, after Alliance and Leicester, where the percentage of its entire Market Cap that is on loan (%MCOL) stands at 21.12%, followed swiftly by Bradford and Bingley at 19.91%, then a big gap to Northern Rock (NRK) at 7.54%, and then Barclays at 6.78%.

The most recent spike in this graph (please click to enlarge) is no doubt catalysed by dividend repayments, but previous to that rise and on the same day as an increase in short interest in mid-November and also in early February, there was a large volume of shares traded: 175m and 150m respectively, compared to the bank's year average of 75m (figures are approximate).

Utilisation stands at 14% for Barclays, so there is still a significant amount left to borrow, although this is double the FTSE 100's average Utilisation at 7%. The EMEA Banks Sector average is 15%. For those wishing to buy back shares there are 3.81 Days to Cover.