Short Stories

James Hardie

Bloomberg reported on July 19th that James Hardie (JHX) the Australian mid-cap industrial supplier, had slumped to a 7-year low to A$4.68 after announcing that it may have to pay A$240.3M (US$227) tax bill. The price has now rebounded and shorts were covered from July 19th - 26th, as you can see from this graph below. However, since July 28th short positions have now been opened up and the percentage of JHX's Market Cap on loan (%MCOL) has risen from 11% to 15%, presumably in anticipation of a further fall in share price. Interestingly there was a relatively low amount of volume on July 28th - 1.8M shares traded compared to 6.1M on July 23rd (when the %MCOL) rose from 13.88% to 14.27% in one day). Utilisation is at 50%, with 26.65 Days to Cover.

British Airways and Iberia

British Airways (BAY) and Spain's Iberia (IBLA) are in talks about a merger that would create Europe's third-biggest airline and give the UK flag carrier the size to play a leading role in eventual global airline consolidation, says the FT.

BA's shares rose as much as 9% since the announcement before closing up 6% at 248½p. Iberia ended up 21% higher at €1.98.

As you can see from this graph, which has a two working-day delay, short positions are still being built up in BA, and the percentage of its Market Cap on loan (%MCOL) stands today at 13.87%. This figure has more than doubled since April when the %MCOL was 6%. We will update you later on in the week as to the short position of BA, who have a Market Capitalisation of £2.9bn to Iberia's €1.6bn (£1.26bn) but it will be interesting to see if short sellers anticipated the rise in share price. Utilisation is at 50% so there is still a fair amount available to borrow.  

As you can see from this graph of Iberia's %MCOL, short investors have in general decreased their positions, potentially predicting that the company's share price increase would be as positive as it was today. The highest %MCOL was in early June 2008 at 6%, and Utilisation levels reached nearly 80%, proving that this stock is incredibly difficult to borrow. It is at 67% today with only 5% MCOL.

Conergy

According to dealReporter, Conergy (CGY), the Germany-based alternative energy systems producer, is now looking to raise a EUR 450m rights issue, compared to the EUR 250m it announced in February. Despite some continuing problems, there are hopes that the company will report relatively stronger 1HO8 results on August 8th, an insider said.

On the short side, and as you can see from this graph, 7.5% of CGY's Market Cap is on loan to short investors, a decrease from around 15% last October. Utilisation is at 49% and there are 5.36 Days to Cover.

Though parts of CGY's operations appear to have stabilised, the restructuring is a long way from being completed, a source has said. Cash burn also continues to be a problem, some of the reasons that may explain why the company's share prices has tumbled from 64EUR last October, to 15EUR today.

Ryanair

Ryanair (RY4) has warned that it could fall into the red for the full year for the first time since it was floated 11 years ago. The airline's shares tumbled 23% yesterday after surging fuel costs and falling airfares forced the airline to report a heavy first-quarter loss (Source: FT.com).

You will see from this graph documenting the percentage of Ryanair's Market Cap on Loan (%MCOL) that short sellers have been building up their positions in the airline since March 2008, when the %MCOL was 0.7%, to today, where the %MCOL is 2.6%. Small fry in short interest terms, you may think - but it is the speed at which positions have been built up that is interesting. Moreover, Utilisation is at 44%, and with nearly half of the available supply out on loan, it is going to become increasingly difficult to borrow this stock. There are 7.86 Days to Cover for those who believe that the price will bounce back. It appears that some investors have come late to the trade - you will see below that Ryanair's share price fell from 5.7EUR in October 2007, to 2.7EUR in April 2008, but it was only around the time that the price hit this low point that positions were increased, and the %MCOL ebbed around the 0.5% mark.

dealReporter reported yesterday that Ryanair will not take part in a potential sector consolidation, and in an informal interview CFO Howard Miller discounted that the Irish airline will take over any of its competitors and will not invest in distressed companies. However when asked about its Aer Lingus takeover attempt, Miller said Ryanair will still look to make the deal. Ryanair currently holds 29.82% in Aer Lingus. Up until June 30th, Ryanair had a net debt position of 389.37mEUR.

 

Rentokil

Short interest has been building up in Rentokil (RTO) since March this year, when the percentage of the company's Market Cap on loan (%MCOL) rose from 5% - to 9% today. Rentokil, whose services include washrooms and pest control, issued their fourth profit warning in seven months on Friday, wiping the shares' value, down 30.74p to 70.75p, their lowest point ever. You will see from this graph, however, that short investors came to the trade reasonably late; the share price started to fall in November, from 170p down to 72p in April, but positions did not start to increase until a month before the price fall and the %MCOL remained at approximately 5%. Moreover, short positions were being closed between August 2007 and January 2008, even though the share price was taking a turn for the worse. Now, there are 21.13 Days to Cover and Utilisation is at 27%.

General Motors Corp

US sales for GM fell 21% in the April to June period, as record gasoline prices continue to curb demand for larger vehicles, such as GM's Chevrolet Tahoe sport-utility car. Short investors already had 25% of GM's Market Cap out on Loan (%MCOL) in April, but that figure rose to 40% in late June, with positions being covered slightly to take that number down to 32% today. Utilisation is extremely high at 85%, and there are 41 Days to Cover.

Another interesting stock which came up on my alerts today is Assured Guaranty (AGO), a Bermuda-based company that provides credit enhancement products to mortgage markets. You will see from this graph that short investors started to increase their positions in this company in early June, when the %MCOL was 10%, to today's figure of 27%. You can also see the large spike in the borrow last week rise up to 37% as the price dropped from $17 to $11. Again, Utilisation is extremely high at 87%.

HBOS

You can see from our data that HBOS (HBOS) continued to be the target of short sellers earlier this week when on Monday underwriters were left with £3.8bn of shares (the rights issue was £4bn) in one of the biggest fund-raising flops in UK history.

The FT said this morning that short sellers had 'scrambled to close positions,' as Britain's biggest buy-to-let mortgage lender registered its biggest one-day percentage gain in eight and a half years. As our data has a two business day delay this will not show up until next week, but what is interesting is that the number of shares in issue have now increased, thus pushing the percentage of HBOS' Market Cap out on Loan down, simply because there is more of the Market Cap available to borrow. Therefore although the FT cited us as saying that HBOS had 15% of its share capital out on loan which was indeed true, that figure has now changed to 10.82% because of the above reason -  which our data had picked up. Utilisation is now at 40% and there are 4.74 Days to Cover.

United Utilities

United Utilities (UU), who according to our data is one of the most shorted stocks in the FTSE 100, has seen a significant level of borrowing since lead analyst Robert Miller-Bakewell of Merrill Lynch expressed concerns about its performance over the next couple of years, among which were rising costs and an unsatisfactory price review by water industry regulator Ofwat, according to City analysts.

As you can see from this graph, investors increased their positions at the correct time in the company and made sizeable profits - when the share price dropped from 770p in early June to 670p on July 2nd. Utilisation is at 64% and there are 48 Days to Cover.

Freddie & Fannie

Freddie Mac (FRE)

Fannie Mae (FNM)

As you can see from these two graphs which show the percentage of Freddie Mac and Fannie Mae's Market Caps that are out on loan (%MCOL), short investors have been increasing their positions in both companies significantly over the past two weeks. Fannie Mae currently has 20.23% MCOL, and Freddie Mac has 23.92%. Both of these figures have more than doubled over the past fortnight. In Freddie's case, the %MCOL hit 32% on July 15th, and Fannie's hit 26% on the same date.

Utilisation in Fannie Mae is at 50%, Freddie's is at 46%. There are 10.67 Days to Cover in Freddie and 12.39 in Fannie. There were 48M shares traded in Fannie on July 11th compared to its average of 20M, and on the same day Freddie had 42M shares traded as opposed to its average of 17M.

Washington Federal

As you can see from this graph of Washington Federal (WFSL), short investors have been increasing their positions dramatically in the loan holding company, and with good reason. The share price has dropped from $25 in January to $15 today, so for those investors who came to the trade at the correct time, sizeable profits would have been made. On Tuesday the company saw its shares hit a 52-week low due to its large residential construction loan portfolio. Utilisation is at 48% and there are 16.27 Days to Cover.