Most shorted ahead of earnings

A review of how short sellers are positioning themselves ahead of earnings announcements in the coming week.

• Significant short interest remains in Ambarella despite falling over 50% since July
• Shorts cover in Zoopla as Markit Dividend Forecasting expects tripled dividend
• 25% of Australia's Metcash shares out on loan as commodities slump impacts economy

North America

Most shorted ahead of earnings this week in North America is niche video chip maker Ambarella, with 26.9% of shares outstanding on loan. A major target of short sellers since the middle of 2015, as highlighted by activist short Citron Research, shorts sellers have covered positions slightly after interest peaked in early November.

Short interest almost reached a third of shares outstanding on loan but has declined to 26.8% currently. Ambarella is a significant component supplier to recently IPO'd GoPro, whose shares have come under increasing pressure since missing third quarter earnings. Shares in Ambarella have fallen by 53% since August, slightly less than GoPro's stock which has plummeted 69% over the same period.

Short sellers look to be targeting both firms in tandem - with GoPro's short interest also peaking in early November 2015 before decreasing to 12.1%.

Canadian Western Bank has 26.1% of shares outstanding on loan and is one of short sellers' targets in the Canadian property market. The company has a significant portion of loans exposed to commercial mortgages, real estate projects and personal loans. The Canadian property market, buoyed by low interest rates and strong global demand, has surged. Lower energy prices however have begun to weigh on the country's economy; attracting short sellers.

Third most shorted in North America is Rex American Resources with 19.4% of shares outstanding on loan. Shares in the alternative energy producer have rallied by a third since late August which has seen short sellers cover positions by 30%.

Europe

Most shorted ahead of earnings in Europe is cancer care firm Elekta with 11.7% of shares outstanding on loan. Short interest levels have declined by 50% in the last 12 months with the stock staging a recovery in the past three months, rising by 30% and seeing short sellers cover positions by the same amount.

Short sellers have shed almost a quarter of positions in Aberdeen Asset Management, second most shorted ahead of earnings with 6.9% of shares outstanding on loan.

Although the fifth most shorted ahead of earnings in Europe, online property portal Zoopla has seen short sellers continue to flee, with shares outstanding on loan declining to 1.7%.

Markit Dividend Forecasting is expecting Zoopla to almost triple its final dividend to 3p, up from its maiden payment of 1.1p last year. On a full year basis Markit is forecasting a payout of 4p, representing a 37% payout ratio on consensus earnings, which is still at the lower end of the dividend policy to pay out between 35% - 45% of profits.

Apac

Most shorted in Apac is Australian food wholesaler and distributor Metcash with 26.1% of shares outstanding on loan.

The stock has fallen by a quarter over the last 12 months as the resource based economy continues to struggle as weak demand out of China and increased supply locally continues to hurt commodity prices.

Second most shorted ahead of earnings is TFS Corporation with 5.5% of shares outstanding on loan. Based in Australia, the company is the largest Indian sandalwood producer in the world.

Third most shorted ahead of earnings is Japanese Akebono Brake Industry with 6% of shares outstanding on loan. Shares fell 14% in November after the company released a news release of accounting issues at its American operations.

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Relte Stephen Schutte, Analyst at Markit
Posted 27 November 2015

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This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.