Are European Investors braced for the cold snap?
Europeans are fretting over an earlier than expected period of prolonged cold weather. In the UK, some local councils and power companies have been caught off guard. We will look at how investors are positioned in those relevant companies where there have been some recent flurries of short selling. EDF (EPA:EDF), Gazprom ADR (PINK:OGZPY), Gazpromneft ADR (PINK: GZOPFY), K+S (ETR:SDF), ), Drax (LON:DRX), E.ON (ETR:EOAN), National Grid (LON: NG) and British Gas (LON: BG).
According to a report by Bloomberg on the 24th November, France’s energy titan EDF would prefer this cold weather to have come a little later. They said last week that “output improvements in 2010 would be at the lower end of a target range” because their nuclear reactors are not quite a straight swap for shutdowns in fossil-fuel power plants in part due to strike induced interruptions. Investors are in “wait and see” mode with steady and low short interest and flat institutional ownership. Given that France will be a net importer of electricity, according to their grid, between now and the end of January and the increased demand for gas and oil for central heating it makes sense to look at the great exporter of oil and gas in Europe – Russia’s Gazprom.
There are lots of Gazprom related issues but the short selling seems to be taking place in the group company’s ADR, as opposed to its main listing on the Moscow Stock Exchange. Gazprom ADR stock on loan has been rising over the past 6 months with spikes in June and just recently to around 1% of the shares in issue, which represents 14% of the supply made available by institutional funds who lend. Is this due to tax changes in Russia affecting energy companies or is it arbitrage between the share classes? Given the shape of the short selling chart it looks like there must be at least some directional short selling.
Gazprom’s US listed export arm, Gazpromneft ADR has seen its price fluctuate this past year. Short sellers borrowed shares after the price had almost halved and then closed these positions in October. Interestingly, demand to borrow has just recommenced from 5% of supply to 15% but this is a very low proportion of the shares in issue (0.1%). It is trading at $20 and some analysts think it could reach a fair value of $3
The UK’s independent coal power station, Drax witnessed some informed shorting over the past year and remains somewhat high at 5.5%, having come down from 7% in late October. Germany’s E.ON has seen stock on loan gently rise since early September from next to nothing to 3.7% of all shares, which is a noteworthy change for a company that is never subject to much short selling. BG Group, previously British Gas/Centrica, has tiny short interest but rapidly rising institutional ownership making it in the top 20% of popular FTSE 100 firms to own and at a 52 week high. Short interest in National Grid remains negligible although institutional owners have been buying, in particular the ADR, which perhaps is an indication that the company’s reported troubles with its US business are behind them.
It is snowing hard in the north of England and this means local councils need to grit the roads. Whereas people in snow prone areas of the US drive 4x4 trucks (often with winch and snow plow) this is somewhat rare for our friends in the north. Germany’s grit maker K+S shows positive investor sentiment. There are “strategic stockpiles” of grit according to the UK government but I doubt we are in a national emergency just yet. This means councils need to buy their own. Short selling is predictably tiny in K+S while institutional ownership is close to a 2 year high! Add to the mix this firm’s other, very much in vogue, capabilities with potash extraction and fertilizers and we can understand why funds who lend have bought an extra 7m shares since June raising their stake to 15% of the company. This is just under the DAX average ownership by funds who lend.
