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Inside the Market Short sales on the TSX: What bearish investors are betting against

In July, short sellers continued to retreat from a relentless bull market, led by substantially lower short positions in the shares of First Majestic Silver Corp., Badger Daylighting Ltd. and Canopy Growth Corp. Partially offsetting this move to the sidelines was a ratcheting up of bearish bets on several other companies, notably Baytex Energy Corp., Maxar Technologies Ltd., Alaris Royalty Corp. and Sleep Country Canada Inc.

Short sellers borrow shares and sell them on the hope the price will go down so they can reap a profit when the shares are bought back and returned to owner. Academic studies have found that shares targeted by short sellers tend to underperform, on average.

The first chart below displays the average percentage of shares loaned out for S&P/TSX 60 companies, as of July 10. This measure slipped to 1.84 per cent, reinforcing the downward trend in place since the high of 4.5 per cent recorded two years ago. It’s not that easy for a short seller to ply their trade in one of the longest running bull markets ever.

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The lending of shares serves as a proxy for short positions since short-sellers have to first borrow shares. These data, and those in the first three tables below, are supplied by IHS Markit from their daily surveys of brokers in the securities-lending market.



The first table shows the top 20 Canadian companies in terms of percentage of their shares loaned out. The biggest increase (95 per cent) over the month to July 10 was recorded by Baytex Energy Corp., an oil-and-gas company based in Calgary. The company is digesting an acquisition and carrying a lot of debt, equal to 75 per cent of equity.

Canadian companies with the highest percentage of shares on loan

As of July 10, 2018

CompanyTickerSector% of shares on loanChange over month
Badger Daylighting Ltd.BAD-TCapital Goods22%-14%
Quebecor Inc.QBR.B-TMedia21%-3%
Maxar Technologies Ltd.MAXR-TCapital Goods21%56%
Cineplex Inc.CGX-TMedia14%10%
Westjet Airlines LtdWJA-TTransportation14%13%
First Majestic Silver Corp.FR-TMaterials14%-30%
Genworth MI Canada Inc.MIC-TBanks13%1%
Baytex Energy Corp.BTE-TEnergy13%95%
Home Capital Group Inc.HCG-TBanks12%-3%
Pretium Resources Inc.PVG-TMaterials12%-3%
Canadian Western BankCWB-TBanks12%-3%
Boardwalk REITBEI.UN-TReal Estate12%-7%
Birchcliff Energy Ltd.BIR-TEnergy11%9%
Advantage Oil & Gas Ltd.AAV-TEnergy10%5%
Labrador Iron Ore Royalty Corp.LIF-TMaterials10%10%
AltaGas Ltd.ALA-TEnergy10%-4%
Sleep Country Canada Holdings Inc.ZZZ-TRetailing22%31%
Alaris Royalty Corp.AD-TDiversified Financials21%33%
Sandstorm Gold Ltd. SSL-TMaterials21%-2%
Kelt Exploration Ltd.KEL-TEnergy14%-3%

Source: IHS Markit

Next highest is Maxar Technologies Ltd., with a 56-per-cent jump in the percentage of its shares on loan. Maxar is the recent amalgamation of two companies, one a provider of satellite equipment and the other a provider of satellite imagery. Net debt is sizable, at four times adjusted EBITDA (earnings before interest, taxes, depreciation and amortization).

Another notable jump (33 per cent) was Alaris Royalty Corp. The company provides capital to private firms in exchange for royalties; its dividend yielding more than 9 per cent may be at risk given the high portion of income needed to finance it.

Sleep Country Canada Holdings Inc. had a rather significant hike (31 per cent) in the percentage of its shares loaned out. The mattress retailer faces increased competition from e-commerce companies such as Casper.com.

There were companies with large jumps in the percentage of their shares short, as highlighted by the second table. But for the most part, they occurred from low levels of short selling activity.

Companies with biggest increases in percentage of shares on loan

As of July 10, 2018

CompanyTickerSector% of shares on loanChange over month
West Fraser Timber Co LtdWFT-TMaterials5%210%
Tahoe Resources Inc.THO-TMaterials9%149%
Trican Well Service LtdTCW-TEnergy4%148%
Baytex Energy CorpBTE-TEnergy13%95%
Uni-Select Inc.UNS-TRetailing8%64%
Superior Plus CorpSPB-TUtilities2%63%
Crombie REITCRR.UN-TReal Estate2%56%
Maxar Technologies LtdMAXR-TCapital Goods21%56%
CI Financial CorpCIX-TDiversified Financials2%46%
North West Company Inc.NWC-TFood Retailing4%44%
Secure Energy Services Inc.SES-TEnergy2%43%
Stantec Inc.STN-TBusiness Services5%42%
NFI Group Inc.NFI-TCapital Goods2%35%
Alaris Royalty CorpAD-TDiversified Financials9%33%
Sun Life Financial Inc.SLF-TInsurance1%31%
Sleep Country Canada Holdings Inc.ZZZ-TRetailing10%31%
CES Energy Solutions CorpCEU-TEnergy7%28%
Norbord Inc.OSB-TMaterials3%23%
Detour Gold CorpDGC-TMaterials3%19%
Canada Goose Holdings Inc.GOOS-TConsumer Durables2%19%

Source: IHS Markit

The third table identifies companies with the steepest drops in short selling. Those of note include: Mexico-based silver producer First Majestic Silver Corp., capital goods firm Badger Daylighting Ltd. and marijuana supplier Canopy Growth Corp.

Companies with biggest decreases in percentage of shares on loan

As of July 10, 2018

CompanyTickerSector% of shares on loanChange over month
Canadian Tire Corporation LtdCTC.A-TRetailing1%-54%
Thomson Reuters CorpTRI-TDiversified Financials1%-42%
Lucara Diamond CorpLUC-TMaterials2%-32%
Mag Silver CorpMAG-TMaterials3%-32%
First Majestic Silver CorpFR-TMaterials14%-30%
Gildan Activewear Inc.GIL-TConsumer Durable2%-30%
Husky Energy Inc.HSE-TEnergy1%-24%
Novagold Resources Inc.NG-TMaterials2%-24%
Meg Energy CorpMEG-TEnergy2%-22%
Dorel Industries Inc.DII.B-TConsumer Durables 5%-21%
Cameco CorpCCO-TEnergy3%-19%
Mullen Group LtdMTL-TEnergy3%-17%
Nevsun Resources LtdNSU-TMaterials2%-15%
TransAlta Renewables Inc.RNW-TUtilities1%-15%
Aphria Inc.APH-TPharmaceuticals8%-15%
Bombardier Inc.BBD.B-TCapital Goods1%-15%
Badger Daylighting Ltd.BAD-TCapital Goods22%-14%
Metro Inc.MRU-TFood Retailing2%-13%
Canopy Growth Corp.WEED-TPharmaceuticals8%-12%
Spin Master Corp.TOY-TConsumer Durable4%-10%

Source: IHS Markit

The fourth table lists the 20 Canadian companies with the highest cost to borrow shares. The cost to borrow is another way to gauge bearish sentiment. It is particularly useful when the number of shares available for borrowing is small and short sellers reveal their sentiment less through the number of shares they sell than by how high they bid up borrowing costs.

Concordia International Corp., a going concern attempting to transition to a new business model, tops the table once again, with an annualized cost to borrow above 100 per cent for the third month in a row. Mortgage lender Street Capital Group Inc. also remains near the top of the table as worries linger that Canadian house prices have risen to unsustainable levels.

The most expensive shares to borrow in Canada

As of July 10, 2018

Company TickerSectorCost to borrow (annualized)
Concordia International Corp.CXR-TPharma108.80%
Aeterna Zentaris Inc.AEZS-TPharma49.40%
Street Capital Group Inc.SCB-TMortgage41.80%
Advantage Lithium Corp.AAL-TLithium mining36.80%
Zargon Oil & Gas Ltd.ZAR-TOil & gas34.90%
Lithium Americas Corp.LAC-TLithium mining33.70%
Brookfield Property Partners.BPY.UN-TReal Estate33.00%
MCAN Mortgage Corp.MKP-TMortgages32.70%
Aurora Cannabis Inc. ACB.WT-TMarijuana32.20%
Minco Silver Corp.MSV-TSilver mining30.80%
Goldmoney Inc.XAU-TFinTech30.60%
Namaste Technologies Inc.N-TMarijuana28.60%
Wealth Minerals Ltd.WML-TMaterials27.30%
Imperial Metals Corp.III-TMining27.20%
Optiva Inc.OPT-TSoftware25.20%
Cruz Cobalt Corp.CUZ-TMining22.80%
Titan Medical Inc.TMD-TMarijuana22.30%
Emblem Corp.EMC-TMarijuana21.80%
Katanga Mining Ltd.KAT-TMining21.80%
Cannaroyalty Corp.CRZ-TMarijuana21.30%

One caveat worth mentioning is that using shares loaned out as a proxy for short sales may not always be entirely accurate when there is naked short selling (shares sold without first borrowing them). But this is frowned upon by regulators, so the extent shouldn’t be too large.

Another caveat is that a short position does not always signal a directional bet of the future course of a stock’s price. In some cases it may reflect an arbitrage operation aimed at scooping up profits from discrepancies that arise between the price of a stock and the price of a security convertible into the stock.

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