Short-selling pressure eases on NRW Holdings

The mining services company is one of the most shorted stocks on the market, but its new contract is a signal its fortunes may be turning around.

It may not surprise you that eight out of the 10 stocks that have suffered the biggest increase in short-selling interest since the start of the year are mining or mining services companies, but sentiment towards a few of these embattled names may be turning.

NRW Holdings (NWH) is the most shorted stock in the Uncapped 100 with 8.7% of its total issued stock short sold as of a week ago, according to the latest Australian Securities & Investments Commission’s (ASIC) data.

The engineering contractor also holds the dubious honour of being the second largest upswing in short-selling interest of all listed stocks on the ASX since the start of the calendar year when only 0.9% of its shares were short sold.

Short-selling is the process where an investor borrows a stock to sell on-market with the aim of buying it back at a lower price at a later date to profit from the difference.

However, short-selling interest has actually declined by close to one percentage point over the past month and this morning’s news that it had picked up a $31 million contract from BHP Billiton is likely to bolster confidence towards the stock.

The dollar value is relatively immaterial given that NWH is expected to pull in $1.1 billion in revenue in 2013-14, but the contract award could go some ways to easing fears that its pipeline of projects is quickly drying up in the current environment.

The rebound in commodity prices and share prices of mining stocks is also supportive, and could force more short-sellers to exit their positions in the coming weeks.

The stock that experienced the biggest rise in short-selling interest since the start of 2013 is drilling services company Boart Longyear, but short-selling has also trended down recently with 9.2% of its shares short sold compared with 10.9% a month ago.

NRW's share price lifted by 2% to $1.02 in morning trade, but gave back those gains by lunch.

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