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The Short Report

Weekly Reports | Feb 02 2017

This story features SUPER RETAIL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: SUL

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.

Summary:

Week ending January 26, 2017

Last week saw the ASX200 regain the 5700 mark before dropping back once more, in a week punctuated by the Australia Day holiday.

In last week’s Report I voiced my suspicions that a jump to 13.8% shorted for Super Retail Group ((SUL)) from under 5% prior could well be a blip in the ASIC data and not accurate, as often occurs, given no new news had emanated from the company.

Last week Super shorts were recorded as 4.8%.

Stop Press: After a seeming eternity, Metcash ((MTS)) has dropped out of the elite 10% plus shorted club. Only just, to 9.7%, but the supermarket retailer/wholesaler had been an incumbent at the top of the table for years, and often number one most shorted, so it’s worth noting. The company had been seen as loser in the Woolies/Coles price war and from the incursion of Aldi, but since the acquisition of Home Hardware the market has taken a brighter view of the stock.

As of last week, Aconex ((ACX)) was second most shorted stock to Myer by a mere 0.1ppt at 16.0%. After issuing a profit warning, this week saw Aconex shares plunge -45% in one day.

Sirtex Medical was another stock to suffer a share price drop last week, after receiving a thumbs up for its SIR-spheres product from the US. But immediately the share price recovered. Last week Sirtex shorts rose to 6.2%

REA Group ((REA)) had jumped into the table at 6.1% shorted from under 5% the week prior, but last week jumped back out again. REA has a track record of beating earnings forecasts, and will report later this month.

Nickel miner Western Areas has been jettisoned by investors since the lifting of the Indonesian nickel ban. Now quite a familiar member of the 10% plus shorted club, Western Areas has seen at least some profits taken with a fall to 11.1% from 12.1%.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.1
ACX   16.0
TFC     11.6
VOC   11.1
WSA   11.1
VOC   11.8
NEC    10.5

Out: MTS

9.0-9.9%

MTS, WOR, SYR
 
In: MTS          

8.0-8.9%

NWS, MYX, HSO, BAL, FLT, NXT

In: BAL, NXT                                                           

7.0-7.9%

MND, DOW, ISD, ORE, RWC, MYO, EHE, AWC, BEN, MTR

In: RWC, BEN, MTR             Out: BAL, NXT

6.0-6.9%

IVC, SGH, BGA, GTY, JHC, PRU, SRX, SEK, CSV

In: BGA, SRX                        Out: BEN, RWC, MTR, PDN, REA, CTD, BKL

5.0-5.9%

AAD, OFX, RIO, MSB, IFL, GXL, BKL, OSH, CTD, WOW, A2M, CSR, GEM, TGR, PDN, AWE, KAR, ILU, IGO, AAC, IPH, CAB

In: BKL, CTD, PDN, GXL, TGR, IPH                     Out: BGA, SRX

Movers and Shakers

Sirtex Medical ((SRX)) last week received a recommendation from the US National Comprehensive Cancer Network for its SIR-spheres product in treating colorectal cancer. Sirtex’ shares promptly opened -7% lower.

Did someone read the press release incorrectly? By day’s end the share price was almost back where it began. Or maybe it was a so-called “fat finger”, where a trader accidently enters the wrong price into the online system. What we do know is that last week, shorts in Sirtex rose to 6.2% from 5.1% the week before.

The share price of nickel miner Western Areas ((WSA)) is one of the most volatile on the market, reflecting the nickel price status of the most volatile of the base metals. But the trend for the miner had been up in 2016 thanks to the Indonesian ban on nickel ore exports, which led analysts to believe the global nickel surplus would be cleared.

The nickel price was further aided by increased Chinese stainless steel demand, and by another export ban – this time from the Philippines in an environmental crackdown.

The Philippines’ environmental audit of nickel mines has been a slow one, but the government is soon to release its list of perpetrators. But Indonesia has since announced a qualified lifting of its own ban, leading mining analysts to slash the earnings forecasts of nickel miners, despite being as yet unsure as to the extent of the impact.

Having long sat at more than 10% shorted, Western Areas has seen at least some profit-taking. Last week shorts fell to 11.1% from 12.1%.

 

 

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position "naked" given offsetting positions held elsewhere. Whatever balance of percentages truly is a "short" position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, "short covering" may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to "strip out" the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option ("buy-write") position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a "long" position in that stock.

Another popular trading strategy is that of "pairs trading" in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a "net neutral" market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are "short". Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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CHARTS

MTS REA SRX SUL

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: REA - REA GROUP LIMITED

For more info SHARE ANALYSIS: SRX - SIERRA RUTILE HOLDINGS LIMITED

For more info SHARE ANALYSIS: SUL - SUPER RETAIL GROUP LIMITED