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The Short Report

Australia | Mar 05 2015

This story features MYER HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: MYR

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:

Please note: The ASIC Short Report on the FNArena website now appears to be updated by the regulator.

Week ending February 26, 2015.

The week in question takes us up to all bar the last couple of days of the February reporting season. While short decreases were not nearly as dramatic in the week in there number as they were the week before, the bias very much remained to the short reduction side. Indeed, this week's table shows all green with the exception of only two stocks — Primary Health Care and Pacific Brands ((PBG)). Super Retail's was clearly the result that most caught the shorters out, as Super continues to slide down the table.

The biggest drop in shorts was recorded by Metcash, but despite a fall to 12.7% shorted from 15.8%, Metcash is still the second most shorted stock in the market. The gap is now ever wider to most shorted stock Myer ((MYR)), at 19.2%, which appears now to be well entrenched in pole position. Interestingly, pole position was for a very long time once held by Cochlear ((COH)), with shorts in the high teens of percent, but another fall in shorts last week has seen that stock now drop into the 7% bracket.

There were still two days to go of the result season and the last day saw once of the most dramatic result responses of all, that of Woolworths ((WOW)), which as of the week in question was sitting at 5.9% shorted. But it is worth noting in this Report that ahead of the February result season there were 49 stocks holding short positions of 5% or more, and as of this Report that number has been reduced to 36. There were seven stocks in the 10% plus bracket and seven in the 9-10% bracket pre-season, and now there are only three in each.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   19.2
MTS    12.7
FMG   10.5

No changes

9.0-9.9%

AGO, PRY, UGL

In: PRY                       Out: JBH, SUL

8.0-8.9%

MND, MIN, JBH, SGM, NXT, FLT, WHC, KAR, CDD, PBG

In: JBH, PBG            Out: PRY, COH

7.0-7.9%

ORI, SXY, ALQ, SUL, KCN, COH, JHC

In: SUL, COH                        Out: PBG

6.0-6.9%

BCI, CAB, ASL, RRL, DSH

Out: SGT, ARI

5.0-5.9%

MGX, WOW, ARI, NWH, MSB, MRM, NWS, TPI

In: ARI           Out: CRZ, VRT, DOW, VET
 

Movers and Shakers

Metcash ((MTS)) announced during the week in question it had acquired Southern Independent Liquor Group, pending SILG shareholder approval, which supplies 100 stores across Victoria and Tasmania. The announcement sparked a brief spike in the Metcash share price, which clearly involved short-covering. Metcash is still the number two most shorted stock in the market, but short positions have fallen 3.1ppt to 12.7% from 15.8%.

The week in question was an interesting one for Primary Health Care ((PRY)). The company posted a result broadly in line with forecasts, but under the new CEO Primary's accounting methodology has been changed after longstanding calls from the market the system was inaccurate. This resulted in a one-off earnings and valuation trim for the stock.

But having adjusted for the change early in the week, the market promptly sent PRY shares straight back up to where they had been, anticipating the government's killing off of any further co-payment thoughts. This jump aroused the shorters, who have been quietly increasing short positions in PRY for a while. Shorts rose 1.5ppt in the week to 9.8% from 8.3%.

A positive response to Super Retail's ((SUL)) earnings result have seen the shares perform strongly ever since, and a lot of that is down to short-covering. Super fell out of the 10% club the week of its result release with a better than 1ppt decrease, and last week Super shorts fell another 1.6ppt to 7.4% from 9.0%.
 

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

COH MTS MYR SUL WOW

For more info SHARE ANALYSIS: COH - COCHLEAR LIMITED

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

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

For more info SHARE ANALYSIS: WOW - WOOLWORTHS GROUP LIMITED