The Short Report

This story features METCASH LIMITED, and other companies. For more info SHARE ANALYSIS: MTS

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 October 1, 2015.

Last week saw the ASX200 break below the 5000 support level at the bottom of the recent range, drop to a new correction low, and sharply rebound back over 5000. The rebound has since continued and as I write, the index is around 5250, suggesting a confirmed breach of solid top-of-the-range resistance at 5200.

A retest of the previous low and bounce there from is technically very positive, as the subsequent rally confirms, although it would be a brave investor to suggest we’re now on our way back to 6000. We nevertheless did see some notable short-covering last week.

The stand-out is Myer, which saw a decent drop in shorts to 14.7%. Having for some time carried shorts in excess of 20%, we may assume some shorters saw the company’s rights issue as offering an opportunity to lock in long-running profits. Myer has now slipped to fourth most shorted stock, behind Metcash ((MTS)) and we have a new number two in Cabcharge, despite Cabcharge also seeing a drop in shorts last week.

Energy stocks have featured heavily in the rebound from the lows, and here we find Santos shorts being covered last week. Yet junior peer AWE continues to see its own shorts build.

Santos’ reduction sees that stock drop out of the 10% plus club, and big reductions in Primary Health Care, Super Retail and Slater & Gordon also see those names drop out.
 

Weekly short positions as a percentage of market cap:

10%+

MTS    21.9
CAB    15.2
ORI     15.0
MYR   14.7
MND   14.4
FLT     14.1
MIN    14.0
DSH    12.8
AWE   12.6
GEM   11.6
MRM  10.3
WOR   10.1

In: WOR         Out: SGH, PRY, JBH, STO, SUL, UGL

9.0-9.9%

CDD, GXL, JBH, AWC, SGH, UGL, PRY, STO
 
In: JBH, SGH, UGL, PRY, STO                   Out: WOR, SEK                                

8.0-8.9%

NEC, SEK, WOW, FMG, MGX, ARI, PRG

In: SEK, ARI, PRG               

7.0-7.9%

KAR, MSB, ALQ, SUL, VOC, WSA, KCN

In: SUL, VOC, NWH, WSA             Out: ARI, GWA, IVC, PDN

6.0-6.9%

WHC, GWA, BKN, NVT, PDN, RFG, IVC, NWS, TFC

In: GWA, PDN, IVC             Out: PRG, NWH, VOC, WSA, SGN, SPO, JHC, SGM, NXT

5.0-5.9%

SGM, SGN, JHC, AAD, NXT, RRL, SXY, DLS, SWM, SVW, CVO, FXL, CQR, CAR, IMF, OFX, AAC

In: SGN, SGM, JHC, NXT, SVW, OFX      

Out: WSA, NXT, VOC, NST, IFL, TEN, ILU, VRT

Movers and Shakers

Having for a long time been sinking into the you know what, Myer ((MYR)) last month announced a change in strategy and a large rights issue to prop up the balance sheet. While hardly any retail investors felt inclined to take up the offer, the institutional allocation was oversubscribed. Subsequent share price dilution appears to have prompted some potentially longstanding short positions to be closed for a healthy profit.

Myer shorts fell 1.9 percentage points to 14.7% from 18.6%, relegating Myer to fourth most shorted stock on the market. For quite some time Myer had been number one until recently.

Cabcharge ((CAB)) can’t take a trick. The uber-threatened taxi company saw its shorts drop 1.4ppt to 15.2% last week yet the stock jumped to second most shorted from third thanks to Myer.

There is much speculation around the potential for Santos ((STO)) to follow Myer down the capital raising path, but a bounce in the oil price and solid bargain hunting in beaten-down energy names has apparently prompted some short-covering. After a brief stint, Santos fell out of the 10% plus club last week with a 1.2ppt reduction to 9.4% from 10.6%.

Yet junior energy peer AWE ((AWE)) saw its shorts rise 2.1ppt last week to 12.5% from 10.6%. It’s quite possible that AWE shorts represent a pairs trade in the junior energy sector, against the likes of the small Cooper Basin operators who are all under constant M&A speculation.

There has been no new news forthcoming from Primary Health Care recently but after a decent time spent in the 10% plus club, Primary dropped into the 9% bracket with a 2.2ppt reduction to 9.5% last week. Yet Primary has not been a sought after stock in this current rebound.

Slater & Gordon ((SGH)) was another stock to exit the 10% plus club last week, with its shorts plunging 6.6ppt to 9.7% from 16.3% last week. The company’s publication of audited accounts and a greater level of disclosure have gone a long way to alleviating fraud fears surrounding the lawyer.

While S&G dropped out of the 10% plus bracket into the 9% bracket, Super Retail’s plunge all the way down to the 7% bracket last week looks even more spectacular. Except it only took a 3.0ppt reduction to 7.5% from 10.5% to achieve. Like Primary, there has been no new news for Super of late and the stock has done nothing more spectacular than join in the rebound.

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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