article 3 months old

The Short Report

Australia | Jun 23 2016

This story features WORLEY LIMITED, and other companies. For more info SHARE ANALYSIS: WOR

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 June 16, 2016

Last week’s movement in the ASX200 was completed dominated by a Brexit poll that suggested the “go” vote was in the lead. Not only did this cause a sudden surge of global market fear, for many it actually drew attention to the upcoming referendum for the first time. The ASX200 fell from 5350 on its way to 5150.

This week has seen “stay” odds improving, and hence a rebound to the middle ground around 5250.

In last week’s Report, I did not attempt to provide a reason why WorleyParsons ((WOR)) shorts fell 3.3 percentage points to 12.6% the week before, Monadelphous ((MND)) shorts fell 2.4ppt to 8.4% and MMA Offshore ((MRM)) shorts fell 2.6ppt to 5.2% despite no new news from any of them.

Last week Worley shorts rose back to 14.5% and Mona shorts rose back to 10.6%. MMA shorts remain at 5.6%.

The irony is MMA is the only stock of the three to have provided any new news – the company’s trading update last week was typically dour. Macquarie downgraded to Underperform.

Other than these E&C sector anomalies, movements last week as noted in the table below represent bracket creep only, with an emphasis on increasing positions as the market fell. There was nevertheless one exception, being MYOB Group, which had just slipped out of the 5% bracket the week before but was back last week at 7.2% shorted.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.5
WOR   14.5
MTS    14.1
MND   10.6
FLT     10.3

In: MND         Out: ORI

9.0-9.9%

ORI, IGO, BAL
 
In: ORI, BAL                                    

8.0-8.9%

OSH, AWC, CAB, IFL, JBH, BEN, WSA

In: BEN, WSA           Out: MND, BAL, SHV                     

7.0-7.9%

CVO, PRY, WOW, IVC, NWS, MYO, SHV

In: SHV, MYO                       Out: BEN, WSA, AAC, AWE

6.0-6.9%

AWE, SGH, NEC, ISD, CTD, AAC, AHY, GUD, DOW, WHC

In: AWE, AAC, DOW, WHC                      

5.0-5.9%

SPO, MRM, TFC, QUB, SEK, SGM, RFG, MSB, FMG, JHC, KAR

In: QUB, SGM, MSB, FMG, JHC, KAR                  Out: DOW, WHC , BKL

Movers and Shakers

Accounting software company MYOB Group ((MYO)) only recently returned to ASX listing after a period of privatisation. While most readers might immediately associate MYOB with providing software to assist in filling out a BAS, these days the company’s focal point is a migration of clients to the cloud.

While the cloud story is becoming ever a bigger one, across various applications, the accounting/cloud peer group on the ASX is only small, with Reckon ((RKN)) and Xero ((XRO)) the other players. This leaves any of the three open to pairs trading  — playing long one and short another – which may explain why MYO shorts jumped from below 5% to 7.2% last week.

Or it might be a naked short, given the stock did rally strongly over the week following a positive endorsement from Ord Minnett, who has a Buy rating and a fresh $4.30 target.
 

ASX20 Short Positions (%)

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Share on FacebookTweet about this on TwitterShare on LinkedIn

Click to view our Glossary of Financial Terms

CHARTS

MND MRM RKN WOR XRO

For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED

For more info SHARE ANALYSIS: MRM - MMA OFFSHORE LIMITED

For more info SHARE ANALYSIS: RKN - RECKON LIMITED

For more info SHARE ANALYSIS: WOR - WORLEY LIMITED

For more info SHARE ANALYSIS: XRO - XERO LIMITED