The Short Report

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

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 29, 2015.

Last week saw the ASX200 run up to 5350 on the promise of extended ECB QE before heading south in a hurry back through support at 5200, largely on domestic micro issues. Big profit warnings from Dick Smith and Woolies sent all electronics retailers and supermarkets into a spin, while slightly disappointing bank profit results sent that sector down once more.

A subsequent 30% share price plunge for Dick Smith did nothing to prompt shorters into taking profits, given positions increased during the week. Sector implications encouraged an increase in shorts for rival JB Hi-Fi ((JBH)).

Woolworths ((WOW)) saw a 10% initial price plunge but its shorts remain stable at around 9%. But soggy bank outlooks appeared to spill over to smaller Bank of Queensland, which saw its shorts jump last week.

Drillsearch flew off our 5% plus table from the 6% bracket last week following an announced merger with Beach Energy.

And finally, here’s a quote from this Report last week:

“The big mover was nevertheless funds manager Perpetual, which has suddenly appeared in the 9% bracket having not been seen on the 5% plus table previously. This sort of sudden and sizeable move always makes me suspicious of a potential blip in ASIC’s reporting, so we will need to wait until next week to see whether this move is confirmed.”

Sure enough, Perpetual ((PPT)) is nowhere to be seen in the 5% plus table this week.

Weekly short positions as a percentage of market cap:

10%+

MTS    22.0
MYR   19.5
SGH    16.0
MND   15.7
DSH    14.9
ORI     14.8
FLT     14.0
MIN    13.7
PRY    13.5
CAB    13.0
JBH     12.5
AWE   12.2
GEM   12.2
GXL    11.3
WOR   10.6
SUL    10.3

Out: SEK       

9.0-9.9%

SEK, MRM, NEC, AWC, WOW, WSA
 
In: SEK, WSA                        Out: PPT, ARI, VOC            

8.0-8.9%

STO, CDD, ARI, IVC, MGX, UGL, VOC, FMG

In: ARI, VOC             Out: WSA

7.0-7.9%

WHC, ALQ, MSB, RFG, SPO, PDN, KAR

In: SPO, PDN            

6.0-6.9%

TFC, NVT, NWH, BOQ, KCN, BKN, GWA, DLS, SVW

In: TFC, BOQ             Out: SPO, PDN, GWA, DLS, SVW

5.0-5.9%

SVW, GWA, NWS, CAR, SXY, AAC, IFL, SWM, TEN, SGM, NXT, ILU, ORE, SGN, VRT, SYR, IMF

In: SVW, GWA, ORE                        Out: TFC, BOQ, OFX, CVO, AAD, JHC, CQR

Movers and Shakers

Dick Smith ((DSH)) provided a September quarter sales update last week which was actually quite positive. But the electronics retailer also admitted that sales suddenly collapsed in October, which was put down to poor marketing decisions. With Christmas approaching, the market responded by trashing the stock over 30%.

Which one might assume would prompt shorters who have held big positions in Dick for a while to take the money and run. But no. Dick shorts increased by 1.1 percentage points last week to 14.9% from 13.8%. The shorters are going in for the kill, a la Myer and Metcash.

Bank of Queensland ((BOQ)) posted an FY15 earnings beat early in October and the shares enjoyed some upside, but it appears the smaller regional has been caught up in general outlook concerns for the Big Four. BOQ snuck into our 5% plus table the week before last and last week saw a 1.4ppt short increase to 6.6% from 5.2%.

Last week saw the announcement of a proposed merger between junior Cooper Basin oil & gas peers Beach Energy ((BPT)) and Drillsearch ((DLS)). The week before last, shorters had built up positions in Drillsearch to 6.2% despite the fact such a merger among Cooper players small and/or large has been anticipated for probably about a year now.

Well they were caught out, and no doubt contributed to a sharp rally for Drillsearch following the announcement. The stock no longer appears on our 5% plus table.

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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