The Short Report

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:

Week ending February 16, 2017

Last week saw the ASX200 reach the 5800 level and proceed to consolidate. Over the week the local earnings season began to ramp up. The end result of that is a sea of red and green in the table below, clearly influenced by earnings season positioning given little in the way of macro drivers.

There are some interesting moves up and down amongst companies that had either reported by the time the latest ASIC data were published or reported this week, with often material responses. There are too many to highlight among those stocks seeing a change in short position of less than one percentage point. Please refer to the table.

We might note, nonetheless, that short positions at the very top of the table notably increased (albeit less than 1ppt), specifically those of Myer ((MYR)), Aconex ((ACX)), Western Areas ((WSA)) and TFS Corp ((TFC)). Aconex and WSA reported this week.

Four stocks posted changes in excess of 1ppt.

Lithium miner Orecobre ((ORE)) is a stock which share price-wise is about as volatile as the metal it mines – lithium being the most volatile of all metals. Two weeks ago Orocobre shorts sat at 8.0% and last week the stock was shorted by less than 5%, meaning not appearing on our table.

The stock price has not moved that much of late and the company doesn’t report until early next month. This is one I will reserve judgement on as it may be yet another ASIC data blip.

More readily explained are a 3.2ppt jump in Bega Cheese shorts to 9.5% and a 2.0ppt jump in Domino’s Pizza ((DMP)) shorts to 7.6%, both having posted results.

Rio Tinto ((RIO)) posted a result largely in line with forecasts but its shorts have risen 1.5ppt to 6.6%.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.5
ACX   16.2
WSA   13.4
TFC     12.4
VOC   11.4
NEC    10.9
WOR   10.4
SYR    10.2
MTS    10.1

In: SYR, MTS             Out: MYX

9.0-9.9%

MYX, BGA
 
In: MYX, BGA          Out: SYR, MTS, NWS                      

8.0-8.9%

OFX, MND, NWS, BAL, HSO, FLT, ISD, DOW

In: NWS, BAL, HSO             Out: ISD, DOW                                

7.0-7.9%

DOW, ISD, NXT, DMP, RWC, BEN, EHE, GTY, MTR

In: DOW, ISD, DMP, MTR               Out: BAL, HSO, ORE

6.0-6.9%

IGO, PRU, AAD, SGH, SRX, RIO, IVC, MYO, TGR, PDN, SEK, AWC, IPD

In: IGO, RIO, PDN, IPD                   Out: BGA, MTR, CSR, CSV, IFL

5.0-5.9%

CSV, IFL, ILU, IPH, A2M, MSB, GXL, OSH, GEM, CSR, CTD, AAC, KAR, WOW, GMA, SUL

In: CSV, IFL, CSR, SUL                   Out: DMP, PDN, IGO, IPD, RIO, JHC, CLH, AHG

Movers and Shakers

Late 2016 and early 2017 have seen a litany of high growth, high PE stocks falling spectacularly to earth from priced-to-perfection levels.

Bega Cheese ((BGA)) has been one such company, originally taking off in 2015 when the Chinese discovered cheese before the Bega decided to also jump on the infant formula bandwagon, another China-inspired growth story. The latter hasn’t gone so well, just as it hasn’t for Bellamy’s Australia ((BAL)), which is 8.1% shorted. Bega posted a profit warning in November.

Bega posted a well received result this week, but last week it would appear shorters were expecting the opposite. Shorts rose to 9.5% from 6.3%.

For so long Domino’s Pizza ((DMP)) was a can-do-no-wrong story, constantly priced for perfection and constantly living up to such expectations with consecutive results. But one cannot continue to outdo perfection forever. From late last year Domino’s was caught up in the investor shift out of high growth small caps and into beaten-down large caps such as the miners and banks.

This year the company has been caught up in a wage underpayment scandal, a la 7/11. Last week the company’s earnings result disappointed. Last week Domino’s shorts rose to 7.6% from 5.6%.

Shorts in Rio Tinto ((RIO)) last week rose to 6.6% from 5.1%. Rio is only one of two ASX20 stocks shorted 5% or more, the other being Woolworths ((WOW)) on 5.2%. The next most shorted Top 20 stock is Commonwealth Bank ((CBA)) on 2.2%.

While a case can be made for “naked” shorts in Woolworths it is more likely this is a long/short sector play with Coles, meaning Wesfarmers ((WES)), being the “long”. Wesfarmers is only shorted 1.1%.

BHP Billiton ((BHP)) is only shorted 1.7%. Again, Rio shorts likely reflect this often popular long/short play.
 

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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