The Short Report

This story features TPG TELECOM LIMITED. For more info SHARE ANALYSIS: TPG

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 April 27, 2017

Last week saw the ASX200 appear determined to reach the 6000 mark so many in the market are targeting, only to falter above 5950.

While there are several red and green entries in the table below, it was a not a week featuring a lot in the way of short movements, rather minor bracket creep. There were, nevertheless, two exceptions.

Shorts in Vocus Communications ((VOC)) rose to 14.4% from 12.6% the week before, ahead of this week’s shareholder exodus which led to a -27% share price fall.

Troubled Ardent Leisure ((AAD)) has become a debutant in the elite 10% plus shorted club, with shorts rising to 10.4% from 8.4%.
 

Weekly short positions as a percentage of market cap:

10%+

ORE    21.8
SYR    17.1
WSA   16.8
ACX   14.8
VOC   14.4
MYR   12.4
QIN     12.1
NEC    11.1
DMP   10.8
MYX   10.8
AAD   10.4
IGO     10.2

In: IGO, AAD                       

9.0-9.9%

ISD, MTS, HVN, OFX,
 
In: HVN          Out: IGO, ILU                                                          

8.0-8.9%

FLT, BAL, GTY

In: GTY          Out: AAD, HVN

7.0-7.9%

JHC, RFG, RWC, ILU, NXT, PRU, EHE, NWS, MND

In: ILU            Out: GTY, WOR       

6.0-6.9%

JBH, IPD, SAR, WOR, BKL, CSV, HSO, IFL, SGH, SEK, MTR, PDN, BGA, A2M, BDR, MYO

In: WOR, SAR, BDR             Out: RIO

5.0-5.9%

AAC, KAR, CTD, RIO, GXL, SUL, BEN, OSH, AWC, IVC, CCP, SHV, CSR

In: RIO, CCP, SHV               Out: BDR, SAR, TPM, AHG, LNG

Movers and Shakers

I noted last week TPG Telecom ((TPG)) had appeared in the bottom of the table after a week of upheaval in the telco sector following TPG’s acquisition of spectrum to become the country’s fourth mobile operator, and subsequent capital raising. Included in the upheaval was Vocus Communications ((VOC)), which aside from the TPG factor has been having difficulty bedding down its iiNet and Amcom acquisitions.

Vocus shorts rose to 12.6% from 11.3% that week, and last week rose further to 14.4%. This week the company issued yet another profit warning – one too many for long suffering shareholders. The share price fell -27% as the competence of management came into question. The stock is now trading around $2.40, having traded above $9.00 only a year ago.

It will be interesting to see if there is any change in short positions in next week’s Report. The -27% fall suggests the shorters are staying in. Meanwhile, no less than six of the eight major brokers in the FNArena database have downgraded their ratings for Vocus in response. I do not recall such a percentage ever being witnessed before on one day. Five of those were from prior Buy ratings.

Only one was to Sell, with the remainder now on Hold ratings given the share price fall.

As an aside, TPG slipped back off the 5% plus table last week.

The issues plaguing Ardent Leisure are well known – the Dreamworld tragedy, Cyclone Debbie, and more recently, disappointing numbers out of the fund’s flagship Main Event business in the US. But having dropped as low as $1.55 in March, Ardent shares have since been making a comeback, today trading at $2.10.

But the shorters aren’t buying it, pardon the tautology. They used the opportunity last week to increase positions to 10.4% from 8.4%, taking Ardent into the 10% plus club for the first time.

It’s starting to get a bit crowded in the club.

 
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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