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The Short Report

Weekly Reports | May 18 2017

This story features PILBARA MINERALS LIMITED, and other companies. For more info SHARE ANALYSIS: PLS

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 May 11, 2017

Last week saw the ASX200 chop around before ultimately sliding post-budget on the back of tax-hit banks. That took us back under 5900, while Trump has now taken us back under 5800, with 5700 under threat.

There was a lot of action at the top of the table last week, which is becoming fairly standard. Most movements involve familiar themes.

The lithium miners remain popular shorts, with Orocobre ((ORE)) last week further cementing top spot in moving to 22.4% shorted from 21.3%, while peer Galaxy Resources ((GXY)) has also jumped into the table at 6.3% from under 5% prior. Pilbara Minerals ((PLS)) debuted last week at 5.1% shorted.

(See today’s story Interest In Lithium Charging Ahead)

The story is not improving for the nickel miners, with this week seeing downgrades to nickel price forecasts from brokers. Western Areas ((WSA)) remains second most shorted stock, moving to 17.8% from 16.3%, while Independence Group ((IGO)) shorts increased to 11.9% from 10.8%.

(See today’s story Bearish Outlook For Nickel)

The Amazon story continues to play out. Myer ((MYR)) shorts increased to 13.0% from 12.0%, Harvey Norman ((HVN)) ticked up to 9.7% from 9.4%, and JB Hi-fi ((JBH)) rose to 8.4% from 7.7%.

Shorts in troubled sandalwood producer Quintis ((QIN)) dropped to 10.1% from 11.2% on profit-taking ahead of the company’s voluntary trading halt, pending reassessment of the business.

Speaking of troubled businesses, one profit warning too many saw a mass exodus from Vocus Communications ((VOC)) a couple of weeks ago shorts dropped to 12.9% from 14.4% that week on profit-taking. But last week the shorts were rebuilding positions, to 16.0%, sensing further problems.

On the subject of telcos, it appeared the shorters were going to be satisfied with their profits in TPG Telecom ((TPM)), post the company’s announced plans to become Australia’s fourth mobile operator, but similarly, positions began to rebuild. Last week saw TPG shorts rise to 6.6% from 5.2%.

All of the above are ostensibly old stories. More recent developments are evident in Flight centre’s ((FLT)) return to the 10% shorted club with a move last week to 10.4% from 9.2%, and a drop down in the table to 6.0% from 7.1% for Estia Health ((EHE)).

Weekly short positions as a percentage of market cap:

10%+

ORE    22.4
WSA   17.8
SYR    16.7
VOC   16.0
ACX   13.4
MYR   13.0
MYX   12.5
IGO     11.9
BAL    11.5
ISD     10.9
NEC    10.8
DMP   10.8
FLT     10.4
QIN     10.1

In: FLT            Out: AAD      

9.0-9.9%

HVN, MTS, AAD
 
In: AAD          Out: FLT                                                        

8.0-8.9%

RFG, JBH, OFX, PRU, JHC

In: JBH, PRU, JHC               

7.0-7.9%

GTY, SAR, SHV, MND, RWC, A2M, BKL, NWS

Out: JBH, PRU, JHC, EHE

6.0-6.9%

IPD, BDR, CTD, NXT, SEK, TPM, IFL, HSO, CSV, SGH, GXY, MYO, MTR, PDN, BEN, WOR, EHE, BGA

In: TPM, GXY, BEN, EHE               Out: ILU

5.0-5.9%

RIO, KAR, AWC, AAC, OSH, GXL, CCP, ILU, MSB, PLS

In: ILU, PLS               Out: BEN, TPM, SUL, CSR

Movers and Shakers

I don’t know about you, but I’m pretty sick and tired of relentless ads on television for flight and hotel booking service search sites. These sites search online travel agencies, of which there appear to be many. Such abundance would suggest that alongside museum exhibits such as printed newspapers, free-to-air television and bricks & mortar department stores, we’ll soon see bricks & mortar travel agencies.

This is the structural dilemma facing once dominant listed travel agency Flight Centre ((FLT)). The company is expanding its digital offering but like so many old world incumbents, has been slow to the game. Flight Centre has been working hard and brokers acknowledge a pick-up in market share, but there are further issues at play.

Airfare prices are declining. This is an industry-wide issue, impacting on travel agency margins, and Flight Centre is attempting to counter the trend with cost cutting. Costs in the ether of online business are obviously much lower. The stock did sit for some time in the 10% plus shorted table but more recently had drifted out again. But the game is back on, with shorts rising last week to 10.4% from 9.2%.

Residential aged care providers are highly beholden to government policy changes with regard subsidies provided through the Aged Care Funding Instrument. Last year saw listed stocks in the sector initially rally hard on the ageing population theme before crashing on regulatory impacts.

They have since recovered following ratification of policy that was not as onerous as feared, but there was always a risk of something sinister emerging from last week’s federal budget. As it was, nothing did.

Shorts in Estia Health fell to 6.0% last week from 7.1%. However we can’t isolate the move as a sector response to the budget, given shorts in peer Japara Healthcare ((JHC)) rose to 8.1% from 7.8%. There is possibly a pairs trade at play. FNArena database brokers don’t provide much in the way of clarity, given brokers covering the stocks have given Estia two Buys, one Hold and one Sell and Japara one of each.

 
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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CHARTS

EHE FLT HVN IGO JBH MYR PLS

For more info SHARE ANALYSIS: EHE - ESTIA HEALTH LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED

For more info SHARE ANALYSIS: IGO - IGO LIMITED

For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

For more info SHARE ANALYSIS: PLS - PILBARA MINERALS LIMITED