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 June 1, 2017

Last week saw the ASX200 hit a low just under 5700 before rallying back almost to 5800, ahead of a sharp plunge. We all know the old adage: Sell in June.

And to that end, the shorters were very busy last week, as is evidenced by the sea of red in the table below. What’s more, having shrunk to historically low levels earlier this year, the number of stocks carrying short positions of 10% or more has been steadily growing again of late, and last week grew by no less than a further five stocks.

Two of those stocks are JB Hi-Fi ((JBH)) and Harvey Norman ((HVN)), up from the 9% bracket, the issues for which I highlighted in last week’s Report (See: Amazon). Another up from the 9% bracket is Retail Food Group ((RFG)), which proceeded to plunge early this week on announced accounting changes.

Up from the 8% bracket is Select Harvests ((SHV)), which has been highlighted in recent reports. The almond producer has continued to downgrade crop estimations after a boom harvest resulted in plenty of shells but not so many nuts.

The interesting newcomer is Autosports Group ((ASG)), which has apparently leapt from less than 5% shorted to 14.9% shorted in a week. Could be a data blip, but see Movers & Shakers below.

The residential aged care providers Estia Health ((EHE)) and Japara Healthcare ((JHC)) are also on the move again, with Japara creeping to 8.3% from 7.7% and Estia jumping to 8.3% from 7.1%. This sector has been extensively covered in prior Reports, and risk largely boils down to possible regulation changes.

Lithium producer Galaxy Resources ((GXY)) has reappeared at 6.7% from sub-5% but given the stock is often among the biggest ASX200 movers each day, up and down, short position volatility is also a given.

Finally we see a new entrant into the 5% plus table in the form of Qube Holdings ((QUB)), at 6.1%, but the explanation for this move is straightforward. See below.

Weekly short positions as a percentage of market cap:

10%+

ORE    20.3
SYR    17.6
WSA   17.0
VOC   15.3
MYR   15.2
IGO     15.0
ASG    14.9
MYX   13.5
ACX   12.5
DMP   12.3
JBH     11.3
ISD     11.2
BAL    11.1
FLT     10.8
MTS    10.8
HVN   10.1
SHV    10.1
RFG    10.0

In: ASG, JBH, HVN, SHV, RFG                             

9.0-9.9%

AAD, NEC, SAR
 
In: NEC, SAR                        Out: JBH, HVN, RFG                                                                                   

8.0-8.9%

PRU, EHE, JHC, QIN, BKL

In: EHE, JHC, BKL               Out: SHV, NEC, SAR

7.0-7.9%

A2M, GTY, MND, OFX, NWS, CTD

In: OFX                      Out: EHE, JHC, BKL, RWC

6.0-6.9%

IPD, TPM, RWC, BDR, BEN, GXY, HSO, MYO, BGA, SGH, IFL, QUB, RIO, SEK

In: RWC, GXY, QUB                        Out: OFX, MTR

5.0-5.9%

BAP, CSV, MTR, KAR, SRX, NXT, AWC, OSH, PLS, AAC, CCP, AHG, WGX

In: MTR, CSV            , SRX, CCP, AHG, WGX                  Out: SUL

Movers and Shakers

If a stock’s short position leaps from oblivion to something like 14.9% I am immediately suspicious, having been caught out often enough before trying to offer a credible explanation when the following week’s numbers show it was all just an ASIC data blip. So I proceed here with caution.

There has been no new news from Autosports Group lately, no press releases, capital raising announcements or the like. Two FNArena database brokers cover the stock and they have not updated since the February result.

But auto dealers have indeed been in the spotlight of late, given the issue of declining sales, particularly in struggling Western Australia, exacerbated by a lack of offset in the east coast growth states, where tighter bank lending conditions are impacting on customer demand. Peer Automotive Holdings Group ((AHG)) recently downgraded guidance.

Auto Holdings moved up into the 5% shorted bracket last week. Parts retailer Bapcor ((BAP)) did the same the week before. So there is a theme here, however we also note Super Retail ((SUL)), which has auto as its main earnings stream, dropped out of the table last week and ARB Corp ((ARB)) is nowhere to be seen.

So we await next week’s data to see if Autosports’ number is real.

More straightforward is the leap to 6.1% from below 5% for logistics company Qube Holdings. Last week Qube announced a capital raising via a combination of placement and rights issue.

It is not a raising in desperation but a raising for growth, specifically for the company’s new Moorebank intermodal freight terminal. The fact the company wants to invest further has provided brokers with confidence in tenants being lured to the site.

A popular hedge fund trade is to short the stock and take up the discounted rights, hoping to lock in an arbitrage profit.

 
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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