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The Short Report

Weekly Reports | Aug 17 2017

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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 August 10, 2017

Last week the ASX200 head back to the top of the range ahead of the North Korea sell-off.

The red theme of the prior Report has now shifted to green as the local reporting season starts in earnest. A lot more companies saw short position reductions last week, with only a couple of increases evident in terms of shifting down and up percentage brackets.

Also notable is that while the constituents of the 10% plus shorted club did not change last week, there were some notable short reductions.

Orocobre ((ORE)) fell to 17.5% from 19.3%. Western Areas ((WSA)) fell to 17.0% from 20.7% on the nickel price rally. This leaves Syrah Resources ((SYR)) the new number one, with an increase to 19.0% from 18.4%.

JB Hi-Fi ((JBH)), Metcash ((MTS)), Domino’s Pizza ((DMP)), Mayne Pharma ((MYX)) and Aconex ((ACX)) all saw short position reductions in excess of one percentage point.

Of the above group, only Mayne Pharma reported last week, doing so ahead of prior schedule in order, one presumes, to get the bad news out of the way. Despite the shares being hammered in response, a 1.4ppt drop in shorts on presumed profit-taking still leaves the stock 10.3% shorted.

The only other stock to see a short position change of more than 1ppt last week was Japara Healthcare ((JHC)), falling to 7.7% from 9.7% despite no new news and little share price movement.

We note the share price of Bellamy’s Australia ((BAL)) surged last week following relieving news regarding Chinese registration. The stock has dropped off the 5% plus shorted table.

The stock to watch in next week’s Report will be Domino’s, after that company saw its shares plunge -20% post result.

Weekly short positions as a percentage of market cap:

10%+

SYR    19.0
ORE    17.5
WSA   17.0
MYR   16.6
IGO     13.2
RFG    11.7
JBH     11.7
AAD   11.5
ISD     11.3
MTS    10.6
DMP   10.4
SHV    10.3
MYX   10.3
HVN   10.2
ACX   10.0

No changes                            

9.0-9.9%

GXY, GTY, FLT
 
Out: JHC, AHG                                                                                                         

8.0-8.9%

A2M, NXT, AHG, QIN, HSO, CTD

In: AHG, QIN                        Out: APO, BKL, NEC

7.0-7.9%

APO, BEN, JHC, BKL, RIO, NEC, RWC, VRT

In: JHC, APO, BKL, NEC, VRT                   Out: QIN, TPM

6.0-6.9%

IPD, TPM, NWS, AYS, NSR, PRU, OSH, EHE, OFX, MND, SEK, CCP

In: TPM                       Out: VRT, BAP, SAR, VOC

5.0-5.9%

BAP, GEM, GXL, AAC, GMA, VOC, SAR, AWC, PPT, BGA, DCN, CSV, AWE, KAR, IFL

In: BAP, VOC, SAR              Out: BAL, MSB, RCG, CSR

Movers and Shakers

A major part of Mayne Pharma’s business is generic drug manufacture and distribution in the US, which is a shame given the company’s earnings result showed other divisions performing well.

The US generic drug industry is in disarray. A bad twelve months for the US drug industry began with both presidential candidates vowing to address the issue of drug overpricing. With regard generic drugs, they needn’t have bothered. Competition and oversupply has meant drug prices have tumbled and continue to do so. One by one, during the US results season now all but complete, generic drug manufacturers have recounted their tales of woe.

Mayne’s share price has plunged over -60% during the period. Last week the company brought forward its result release – a miss – to coincide with a trading update and further guidance downgrade. Where the selling ends is anyone’s guess given expectations the trend in the US is not going to reverse anytime soon.

The shorters are, for the most part, hanging in there.

 
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

DMP JBH MTS MYX SYR

For more info SHARE ANALYSIS: DMP - DOMINO'S PIZZA ENTERPRISES LIMITED

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

For more info SHARE ANALYSIS: MTS - METCASH LIMITED

For more info SHARE ANALYSIS: MYX - MAYNE PHARMA GROUP LIMITED

For more info SHARE ANALYSIS: SYR - SYRAH RESOURCES LIMITED