The Short Report

This story features SUPER RETAIL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: SUL

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 October 5, 2017

Last week saw the ASX200 rally off support at 5650 before dropping straight back down again.

In last week’s Report I noted that the prior couple of weeks had seen a notable reduction in stocks carrying short positions of 5% or more. Well last week the trend reversed, with five stocks joining the gang. Of the five, all bar one are making returns.

The notable returns are Super Retail ((SUL)), Whitehaven Coal ((WHC)) and ASX Top 20 constituent Woolworths ((WOW)). The notable newbie is also a Top 20 constituent – Westfield Corp ((WFD)).

There were only two moves on the table of more than one percentage point last week, both involving stories this Report has covered often enough and/or recently. They were nickel and gold miner Independence Group ((IGO)), which retained second most shorted position with an increase to 18.5% from 16.8%, and hospital operator Healthscope ((HSO)), which continues its steady climb to the top in rising to 13.4% from 12.4%.

One member of the elite 10% plus shorted club we should keep an eye on for next week’s Report is Select Harvests ((SHV)), which remained steady on 13.7% shorted last week. This week the almond producer rejected a takeover offer from an Abu Dhabi investment company and the share price rallied 25%, likely supported by short-covering.

Weekly short positions as a percentage of market cap:

10%+

SYR    19.8
IGO     18.5
DMP   15.1
WSA   15.0
ORE    14.8
JBH     14.7
SHV    13.7
HSO    13.4
RFG    13.3
MYR   12.1
AAD   11.9
ACX   11.6
GXY   11.2
APO    10.8
HVN   10.5

No changes                

9.0-9.9%

MTS, RIO, MYX
 
No changes                                                                                        

8.0-8.9%

NXT, ISD, GTY, QIN, NWS

In: NWS

7.0-7.9%

AHG, FLT, SAR, VOC, BKL, TPM, SEK

In: SAR, TPM, SEK               Out: NWS

6.0-6.9%

HT1, JHC, NSR, MND, SDA, AAC, GXL, BAP, BEN, IPD, NEC, PRU, TAH

Out: SAR, TPM, SEK, PRU, TAH

5.0-5.9%

GMA, PRU, ING, TAH, KAR, CSR, BAL, SUL, QUB, WHC , OFX, IPH, WOW, BWX

In: PRU, TAH, SUL, WHC, IPH, WOW, BWX

                       
Movers and Shakers

It is probably no surprise to see Super Retail back among the 5% plus shorted group given from a general retail perspective it is as Amazon-threatened as the likes of Myer ((MYR)), JB Hi-Fi ((JBH)) and Harvey Norman ((HVN)), all of which are more than 10% shorted, and from an auto-specialist point of view, Automotive Holdings ((AHG)) and Bapcor ((BAP)), further down the table.

Woolworths has been out of the table for some time but has merely been hovering between 4-5% shorted. It snuck back in last week at 5.1% to join fellow supermarketeer Metcash ((MTS)), on 9.5%.

In supermarket terms, both are under threat from Coles ((WES)) as that rival attempts to rekindle its fortunes and may just start another price war to do so. It might be harder for Coles this time around given, sadly, Rick Parfitt has since passed away. He was Status Quo’s blond down-downer.

Metcash has always been seen as the “third airline” of the supermarket space, hence constant reference to a “duopoly” that ignores the IGA chain. That might explain why it is a lot more shorted than Woolies. Yet analysts now have more confidence in Metcash since it made the sensible move of acquiring Home Hardware. So much more sensible than trying to build a hardware chain from scratch to rival the entrenched incumbent Bunnings (also WES).

Blind Freddy saw that strategy was destined to failure right from the start.

And then as someone once said, don’t mention the war. All three local supermarket chains are under threat from Aldi, which is rapidly growing, and now Lidl, which is about to kick off. And given Amazon acquired Wholefoods in the US, well…

REITs are not the sort of instrument one typically sees shorted, given they are predominantly yield plays. Westfield is of course a developer as well as simple property owner, but given its US base the company will feel the impact of rising US interest rates. And at the risk of sounding like a broken record, your common or garden suburban shopping mall is increasingly losing business to online retail. Yep, the beast is omnipresent.

We note that Westfield’s spun-off Australian supermarket REIT Scentre Group ((SCG)), also an ASX Top 20 member, is a mere 0.5% shorted.

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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