The Short Report

This story features SELECT HARVESTS LIMITED, and other companies. For more info SHARE ANALYSIS: SHV

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 November 16, 2017

Last week saw the ASX200 come screaming back from the 6050 blow-off peak to bottom out near 5930, as Wall Street worried about tax reform and locally, questions were raised about the justification of the prior break-out move.

There’s a bit of red and green on the table below but most of the moves are small aside from a couple of stand-outs.

I highlighted lithium miners in last week’s Report so I won’t repeat myself this week, but suffice to say having fallen to 11.5% shorted from 12.9% the week before, last week saw Orocobre ((ORE)) shorts fall to 9.6%. The miner had spent a very long time in the 10% plus shorted club, including a long stretch in number one position.

Shorts in peer Galaxy Resources ((GXY)) fell to 8.2% from 9.6% the week before and last week fell to 7.9%. Galaxy, too, had been a member of the 10% plus club for a while.

Another prior member was almond producer Select Harvests ((SHV)), and last week shorts in that stock fell to 7.9% from 9.1%. The share price popped back in early October when a takeover approach was disclosed, but that was accompanied by a capital raising and the price has drifted off ever since, giving shorters a chance to escape any further takeover offer potential.

A quick nod to HT&E ((HT1)), which despite its radio interest is bundled together in the outdoor advertising space, one of the hottest sectors this year. A long slow creep up the table now sees the stock into the penultimate bracket with a move to 9.2% from 8.8%, just shy of peer APN Outdoor ((APO)) on 10.3%.

The other notable move of the week was for Monadelphous ((MND)). See below.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.0
IGO     19.6
DMP   16.9
JBH     15.9
HSO    15.0
RFG    12.4
MTS    11.0
WSA   10.7
AAD   10.7
ACX   10.6
MYR   10.3
APO    10.3

Out: ORE                   

9.0-9.9

ORE, HVN, HT1
 
In: ORE, HT1             Out: MYX, SHV                                                                   

8.0-8.9%

JHC, VOC, MYX, FLT, RIO, NWS, QIN, NXT

In: MYX, NXT                       Out: HT1, GXY, MND         

7.0-7.9%

SHV, GXY, TPM, NSR, GXL, MND, GTY

In: SHV, GXY, MND                        Out: NXT, SEK

6.0-6.9%

MYO, SEK, BAP, AHG, BEN, ISD, ING, AAC

In: SEK, ISD              Out: BKL

5.0-5.9%

SUL, TAH, CSR, KAR, MOC, IPD, WHC, BKL, PRU, ABC, NEC, AWE, QUB

In: BKL, AWE                       Out: ISD, GMA, IFL, SAR

                       
Movers and Shakers

Services contractor to the resource sectors, Monadelphous, has been quietly making its way back from an end-of-the-mining-investment-boom nadir for the past two years, accelerating this year on the oil price recovery and signs of a pick-up in mining, alongside a boost from infrastructure spending. This week saw Mona’s share price pop after a positive AGM.

All well and good, say analysts, and the future does look brighter. However completion of a contract for the Ichthys project will mean a peak in earnings in FY18 and a hole to then be filled in FY19. On that basis, and on what analysts consider to be a quality company but with an overwrought valuation, the FNArena database shows four from five Sell ratings, with one Hold.

The AGM-inspired jump was this week, but last week Mona shorts fell to 7.0% from 8.0%. 

 

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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