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The Short Report

Weekly Reports | Mar 08 2018

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 March 1, 2018

Last week saw the recovery rally that began earlier in the month in the wake of the US inflation scare, at 5793, peak out at 6080 before Donald Trump dumped a bucket of cold water on proceedings. It was also the final week of the local reporting season.

There’s a little bit of movement in the short table below but only three moves represent one percentage point or more.

I highlighted toiletry/cosmetics company BWX ((BWX)) last week, which suffered a -20% share price fall following its result release, along with a short position increase to 6.3% from below 5% prior.

Last week BWX shorts increased to 7.6%.

Nanosonics ((NAN)) saw its shorts jump to 8.7% from 7.0%, while NextDC ((NXT)) dropped off the 55 plus table altogether, from 7.5% shorted the week before. See below.

We can also make another special mention of Myer ((MYR)), which having tanked the week earlier on yet another profit warnings, mysteriously bounced 16% on Monday for reasons no one could quite ascertain. There was no news from the company, nor from major stakeholder Premier Investments ((PMV)).

Nor is there anything on the ASX website. I was assuming a “speeding ticket” would be issued by the exchange – a “please explain” – but that appears not to be the case. Either way, we might safely assume the fact the stock is over 10% shorted that short-covering played its part in that 16% move.

Weekly short positions as a percentage of market cap:

10%+

SYR    22.0
IGO     16.9
DMP   16.1
JBH     15.9
RFG    13.8
HSO    13.7
GXY   13.1
HT1     12.3
VOC   12.0
MYX   11.2
FLT     10.6
MYR   10.2

No changes                            

9.0-9.9

AAD, AAC, HVN, APO
 
In: APO                                                                                 

8.0-8.9%

PLS, NWS, NAN, GXL, MTS, TGR

In: NAN          Out: APO       

7.0-7.9%

BAP, ORE, BWX, BEN, GMA

In: ORE, BWX           Out: NAN, NXT, TPM

6.0-6.9%

TPM, SHV, APT, WEB, KAR

In: TPM, APT             Out: ORE, BWX, GTY, AHG

5.0-5.9%

CCP, SUL, QUB, SEK, AHG, WOW, RIO, NSR, GTY, JHC, WSA, IFL, IVC, CSR, BGA, ABC, IMF, ISD

In: AHG, GTY, IFL, IVC, ABC                   Out: APT, IMF, ISD

                       
Movers & Shakers

Nanosonics engages in the research, development, and commercialisation of infection control and decontamination products and related technologies. In other words it is a biotech, and biotechs are notoriously volatile if success hangs on trials and approvals in various jurisdictions of key products. They often display “binary” tendencies on this basis, meaning potential big ups or downs.

In this case however, it was Naonsonics’ profit result that sparked a -16% plunge in the stock price on the day. The result fell short of Morgan’s forecast, being the only FNArena database broker covering the stock, leading to a rebasing of earnings expectations.

Morgans nevertheless suggested the big share price drop provided a buying opportunity, and retained an Add rating.

Nansonics shorts have risen to 8.7% from 7.0%.

Data centre operator NextDC posted a strong beat of broker forecasts with its earnings results and received rave reviews. The share price jumped 20%. Brokers agree that while there may be some risk around emerging competition, and execution on new centres under construction, the underlying “new world” thematic of Big Data, The Cloud, and storage necessities make NextDC a story for the age.

Only a stretched valuation leads three of six covering FNArena database brokers to rate the stock a Hold as opposed to Buy, or equivalent. From 7.5% shorted the week before, NextDC shorts fell below 5% last week.

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

BWX MYR NAN NXT PMV