The Short Report

Weekly Reports | Apr 12 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 April 4, 2018

What a difference a week makes.

In last week’s Report I highlighted one of the dullest weeks on record in terms of short-position changes. Every change in position was an increase, which is a first in the history of this Report, but there were so few and movements were so small that it mattered not.

By contrast, this week’s table looks like something Moses could part.

No fewer than eight companies have rejoined the 5% plus shorted table. Nevertheless, all bar one of the short position increases noted below represent a move of less than one percentage point, meaning it’s all about bracket creep. All the new entries had been hovering in the 4% range.

It was a week which saw the ASX200 continue to slide on trade war fears, breaching its 200-day moving average before finding a bottom late in the week.

Three stocks climbed into the 10% plus club last week. For APN Outdoor ((APO)) this represented a return, rejoining outdoor advertising peer HT&E ((HT1). It was also a return for Orocobre ((ORE)), rejoining lithium mining peer Galaxy Resources ((GXY)).

The newcomer to 10% plus shorted is beef exporter Australian Agricultural Company ((AAC)). See below.

The only short position movement exceeding one percentage point last week was that of small cap medical device company Nanosonics ((NAN)). See below.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.4
JBH     17.0
DMP   16.6
GXY   14.8
HSO    14.2
VOC   12.2
IGO     11.9
NAN   11.6
MYR   11.4
RFG    11.2
MYX   11.1
HT1     11.0
APO    10.5
AAC   10.2
ORE    10.2

In: APO, AAC, ORE                                    

9.0-9.9

NWS, FLT

Out: ORE, APO, AAC                                                                                              

8.0-8.9%

AAD, HVN, PLS, BWX, MTS

In: MTS

7.0-7.9%

TGR, APT, GMA, BAP, IVC, BGA, GXL

In: BAP, IVC, BGA, GXL                Out: MTS

6.0-6.9%

ING, TPM, IPH, GEM, WEB, IFL, CSR, QUB, KAR, BEN, MLX, SEK

In: IPH            , GEM, WEB,             IFL, CSR, KAR, MLX, SEK

Out: BAP, GXL, IVC, BGA, SUL               

5.0-5.9%

SUL, AHG, JHC, CCP, BIN, IMF, MOC, NSR, RSG, WSA, SHV, MQA, BKL, RIO, PRY

In: SUL, CCP, BIN, IMF, NSR, WSA, SHV, MQA, BKL, PRY               

Out: KAR, CSR, IFL, SEK, WEB, IPH, MLX, GEM

                     
Movers & Shakers

Disinfection specialist Nanosonics has been undergoing a steady rise in short positions over past weeks, in line with a gradual decline in stock price. This week stockbroker Morgans noted new guidelines in Germany should boost the uptake of Nanosonics’ Trophon product in that market, while at the same time slashing near term earnings forecasts to reflect a shift to a more direct sales channel.

Morgans retains an Add recommendation nonetheless. Stockbroker Wilsons continues to include the stock as one of its Conviction Calls.

Last week Australian Agricultural Company issued a profit-warning, ahead of the release of its FY18 (end-March) result. The stock fell -9% in response.

AACo warned FY18 operating earnings will be up to -73% lower than 2017, statutory earnings would represent a loss, and cash flow would be negative compared to positive a year earlier. Impairments will be taken on an onerous contract provision and on the company’s Livingstone beef processing facility.

AACo’s half-year result also disappointed last year, suggesting that the company’s transition from a livestock company to a branded beef business has not reaped the rewards assumed. The full year result only serves to confirm this fear, and AACo is now looking to back-pedal from the questionable strategy.

 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

AAC APO GXY NAN ORE