The Short Report

This story features BWX LIMITED, and other companies. For more info SHARE ANALYSIS: BWX

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 26, 2018

Last week saw the ASX200 continue its recovery before accelerating this week, including a strong performance so far today. Indeed, the index is closing in on the previous high.

As the amount of red on the table below suggests, short traders having been using the rally to increase positions more so than reduce them. However for the most part, short increases last week were less than one percentage point.

The exception was BWX ltd ((BWX)), which has leapt into the 10% plus club with a move to 10.3% shorted from 8.8%.

On the flipside, Healthscope ((HSO)) dropped out of the 10% plus shorted table, falling to 9.9% from 13.3%.

See below.

Other movements worthy of mention are those of News Corp ((NWS)), which also moved up into the 10% plus table on a slight short increase, and Rio Tinto ((RIO)), which after a very long time hanging around the low end of the 5% plus table finally dropped out last week, albeit only to 4.7%.

News Corp is currently embroiled in media industry consolidation in both the US and UK as regulators seek to decide who may takeover/merge with whom or acquire divisions of whom. The upshot is one of the rise of social media and streaming platforms forcing a complete rethink of the media landscape.

There will be winners and there will be losers. 

Weekly short positions as a percentage of market cap:

10%+

SYR    21.9
DMP   17.4
JBH     16.5
GXY   15.3
NAN   14.1
VOC   12.4
MYR   11.4
RFG    11.2
ORE    11.1
HT1     11.0
AAC   10.8
APO    10.7
MYX   10.5
BWX   10.3
NWS   10.1
IGO     10.0

In: BWX, NWS          Out: HSO                                           

9.0-9.9

HSO, APT

In: HSO, APT             Out: NWS, PLS                                                                                             

8.0-8.9%

AAD, PLS, FLT, HVN, IVC, MTS

In: PLS, IVC              Out: BWX, APT

7.0-7.9%

WEB, BGA, IPH, GEM, GMA, TGR, BAP, MLX, TPM

In: GEM, MLX, TPM             Out: IVC

6.0-6.9%

QUB, GXL, IFL, CSR, ING, BKL, SEK, BIN, SUL, KAR, PRY, NSR

In: BKL, PRY, NSR              Out: TPM, MLX, GEM, BEN

5.0-5.9%

BOQ, MQA, BEN, MOC, AHG, JHC, CCP, IMF, NUF, MYO

In: BEN, BOQ            , NUF, MYO              Out: NSR, BKL, PRY, WSA, RIO

                       
Movers & Shakers

The steady rise of BWX up the 5% plus shorted table has been noted in this Report before, but last week the producer/distributor of natural beauty products saw a 1.5 percentage point increase to take it into the elite 10% plus shorted club.

BWX went on an acquisition spree in the US last year and thus drew the attention of investors, who clearly decided the company was one of the new high-flyers. A disappointing profit result in February brought everyone back to earth, along with the share price.

That share price has since undergone a slow consolidation before turning to the upside once more. As late as yesterday, BWX’s presentation at the annual Macquarie investor conference sparked a 5% pop. But as of last week, clearly the shorters are not convinced.

The Healthscope story is emblematic of every short-side player’s worst nightmare. The private hospital operator received an unsolicited bid last week from a consortium of investors, sparking a 15% share price pop. Clearly a short-covering scramble exacerbated the upside, as Healthscope shorts dropped -3.4ppt.

As to the level of “naked” shorts in Healthscope, we can’t say. The company’s lone big cap rival in the hospital space, Ramsay Health Care ((RHC)), is a long time market favourite and a likely offset to Healthscope in a traditional long/short pairs trade. Ramsay’s share price also jumped on the Healthscope takeover announcement on valuation implications.

Hence losses on a pairs trade would have been limited.

 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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms