The Short Report

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

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 May 3, 2018

Last week saw the rally in the ASX200 “turn parabolic” as yet another momentum-driven hundred points were added to take the index to 6100.

In terms of stocks shorted 5% or more, no stocks dropped out of the table last week as a result of the rally while four stocks entered, suggesting short-covering is not a market driver. Those were data centre operator NextDC ((NXT)), gold miner Resolute Mining ((RSG)), copper miner Sandfire Resources ((SFR)) and market data and management provider Iress Market Technology ((IRE)).

Amongst all the red and green below, there were only four moves in short position of one percentage point or more, and two of those were in the 10% plus table.

Domino’s Pizza ((DMP)) dropped to 16.4% from 17.4% and Nanosonics ((NAN)) dropped to 13.1% from 14.1%.

Shorts in funeral director InvoCare ((IVC)) rose to 10.4% from 8.4%.

See below.

I noted in last week’s report that Healthscope ((HSO)) shorts had fallen to 9.9% from 13.3% following a takeover bid, as might be expected. Last week the shorters continued to bail, leaving the stock only 6.2% shorted.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.2
JBH     16.7
DMP   16.4
GXY   14.8
NAN   13.1
VOC   12.2
MYR   11.5
ORE    11.4
RFG    11.2
HT1     11.2
AAC   11.0
BWX   10.7
NWS   10.7
APO    10.5
IVC     10.4
IGO     10.0

In: IVC           Out: MYX                                         

9.0-9.9

MYX, APT, FLT, AAD

In: MYX, FLT, AAD             Out: HSO                                                                                           

8.0-8.9%

PLS, HVN, MLX, WEB, IPH

In: MLX, WEB, IPH              Out: IVC, AAD, FLT, MTS

7.0-7.9%

BIN, BGA, GMA, TPM, MTS, GEM, TGR, CSR

In: MTS, BIN, CSR                Out: WEB, IPH, MLX, BAP

6.0-6.9%

IFL, QUB, GXL, ING, BAP, BKL, HSO, NSR, PRY, SEK, KAR

In: HSO, BAP                        Out: CSR, BIN, SUL

5.0-5.9%

BEN, MOC, NXT, BOQ, SUL, JHC, IMF, RSG, CCP, AHG, SFR, NUF, MQA, MYO, IRE

In: SUL, NXT, RSG, SFR, IRE                    

                       
Movers & Shakers

Medical device maker Nanosonics has been moving sharply up the most shorted table in past weeks but last week saw a drop to 13.1% from 14.1%. Shorters were caught out when the company received US FDA approval for its next generation Trophon disinfectant. The share price jumped as much as 18% following the news.

The share price in once can-do-no-wrong Domino’s Pizza had all but halved from August 2016 when the company did wrong by its workforce and became somewhat of a market pariah. Last week Domino’s popped 12% on the back of a very strong quarterly earnings result from its US counterpart. Domino’s shorts fell to 16.4% from 17.4%.

People just aren’t popping off at the rate they should be, but that’s not funeral director InvoCare’s main problem. InvoCare shares dropped off the perch by -13% following a profit warning last week.

The company is undertaking, you might say, a series of site closures for the purpose of refurbishment in line with a longer term growth strategy, and this is impacting on short term earnings. Analysts are confident the strategy will eventually pay dividends but point out that closures only account for around half of the reduction in earnings management warned of in the short term. A lower death rate may be impacting on the industry but analysts conclude the numbers imply a loss of market share.

InvoCare joined the elite 10% plus shorted club last week with an increase to 10.4% from 8.4%.

 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