The Short Report

Weekly Reports | Jun 14 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 June 7, 2018

Last week saw the ASX200 in rally mode, led by resources, as a risk-on mood seemed to permeate. The market then stalled for the long weekend and of yesterday, it was back to risk-off again.

Again we saw, last week, not a lot of movement in short positions. There’s a bit of red towards the low end of the table but nothing substantial, with one exception.

MYOB ((MYO)) saw its share price plunge -8% last Thursday. Short positions jumped to 7.1% from 5.7%. See below.

We note, for the sake of interest, that at the very bottom of last week’s table is Gateway Lifestyle Group ((GTY)) on 5.0% shorted. Yesterday’s takeover offer for the company sparked a 15% share price jump.

 Weekly short positions as a percentage of market cap:

10%+

SYR    19.8
DMP   16.3
JBH     15.6
GXY   14.1
MYR   13.5
NAN   12.4
AAC   11.9
ORE    11.9
VOC   11.8
GXL    11.4
IGO     11.2
NWS   11.0
IVC     10.9

No changes                                                    

9.0-9.9

HT1, GEM

Out: MYX
                                                                                               
8.0-8.9%

HVN, MYX, MTS, BIN, AAD, PLS, IPH, GMA

In: MYX, GMA                      Out: MLX

7.0-7.9%

RFG, FLT, TPM, IFL, BGA, WEB, BKL, QUB, MLX, SFR, BWX, ING, MYO

In: MLX, BWX, ING, MYO             Out: GMA, APO

6.0-6.9%

RSG, MOC, CSR, SEK, TGR, KAR, PRY, BAP, BEN, ALX*

In: BEN, ALX                        Out: ING, BWX

5.0-5.9%

NSR, AHG, NUF, SUL, CCP, NXT, APT, IMF, JHC, BOQ, GTY

In: APT           Out: MYO, ALX, BEN                     

* Note:Atlas Arteria ((ALX)) is the new name for Macquarie Atlas Roads (MQA).

                       
Movers & Shakers

Last week MYOB ((MYO)) announced it was pulling out of its bid to acquire the accountant group assets of rival Reckon ((RKN)). Analysts assumed ACCC requirements for approval rendered the acquisition unviable. Instead, MYOB will invest the money it had put aside in organic growth.

Analysts believe it seems sensible not to proceed, but have downgraded earnings forecasts as a result of the lost opportunity. Two downgrades to Hold or equivalent ratings reflect a view it’s a hard road now ahead, organically, for MYOB.

Morgan Stanley went one step further when it took the opportunity to initiate coverage of the stock with an Underweight rating. In the new world of disruption, where software-as-a-service (SaaS) is king, the broker believes it will be the fast movers eating the slow movers rather than the big eating the small.

To that end, Morgan Stanley suggests Xero ((XRO)) is set to be the winner in the space, despite MYOB’s entrenched longevity.

One might argue that once upon a time, MYOB appeared to “disrupt” the cosy world of accountants and bookkeepers.

MYOB’s share price fell -8% on the news and short positions rose to 7.1% from 5.7%.

ASX20 Short Positions (%)

* Replaces AMP

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

ALX GTY MYO RKN XRO