The Short Report

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

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 21, 2018

Last week saw the ASX200 shoot up parabolically as the Aussie fell and the world turned to Australia as offering value in an otherwise stalling global market.

The table below shows a balance leaning to more green than red, suggesting short-covering was at play in many stocks. Of four short position movements of greater than one percentage point on the 5% plus shorted table, all were reductions.

Nanosonics ((NAN)) has seen its share price rising steadily since early last month when the company received FDA approval for its Trophon disinfector product. Last week shorts fell to 11.2% from 12.3%.

Ardent Leisure ((AAD)) has not seen a lot of movement in share price of late but shorts fell last week to 6.6% from 8.5%. See below.

Beleaguered Retail Food Group ((RFG)) has been on a steady slide and its shorts dropped to 6.1% from 8.1%. See below.

Hair/skincare company BWX ((BWX)) has seen shorts being gradually reduced since its takeover announcement, and last week BWX dropped off the 5% plus shorted table from 6.1%.

Going the other way, I noted in last week’s report that the retirement announcement from the Ingham’s Group ((ING)) CEO sparked a -10% plunge in the stock price and an increase in short positions. A further increase was seen last week, to 9.5% from 8.7%.

At the bottom end of the table we welcome two new appearances, being TechnologyOne ((TNE)) and Impedimed ((IPD)).

 

Weekly short positions as a percentage of market cap:

10%+

SYR    20.3
JBH     16.2
DMP   15.1
GXY   14.2
ORE    13.0
MYR   12.2
VOC   12.0
AAC   11.7
NAN   11.2
GXL    10.9
IVC     10.7
NWS   10.2
IGO     10.2

No changes                                                    

9.0-9.9

MTS, HVN, ING, GEM, HT1

In: ING
                                                                                               
8.0-8.9%

MLX, BIN, IFL, MYX

Out: ING, IFL, AAD, PLS, RFG, IPH

7.0-7.9%

PLS, FLT, IPH, BGA, SFR, NSR, GMA, KAR

In: PLS, IPH, NSR, KAR                  Out: CSR, WEB, MYO

6.0-6.9%

BKL, MOC, CSR, MYO, APT, AAD, RSG, SEK, BAP, TPM, QUB, NEC, BEN, RFG, WEB, ALX

In: AAD, RFG, CSR, MYO, WEB, APT, NEC                   

Out: KAR, NSR, TGR, NUF, BWX

5.0-5.9%

TNE, NUF, CCP, TGR, JHC, SUL, MSB, PRY, IMF, NXT, BOQ, IPD

In: TGR, NUF, TNE, IPD                  Out: APT, NEC, AHG          

                       
Movers & Shakers

Ardent Leisure has failed to gain any traction since the Dreamworld tragedy, which was back in the spotlight again last week as disturbing details emerged in the coronial inquiry. The share price has chopped around, but the trend remains tilted to the downside.

This does provide the opportunity for shorters to take profits but perhaps it’s more a case of now that the inquiry has exposed deficiencies in the company’s operations, which  no doubt will be swiftly remedied, the news cannot get any worse.

Ardent shorts fell to 6.6% from 8.5%.

Retail Food Group has been on a downward trend ever since it became the latest franchisor to be exposed as an operation that has allegedly driven franchisees out of business. Custom has since dropped off at the company’s string of fast food and bakery/café outlets.

Last week Retail Food issued a profit warning as a result, guiding to an -$88m loss. Shorts fell to 6.1% from 8.1%.

 

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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