The Short Report

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

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 July 5, 2018

Last week saw the ASX200 continue to consolidate before a sudden rush up to a new high, albeit briefly, this week.

There was not a lot of action among the most shorted stocks last week, but there were definitely some moves to highlight.

Just how much of a threat is Amazon to Australia’s two incumbent retail leaders JB Hi-Fi ((JBH)) and Harvey Norman ((HVN))? Analysts, for the most part, suggest not as much as the market fears but that has not stopped shorts from quietly building in both.

Last week saw JB Hi-Fi shorts rise to 18.8% from 17.5%. Harvey Norman has snuck back into the 10% plus shorted club with a small increase.

We also welcome debutant Inghams Group ((ING)) into the club. See below.

Making their debuts into the 5% plus shorted table last week were nickel-cobalt-scandium miner cum water purifier Clean TeQ ((CLQ)) and embattled pharma distributor Sigma Healthcare ((SIG)). See below.

 Weekly short positions as a percentage of market cap:

10%+

SYR    21.1
JBH     18.8
DMP   15.3
GXY   14.5
ORE    13.3
VOC   12.2
MYR   12.1
ING     11.6
MTS    11.4
AAC   11.2
GXL    10.8
IVC     10.6
NWS   10.4
NAN   10.1
HVN   10.0

In: ING, HVN                                               

9.0-9.9

GEM, MLX

Out: ING, HVN, IGO
                                                                                               
8.0-8.9%

HT1, IGO, BIN, IFL, CSR, MYX

In: IGO                       Out: MLX

7.0-7.9%

NSR, FLT, BGA, GMA, PLS, CCP, RFG, IPH

In: CCP                       Out: SFR, KAR

6.0-6.9%

MOC, SFR, SIG, BKL, NEC, KAR, TNE, SEK, APT, BAP, RSG, AAD, MYO, BEN, WEB

In: SFR, KAR, SIG                Out: CCP, BEN, WEB

5.0-5.9%

BEN, WEB, TPM, QUB, NUF, SUL, JHC, MSB, BWX, CLQ ALX, TGR

In: BEN, WEB, BWX, CLQ              Out: ALX, TGR        

                       
Movers & Shakers

Poultry producer Inghams Group ((ING)) plunged in share price last month on the announcement the company’s well regarded CEO would be stepping down earlier than expected. On that news alone, Macquarie downgraded its rating to Hold (Neutral), foreseeing a drag from management uncertainty.

Otherwise Macquarie saw value as “undemanding”, which is not the opinion of peers. Earlier last month Morgans downgraded to Hold citing emerging headwinds. Last week Credit Suisse downgraded to Hold (Neutral) citing rising input costs. And this week, UBS downgraded to Sell, suggesting the market is overestimating the company’s capacity to cut costs.

Inghams’ share price had been recovering from the plunge in June, but has headed south again on this succession of downgrades. Inghams shorts last week increased to 11.6% from 9.9%.

Last week Sigma Healthcare ((SIG)) announced it had lost its wholesale pharma supply contract to Chemist Warehouse. The contract previously provided for 40% of revenues. Sigma downgraded FY18 guidance by -40%, and on the day the share price fell by, you guessed it, -40%.

Sigma did not previously appear on the 5% plus shorted table, hence there would not have been a lot of shorts to possibly cover as the share price plunged. Rather, Sigma has now debuted at 6.8% shorted.

 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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