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 UIKeyInputLeftArrowamounts 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 August 23, 2018

Last week saw the ASX200 fall to an interim low before bouncing this week, driven by the fools we elected, and by the spectre of a Labor government hitting specific sectors, most notably the banks.

It was also the busiest week in the reporting season calendar by a margin.

Given the lack of reds and greens on the table below, the week’s results did not have a huge impact on short positions. But we can make some observations.

JB Hi Fi ((JBH)) reported in line with expectations but there is some concern over increasing competition and a weakening housing market, offset by an otherwise undemanding valuation since the share price was Amazon-ed a while back. Shorts in JBH have increased to 19.8% from 18.8%.

Still in the retail space, Super Retail ((SUL)) posted a “beat” and enjoyed a near 10% rally on the day. But shorts rose to 7.2% from 6.2%. Super Retail has retraced half of that gain in the meantime.

Otherwise it is worth noting that positive reports were posted by all of Bapcor ((BAP)), Mayne Pharma ((MYX)) and Qube Holdings ((QUB)), prompting share price rallies, and all three have dropped off the bottom of the 5%-plus shorted table.

There is no guarantee which way the shorts will go on sharp share price movements, in this case prompted by earnings reports. The response can either be a short-covering scramble or a chance for shorts to be increased.

Metcash ((MTS)) held its AGM yesterday and while brokers were relatively nonplussed about the updated outlook, the market loved it, sending Metcash shares up 10%. Short-covering writ large.

On a final note, I have been keeping an eye on shorts in Amcor ((AMC)) as they have been creeping up these past three weeks since the company announced its biggest acquisition ever, all-scrip. The company’s earnings report last week was poorly received by analysts and prompted an initial further share price dip.

Shorts in the ASX top 20 newbie moved up to 3.3% last week from 2.9%. Watch this space.

Otherwise nothing really moved or shook last week.

Weekly short positions as a percentage of market cap:

10%+

SYR    21.2
JBH     19.8
GXY   18.3
ORE    15.6
DMP   15.3
MTS    12.8
ING     12.5
MYR   11.6
VOC   10.3
IGO     10.2
HVN   10.0
GXL    10.0

In: IGO           Out: GEM                                          

9.0-9.9

GEM, IFL

In: GEM          Out: IGO
                                                                                               
8.0-8.9%

NWS, CSR, BIN, AAC, NUF, NAN, IVC

In: IVC                      

7.0-7.9%

SFR, SUL, BWX, HT1, TNE, NEC, KAR, GMA

In: SUL                       Out: IVC, KAR, GMA

6.0-6.9%

FLT, GMA, KAR, PLS, MOC, GNC, MLX, NWL, MYO, BEN, SIG, SEK, BGA

In: GMA, KAR                      Out: SUL

5.0-5.9%

IPD, CCP, BKL, CLQ, RFG, RSG, BLA, CAB, AAD, TPM

Out: BAP, MYX, QUB

                       
Movers & Shakers

See above.

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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