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The Short Report

Weekly Reports | Feb 21 2019

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 February 14, 2019

After a solid rally, last week saw the ASX200 track sideways in the 6000-6100 range, which it has done so ever since. There has been a lack of macro news of late – the world awaits an outcome on trade – and the local results season has largely netted itself out so far.

But boy have there been some big moves in share price, in either direction.

Last week the season was only just hotting up, with the bulk of reports coming in this week. Next week’s Report may thus be interesting, but for now we can note some result-related moves.

There were three short position changes of more than one percentage point last week.

JB Hi-Fi ((JBH)) shorts fell to 12.7% from 14.6% and Bendigo & Adelaide Bank ((BEN)) shorts rose to 7.3% from 6.1%. Both reported earnings. See below.

Domain Group ((DHG)) shorts rose to 6.7% last week from 5.5% the week before. Oh dear. Domain’s share price took off on this week’s result, with short-covering likely a factor.

And for interest sake we note shorts in Bingo Industries ((BIN)) were little change last week at 5.0%. That stock fell -49% this week on a profit warning, before somewhat recovering in the following sessions.

 Weekly short positions as a percentage of market cap:

10%+

SYR    16.8
ING     16.0
GXY   15.2
ORE    13.4
IVC     13.2
MTS    12.8
JBH     12.7
BWX   11.8
MYR   11.2
DMP   11.0
NXT    10.2
BAL    10.1

In: BAL                     

9.0-9.9

SDA, HVN, PLS

Out: BAL                   
                                                                                               
8.0-8.9%

SUL, IFL

Out: NUF

7.0-7.9%

NUF, MSB, SGM, BEN, AMC, RWC

In: NUF, SGM, BEN, AMC              Out: NAN      

6.0-6.9%

NAN, BOQ, AMP, DHG, BKL, MND, GMA, RSG, CCP, A2M

In: NAN, DHG                       Out: AMC, SGM, BEN, SEK, HT1

5.0-5.9%

CGF, WSA, LYC, HT1, AHG, BGA, SEK, A2B, HUB, APT, CLH, PTM, KAR, BIN, CAR, KDR

In: HT1, SEK, CAR               Out: DHG, NWS, MLX, ARB

Movers & Shakers

When FNArena first introduced the Short Report, previously in a different format, consumer goods retailer JB Hi-Fi perennially sat towards or at the top of the most shorted list. Result season after result season JB Hi-Fi would beat expectations, but still the shorters persisted.

Eventually, battered and bruised, the shorters retreated, and JB Hi-Fi fell off the 5%-plus table for a period. But the company has since acquired a difficult Good Guys business, and a foreign company by the name of Amazon has appeared on the scene. Suffice to say it didn’t take long before JB Hi-Fi was back in its old familiar position, right up the top of the table.

In last week’s report I noted JB Hi-Fi shorts fell to 14.6% from 15.6% ahead of Monday’s earnings release, which scored a “not bad” and resulted in only a modest share price increase. Last week shorts fell to 12.7% from 14.6%.

In the words of Pete Seeger, when will they ever learn?

When the Hayne Royal Commission was in full swing the smaller regional banks managed to stay out of the spotlight as the Big Four were publically flayed. But they were very much in the spotlight last week when Bendigo & Adelaide Bank delivered a shocker of a result. Rather than take profits, shorters upped the ante increasing the position to 7.3% from 6.1%.

Also at 6.1% the week before was peer Bank of Queensland ((BOQ)). Its shorts ticked up to 6.8% in sympathy with Bendalaide but it was this week BOQ issued a profit warning even more substantial than its peer, resulting in an even more severe market response.

We’ll see how it fared in next week’s Report.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 7.1 6.9 RIO 4.2 3.9
ANZ 1.5 1.5 S32 0.5 0.7
BHP 4.5 4.5 SCP 1.1 0.9
BXB 0.3 0.5 SUN 0.9 0.8
CBA 2.4 2.3 TCL 1.5 1.5
COL 2.1 1.9 TLS 0.5 0.5
CSL 0.3 0.2 WBC 2.1 2.1
IAG 0.4 0.3 WES 1.4 1.5
MQG 0.3 0.3 WOW 2.8 2.8
NAB 0.9 0.7 WPL 0.7 0.8

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

BEN BOQ DHG JBH

For more info SHARE ANALYSIS: BEN - BENDIGO & ADELAIDE BANK LIMITED

For more info SHARE ANALYSIS: BOQ - BANK OF QUEENSLAND LIMITED

For more info SHARE ANALYSIS: DHG - DOMAIN HOLDINGS AUSTRALIA LIMITED

For more info SHARE ANALYSIS: JBH - JB HI-FI LIMITED