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The Short Report

Weekly Reports | Mar 07 2019

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 28, 2019

It was a choppy week last week for the ASX200. A general trend upward was punctuated by a one-day washout that appeared to have shaken out the Nervous Nellies.

It was the last week of result season and while not quite as busy as the prior week, still quite substantial in terms of number of companies reporting. And those reports were responsible for some notable changes in short positions.

Increases of a percentage point or more were suffered by both SpeedCast International ((SDA)) and Hub24 ((HUB)) post result, yet one “beat” and the other “missed”. See below.

I noted last week that it was no shock Bingo Industries ((BIN)) fell off the bottom of the 5%-plus shorted table after its share price lost -49% on a profit warning. Well, the share price has recovered about half that loss since, the ACCC has approved the acquisition of Dial-a-Dump, and Bingo is back at 5.3% shorted.

Also appearing at the bottom of the table this week, at 5.1% shorted, is perennial profit warner Pact Group ((PGH)). The packaging company lost -35% in value over the course of two weeks following yet another guidance downgrade. Looks like the shorters are moving in for the kill.

At the other end of the table, infant formula producer Bellamy’s ((BAL)) has seen its share price rally 37% since reporting. Bellamy’s is back in the 10%-plus club this week with a tick up to 10.5% from 9.8%.

 Weekly short positions as a percentage of market cap:

10%+
SYR    17.6
ING     17.1
GXY   15.4
ORE    12.7
JBH     12.8
IVC     12.0
BWX   11.6
MTS    11.5
MYR   11.0
SDA    10.6
BAL    10.5
NXT    10.4

In: BAL, SDA                        Out: DMP                  

9.0-9.9

DMP

In: DMP          Out: BAL, SDA, HVN
                                                                                               
8.0-8.9%

HVN, PLS, SUL, IFL,

In: HVN, IFL            

7.0-7.9%

BOQ, BKL, NUF, MSB, AMP, BEN, SGM, AMC

Out: IFL         

6.0-6.9%

HUB, DHG, LYC, CGF, A2B, RSG

In: HUB, LYC            , A2B              Out: RWC, NAN

5.0-5.9%

NAN, CCP, CSR, HT1, GMA, BGA, RWC, CAR, WSA, APT, BIN, KDR, CLH, PGH, MLX, KAR, LNG

In: NAN, RWC, CSR, BIN, PGH, LNG                  

Out: LYC, A2B, HUB, SEK, MND, AHG

Movers & Shakers

Satellite company SpeedCast International was another to provide a profit warning ahead of its result release, back in December. The day ahead of the release the share price dropped sharply in anticipation.

The opposite occurred upon release, given full year guidance suggested a much better second half for the company. The shorters aren’t convinced, increasing positions to 10.6% from 9.6%.

Wealth platform provider Hub24 was enjoying a solid rally in February, right up to its result release. The story for platforms in a post Hayne world is unclear. On the one hand, Hub24 and peers are expected to enjoy an inflow of funds from disgruntled investors abandoning evil banks and fund managers, but in response, those fund managers are reducing fees and competition is becoming fierce.

Hub24 disappointed with its result, missing all broker forecasts due to higher costs. The share price took a dive, and shorters increased positions to 6.9% from 5.1%.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
AMC 7.2 7.3 RIO 4.1 4.1
ANZ 1.7 1.6 S32 0.8 0.6
BHP 4.2 4.4 SCP 0.7 1.1
BXB 0.4 0.3 SUN 0.8 1.0
CBA 2.2 2.2 TCL 1.5 1.5
COL 2.3 2.3 TLS 0.8 0.7
CSL 0.2 0.2 WBC 2.0 2.0
IAG 0.2 0.4 WES 1.6 1.4
MQG 0.3 0.3 WOW 2.7 2.8
NAB 1.2 1.0 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

BAL BIN HUB PGH SDA