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 March 14, 2019

Last week saw the ASX200 come tumbling down from a failed attempt to revisit recent highs, an attempt that was driven by the euphoria of the RBA dropping its “next move in rates likely up” mantra. Never mind the reasons behind the change.

In the week before it had appeared shorters had taken a bit of post-result season break but last week it was back to business, as a sea of red in the table below might suggest.

Most of the moves were only small, representing bracket creep, with a couple of exceptions.

If any stock has a Gold Pass to the elite 10%-plus shorted club it's JB Hi-Fi ((JBH)), which but for a couple of brief holidays has lived at the club for over a decade. The fact the stock has risen 770% since March 2009 highlights the fact the shorters have continued to flog a dead horse over that time, but this never seems to deter them.

JB Hi-Fi shorts rose to 15.4% last week from 13.2%, most likely, in today’s thinking, on a “short bricks & mortar” play. Will JB shorters ever see their chooks come home to roost?

Other short positions moves of one percentage point or more were noted last week for NextDC ((NXT)) and CSR ((CSR)). See below.

Weekly short positions as a percentage of market cap:

10%+
SYR    17.4
ING     17.2
GXY   16.3
JBH     15.4
NXT    12.8
ORE    12.4
BWX   11.5
MTS    11.3
SDA    10.7
MYR   10.7
BAL    10.1

Out: IVC                    

9.0-9.9

IVC, IFL, DMP, PLS

In: IVC, IFL, PLS
                                                                                               
8.0-8.9%

SUL, HVN, BOQ, LYC, BKL

In: BOQ, LYC, BKL             Out: IFL, PLS

7.0-7.9%

HUB, AMC, CSR, NUF, MSB, AMP, SGM, RWC

In: CSR, SGM, RWC             Out: BKL, BOQ, LYC          

6.0-6.9%

BEN, BIN, DHG, KGN, CCP, CGF

In: KGN, CCP            , CGF              Out: SGM, RWC, RSG

5.0-5.9%

APT, KDR, BGA, RSG, WSA, PPT, HT1, MLX, NSR, CAR, ARB, GMA A2B, NAN

In: RSG, PPT, HT1, MLX, NSR                    Out: CSR, CCP, CGF, A2B, NAN

                      
Movers & Shakers

There’s been no new news out of data centre operator NextDC since its earnings result sparked a share price plunge in February. As one of those “new world” stocks that tend to run ahead of themselves, any stumble was always going to be met with punishment.

When NextDC built its first round of capital city data centres capacity filled up very quickly, so the company spent big to build another round of larger centres, and unsurprisingly take-up has not been at the same pace as previously. Analysts aren’t that concerned, although a pick-up in Melbourne would be welcomed, and NextDC’s share price has plateaued ever since.

But last week the shorters moved the stock up to 12.8% from 11.1%.

Today’s CSR is a far cry from the Colonial Sugar Refinery that gave the company its name. Once known as “Sugars” on the old stock exchange, CSR is now strictly a building materials company with a focus on aluminium. But a while back CSR made an ill-fated foray into glass when it acquired Viridian.

Late last month the company announced, to the great relief of the market, it had disposed of Viridian and would use the proceeds to fund a share buyback. Last week CSR shorts rose to 7.6% from 5.9%. This might seem like a gamble for a stock supported by a buyback, but analysts suggest that support will only be temporary before pressure on aluminium earnings is the primary focus.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	7.6	7.2	RIO	4.8	4.6
ANZ	1.6	1.6	S32	0.9	0.9
BHP	4.0	3.5	SCP	0.8	0.6
BXB	0.4	0.3	SUN	0.8	0.8
CBA	2.2	2.0	TCL	1.5	1.3
COL	2.2	2.3	TLS	0.9	0.7
CSL	0.3	0.3	WBC	2.0	2.0
IAG	0.6	0.5	WES	1.9	1.8
MQG	0.5	0.4	WOW	2.8	2.7
NAB	1.7	1.4	WPL	0.6	0.6

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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