The Short Report

This story features NUFARM LIMITED, and other companies. For more info SHARE ANALYSIS: NUF

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 21, 2019

Last week saw the ASX200 grafting back to 6200 before rolling back over again.

The table below shows a lot more red than green, suggesting the shorters are building positions once again as the “slowing global growth” story gains traction. Two big moves in shorts stand out from last week, but they are so big as to bring into question whether they are real or simply ASIC data blips.

Nufarm ((NUF)) shorts rose to 11.8% from 7.6% and Perpetual ((PPT)) shorts rose to 10.1% from 5.5%.

Other than to note wealth management peer IOOF Holdings ((IFL)) is sitting at 9.1% shorted, no news out of Perpetual recently suggests that move is questionable. The share price of Perpetual recently spiked on buying by a global dividend oriented ETF and the AFR reported Regal Funds Management has used the event to go short its fellow fund manager.

Nufarm’s move is justifiable, but I have added it to Movers & Shakers below with a grain of salt. We might also note popular fruit & veggie grower Costa Group ((CGC)) has appeared at the bottom end of the table, so "agri" is a target in the current (literal) climate.

Last week I highlighted CSR ((CSR)) shorts had risen to 7.6% from 5.9%. Now they’re at 9.4%. It would seem the announced intention to sell its glass business has provided the impetus, when selling the underperformer should actually be positive. The company is also undertaking a buyback, which should deter shorters. No obvious reason here.

Weekly short positions as a percentage of market cap:

10%+
ING     17.5
SYR    17.5
GXY   16.3
JBH     15.9
NXT    12.7
ORE    12.3
NUF    11.8
MTS    11.6
BWX   11.5
BAL    10.7
SDA    10.7
PPT     10.1
MYR   10.1

In: NUF, PPT             

9.0-9.9

IVC, DMP, SUL, CSR, IFL, PLS

In: SUL, CSR
                                                                                               
8.0-8.9%

HVN, HUB, BKL, BOQ, LYC, AMC

In: HUB, AMC                                  

7.0-7.9%

SGM, RWC, AMP, KGN

In: KGN                      Out: NUF, CSR, HUB, AMC            , MSB

6.0-6.9%

BIN, BEN, MSB, DHG, BGA

In: MSB, BGA                       Out: KGN, CCP, CGF

5.0-5.9%

CCP, RSG, APT, KDR, CGF, WSA, HT1, GMA, RIO, CGC, CAR

In: CCP, CGF, RIO, CGC                 Out: PPT, BGA, MLX, NSR, ARB
                      
Movers & Shakers

Shares in agricultural chemicals company Nufarm have lost half their value since May last year as drought has lingered in the east of Australia and offshore assets have not provided the offset. Adding to uncertainty is a US lawsuit against weed-killer glyphosate, which is a primary Nufarm product.

That fall in share price led brokers to believe risks were priced in, until last week when the company issued its earnings result that was broadly as expected but also downgraded guidance and suspended its dividend. The share price fell -24% on the day.

Seven FNArena database brokers cover the stock and of those, six have Buy ratings, believing the sell-off to be an overreaction. A jump to 11.8% shorted from 7.6% might suggest the shorters are tipping that a suspension of the dividend, as the drought lingers on, is a step towards an inevitable capital raising.

Except that Nufarm only recently raised capital. Or it could be an ASIC data blip. We’ll revisit next week.? 

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	8.0	7.6	RIO	5.2	4.8
ANZ	1.5	1.6	S32	1.0	0.9
BHP	4.0	4.0	SCP	1.0	0.8
BXB	0.5	0.4	SUN	0.6	0.8
CBA	2.3	2.2	TCL	1.9	1.5
COL	2.2	2.2	TLS	0.8	0.9
CSL	0.3	0.3	WBC	2.0	2.0
IAG	0.6	0.6	WES	2.1	1.9
MQG	0.4	0.5	WOW	2.7	2.8
NAB	0.9	1.7	WPL	0.7	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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