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 June 27, 2019

Last week saw the ASX200 trade sideways.

While there’s quite a lot of red and green on the table below the bulk represents minor bracket creep. Three stocks nevertheless saw short position movements of one percentage point or more.

One is Centuria Industrial REIT ((CPI)) which I flagged last week would disappear off the table this week, and it has. The REIT leapt from nowhere to 15.6% shorted the week before but was easily explained by JP Morgan’s institutional placement of a large parcel of stock and not representative of sentiment, rather transactional.

Otherwise, JB Hi-Fi ((JBH)) shorts fell to 12.9% last week from 15.4% and Dacian Gold ((DCN)) shorts rose to 7.6% from 5.5%. See below.

We might otherwise note that satellite company SpeedCast International ((SDA)) was 9.9% shorted last week and this week issued a profit warning that sent the stock down some -56%, so next week we’ll see whether profits were taken.

I also made note last week that the longer the east coast drought lingers, the more shorts in agri-companies grow. Nufarm ((NUF)) sat in third most shorted position (16.8%) last week and yesterday its share price jumped 7.4% on takeover rumours.

We can further note that among the ASX top 20 stocks, Amcor ((AMC)) shorts, held ahead of the finalisation of the Bemis acquisition, began to be covered once Bemis was in the bag. Last week Amcor shorts fell from 4.3% to a more recognisable 1.7%.

Weekly short positions as a percentage of market cap:

10%+
SYR    19.6
ING     17.3
NUF    16.8
NXT    14.6
ORE    14.5
BAL    14.2
GXY   14.1
JBH     12.9
BWX   12.5
BIN     11.7
DMP   10.8
PLS     10.2
MTS    10.0

In: MTS           Out: CIP

9.0-9.9

SDA, BGA, IFL, HVN, SGM

In: SGM                      Out: MTS, PPT, RWC
                                                                       
8.0-8.9%

IVC, PPT, BKL, HUB, RWC, CSR, CGC, SUL

In: PPT, RWC , CGC              Out: SGM                              

7.0-7.9%

AMP, KGN, DCN, BOQ

In: DCN                      Out: CGC, WSA, MYR, CGF

6.0-6.9%

CGF, MYR, ELD, WSA, GMA, A2M, NEC

In: CGF, MYR, WSA            , A2M              Out: NEC, GWA

5.0-5.9%

GWA, COE, NEC, LNG, CTD, RSG, CLQ, SXY, OML, MSB

In: GWA, NEC                       Out: DCN, A2M, SEK, MIN

                       
Movers & Shakers

Electronics retailer JB Hi-Fi was being quietly written off by investors a year ago when a behemoth called Amazon announced it would soon be lumbering onto our shores. The retail industry breathed a sigh of relief when Amazon Oz proved to be little more than a mouse that roared, offering fewer products at higher prices that online shoppers could already buy online offshore.

Normal valuations was thus restored for JB and friends and more recently JB kicked on further post the election in May. The stock has since fallen back a bit despite reiterated FY19 guidance, with brokers seeing tough comparable earnings to cycle from a soccer World Cup year (blokes, that is).

A short position reduction to 12.9% last week from 15.4% may imply some belated short covering.

Dacian Gold’s share price dropped -5% earlier this month when the miner issued a larger than feared production guidance downgrade for its flagship Mt Morgans gold project, citing operational issues and poor reserve reconciliation. The share price has since recovered and pushed higher on the big rally in the AUD gold price last month.

Dacian appeared on the table the week before at 5.5% shorted but last week jumped to 7.6% shorted.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
AMC	1.7	4.3	RIO	4.6	4.6
ANZ	0.7	0.8	S32	0.8	0.8
BHP	3.0	3.0	SCP	1.2	1.3
BXB	0.3	0.3	SUN	0.5	0.5
CBA	1.2	1.4	TCL	0.8	1.0
COL	1.4	1.4	TLS	0.5	0.6
CSL	0.4	0.4	WBC	1.4	1.6
IAG	0.7	0.7	WES	1.6	1.6
MQG	0.9	0.8	WOW	1.7	1.8
NAB	1.2	1.2	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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