The Short Report – 02 Jul 2020

This story features PERPETUAL LIMITED, and other companies. For more info SHARE ANALYSIS: PPT

See Guide further below (for readers with full access).

Summary:

Week ending June 25, 2020

Last week saw the ASX200 bounce around like a ping pong ball to eventually go nowhere.

It’s getting very thin at the top. While the number of stocks 5% shorted or more remained relatively static last week, the dispersion of positions became increasingly stark, with only eleven stocks now shorted by 7% or more and 24 stocks in the 5-7% range.

We still can’t get down to only one stock in the 10%-plus range nevertheless. Perpetual ((PPT)) dived out last week, but Webjet ((WEB)) stepped up. Indeed, with Victoria walled in and a return to international travel looking ever more distant, all three major travel agents saw ticks up in shorts last week.

We will note numero uno Myer’s ((MYR)) share price shot up 18% on the last day of the financial year, which is nothing special when trading around 20c, but next week’s Report may be interesting.

There were some big moves in individual positions to note last week, including those of Perpetual, FlexiGroup ((FXL)), Freedom Foods ((FNP)) and Super Retail ((SUL)).

Time to bring back Movers & Shakers. See below.

We might also note a couple of new kids on the 5%-plus shorted block, in the form of theme park operator Ardent Leisure ((ALG)) and panel beater AMA Group ((AMA)). Queensland reopening should help one, and more cars back on the road the other.

Shorters don’t agree.

Weekly short positions as a percentage of market cap:

10%+
MYR   12.6
WEB   10.1

In: WEB          Out: PPT

9.0-9.9

ING

Out: WEB      
                                               
8.0-8.9%

BOQ, NEA, SXL, CUV

In: SXL           Out: SUL

7.0-7.9%

GXY, JBH, FXL, ORE

In: FXL                       Out: PLS, SEK, MTS

6.0-6.9%

FNP, MTS, SEK, PPT, PGH, PLS, SGM, FLT, JIN, CTD, LOV

In: PPT, MTS, SEK, PLS, FNP, FLT, CTD               Out: NCZ, Z1P

5.0-5.9%

LYC, Z1P, IVC, CLH, MSB, SUL, CGF, IFL, BEN, NCZ, ALG, AMA, CLQ

In: SUL, Z1P, NCZ, MSB, CGF, IFL, ALG, AMA            

Out: FLT, CTD, CSR, HUB, MYX, NEC

                       
Movers & Shakers

Super Retail enjoyed a big share price jump after providing a surprisingly positive trading update mid last month, but the company also announced a capital raising. Shorters playing the arbitrage (short the stock and apply for new shares at a discount) moved in, taking shorts to over 10%.

Raising completed, shorts fell to 8% and then last week to 5.5%.

Shorts in fund manager Perpetual rose to 10.3% two weeks ago from 8.2%, but last week fell to 6.6%. The company had a bump up last week on the completion of its acquisition of ESG specialist Trillium, which may explain the volatility.

Finance company FlexiGroup is shaping up its presence into the increasingly popular BNPL space, which the market seemed to like but Credit Suisse didn’t, suggesting now is not the ideal time and downgrading the stock to Neutral.

Shorters clearly agree. FlexiGroup shorts rose from under 5% to 7.1% last week.

Also jumping from below 5% on to the table last week, at 6.9%, was the current nightmare that is dairy and cereal producer Freedom Foods ((FNP)). First the CFO resigned, then the CEO went “on leave”, then he came back, then he resigned, all over the failure to account for out of date inventory that is now expected to be written down by some -$60m.

The stock is in a trading halt until July 9. 

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	3.9	4.1	NCM	0.3	0.3
ANZ	0.7	1.0	RIO	2.3	2.2
BHP	4.1	4.4	SCG	0.5	0.7
BXB	0.1	0.3	SUN	0.7	0.7
CBA	0.5	0.5	TCL	0.7	0.8
CSL	0.2	0.2	TLS	0.2	0.2
GMG	0.4	0.5	WBC	0.8	0.8
IAG	0.6	0.6	WES	0.5	0.7
MQG	0.3	0.3	WOW	0.3	0.6
NAB	0.8	0.9	WPL	1.1	1.2

To see the full Short Report, please go to this link

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.

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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