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The Short Report – 13 Aug 2020

Weekly Reports | Aug 13 2020

This story features WEBJET LIMITED, and other companies. For more info SHARE ANALYSIS: WEB

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

Summary:

Week ending August 6, 2020

Last week the ASX200 opened with a plunge through 6000 support as Melbourne went into stage 4 lockdown, but it swiftly rebounded on Wall Street strength to recover support.

While there are still very few stocks towards the top of the table, the feature of last week was Webjet ((WEB)) and Inghams Group ((ING)) moving up into the 10% shorted space leaving a vacuum behind in the 9s.

(Kirkland Lake Gold ((KLA)) disappeared from the top of the table, but this was just another occasional geographical arbitrage play over three different exchanges.)

Webjet jumped to 11.1% shorted from 9.5%, as travel agents are clearly a victim of re-lockdowns and re-closed borders. Webjet is also the most domestically-focused amongst peers, and we note Flight Centre ((FLT)) dropped down a bracket last week to join Corporate Travel Management ((CTD)) in the 6s.

All travel agent stocks have rocketed back this week on rotation into cyclicals, so next week’s positions will be interesting.

Inghams sells chooks to both supermarkets on the one hand and restaurants on the other. The net virus effect thus cancels itself out on a cook-at-home and don’t-go-out theme, and indeed the stock price has neither much suffered nor benefited comparatively since February.

Yet the shorters seem to have it in for Inghams.

The only other stock to see a short position change of one percentage point or more last week was FlexiGroup ((FXL)). See below.

Otherwise we might note that heading into result season, the 5%-plus table reduced by three stock last week, with no newcomers.

Weekly short positions as a percentage of market cap:

10%+
MYR   12.0
WEB   11.1
ING     10.1

In: WEB, ING                        Out: KLA

9.0-9.9

No stocks

Out: WEB, ING
                                               
8.0-8.9%

ORE, FXL

In: FXL           Out: Z1P

7.0-7.9%

IVC, BOQ, CUV, Z1P, NEA, GXY

IN: Z1P                       Out: FLT

6.0-6.9%

CTD, MTS, FNP, SGM, JBH, FLT, ALG

In: FLT, JBH              Out: FXL, PGH

5.0-5.9%

MSB, BIN, IFL, PGH, SUL, LOV, PNV, BEN, AMA, PLS, BUB, LYC, PBH, SEK

In: PGH                     

Out: JBH, CLH, PPT, DOW

Movers & Shakers

Finance and leasing company FlexiGroup had been recovering nicely up to July out of an initial — and understandable as a business and consumer finance company — virus plunge until it announced it was moving into the BNPL space.

Despite the roaring success of BNPL leader Afterpay, investors were not amused, seeing the move as a belated catch-up to the new hot space at an inappropriate time of consumer finance risk. A trading update last week nevertheless alleviated some of those fears, with customers in hardship not as numerous as expected.

The stock has rallied since, but shorters are not convinced, despite having all done their dough by shorting Afterpay previously. FlexiGroup shorts rose to 8.2% from 6.8% last week.

Those same shorters might have covered some positions in another BNPL player, Zip Co ((Z1P)), as a swap, as it dropped to 7.6% from 8.2%.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 4.3 4.3 NCM 0.3 0.4
ANZ 0.8 0.7 RIO 2.2 2.2
BHP 4.2 4.1 SCG 0.9 0.7
BXB 0.2 0.1 SUN 0.5 0.4
CBA 0.5 0.5 TCL 0.6 0.6
CSL 0.3 0.2 TLS 0.2 0.2
GMG 0.6 0.5 WBC 0.7 0.7
IAG 1.0 0.8 WES 0.4 0.4
MQG 0.2 0.2 WOW 0.2 0.1
NAB 0.9 0.7 WPL 1.2 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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CHARTS

CTD FLT FXL ING KLA WEB Z1P

For more info SHARE ANALYSIS: CTD - CORPORATE TRAVEL MANAGEMENT LIMITED

For more info SHARE ANALYSIS: FLT - FLIGHT CENTRE TRAVEL GROUP LIMITED

For more info SHARE ANALYSIS: FXL - Flexigroup

For more info SHARE ANALYSIS: ING - INGHAMS GROUP LIMITED

For more info SHARE ANALYSIS: KLA - KIRKLAND LAKE GOLD LIMITED

For more info SHARE ANALYSIS: WEB - WEBJET LIMITED

For more info SHARE ANALYSIS: Z1P - ZIP CO LIMITED