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The Short Report – 10 Sep 2020

Weekly Reports | Sep 10 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 September 3, 2020

Last week included the last couple of days of August and the beginning of September. The last day of August saw a big end-of-month sell-off. When the clock struck September, that sell-off was completely reversed.

So nothing to glean from that. But then the Nasdaq corrected and the ASX200 has this week felt obliged to follow suit.

Two things stand out in the table below. One is the number of stocks shorted by 5% or more has again diminished, by a net three. The other is that Webjet ((WEB)) now stands alone in the 10%-plus shorted bracket, and by a mile. Webjet was 15.4% shorted as at last week, and next most shorted is Myer ((MYR)), which dropped to 9.5%.

Myer fell from 11.3%. More on that below.

Other stocks to see short position changes of one percentage point or more last week were Orocobre ((ORE)), to 7.7% from 9.2%, IOOF Holdings ((IFL)), to 8.9% all the way from 5.6%, and FlexiGroup ((FXL)), to 7.8% from 5.8%.

More on those below.

Also wee saw Electro Optic Systems ((EOS)) appear at 6.3% shorted from below 5%. The stock is is not covered by FNArena database brokers, but seems popular with the tip sheets, other than one.

Simply Wall St published a report a couple of weeks ago questioning whether the company’s reported metrics (Electro is yet to break even) might be sending negative signals. This may, or may not, explain short interest.

Weekly short positions as a percentage of market cap:

10%+
WEB   15.4

Out: MYR

9.0-9.9

MYR, IVC

Out: ORE       
                                               
8.0-8.9%

IFL, ING

In: IFL, ING

7.0-7.9%

CUV, FXL, ORE, NEA, BOQ

In: FXL, ORE             Out: ING, CTD

6.0-6.9%

FNP, CTD, PNV, MTS, GXY, EOS, BIN, FLT, SGM, A2M

In: CTD, EOS, FLT. A2M                 Out: Z1P, JBH

5.0-5.9%

SUL, AVH, LOV, Z1P, JIN, ALG, SEK, BUB, BEN, PGH, JBH

In: Z1P, JBH, JIN, BEN                   

Out: IFL, FXL, FLT, A2M, MSB, CLH, AMA, NEC, CLQ

Movers & Shakers

In a desperate attempt to remain relevant in a world that long ago moved on, department chain Myer has signed a deal with Amazon to act as a pick-up point for Amazon’s online sales. The deal was worth a 16% rally on the announcement.

Myer hopes this will bring more foot traffic to its largely empty stores, hence one might assume Amazon shoppers will be directed past as much of the Myer displays as possible before finally finding a little window down the back somewhere.

Myer shorts fell to 9.5% from 11.3% last week on short covering, but today the shares are down -12% (as I write) after reporting an -800% year on year fall in profit, to a loss of -$172m, mostly due to writing down the book value of its brands.

Fund manager IOOF Holdings last week launched a very big capital raising in order to acquire MLC Wealth from National Australia Bank. That in itself explains the big jump in shorts to 8.9% from 5.6% (takeover arbitrage) but given the fact MLC has not seen positive funds flows for years, there have been some questions asked.

Lithium miner Orocobre also announced a capital raising with its result last week.

FlexiGroup has been on the nose with investors ever since announcing late last month it was expanding its consumer finance business to include a BNPL service, or as analysts saw it, to jump on the increasingly crowded BNPL bandwagon. As of this week, that bandwagon now includes PayPal.

A move in shorts up to 7.8% from 5.8% implies shorters smell blood.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 4.2 4.1 NCM 0.1 0.3
ANZ 0.8 1.0 RIO 1.7 1.7
BHP 4.3 4.3 SCG 1.3 1.1
BXB 0.2 0.2 SUN 0.6 0.4
CBA 0.6 0.5 TCL 0.5 0.5
CSL 0.3 0.4 TLS 0.3 0.4
GMG 0.5 0.6 WBC 0.7 0.7
IAG 0.8 0.9 WES 0.5 0.6
MQG 0.3 0.3 WOW 0.3 0.2
NAB 1.1 1.0 WPL 1.3 1.1

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

EOS FXL IFL MYR ORE WEB

For more info SHARE ANALYSIS: EOS - ELECTRO OPTIC SYSTEMS HOLDINGS LIMITED

For more info SHARE ANALYSIS: FXL - Flexigroup

For more info SHARE ANALYSIS: IFL - IOOF HOLDINGS LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

For more info SHARE ANALYSIS: ORE - OROCOBRE LIMITED

For more info SHARE ANALYSIS: WEB - WEBJET LIMITED