The Short Report – 06 May 2021

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

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

Summary:

By Greg Peel

Week Ending April 29, 2021.

Last week saw the ASX200 bang around without conviction in the 7000-7100 range.

But while nothing much may have been happening at the index level, suddenly, after weeks of not a lot happening in short-land, we saw some big moves in positions last week.

There have been a lot of ups and downs seen among the travel agent stocks ever since the first vaccines were unveiled. One minute the future looks bright and then soon after it doesn’t. Most recently the Trans-Tasman bubble offered hope, at least until covid started running riot in India.

The general trend over the past month has ultimately been down. This has been inspiring shorters of Webjet ((WEB)) to take profits, dropping positions now all the way from a chart-topping 14% earlier to 9% two weeks ago, and then last week to 7.3% from 9.9%.

Flight Centre ((FLT)) had been steadily rising back up the charts but last week fell to 8.9% from 9.2%.

The more astonishing moves last week nonetheless came from the online retail sector. Big increases in short positions were seen in Kogan ((KGN)), Temple & Webster ((TPW)) and JB Hi-Fi ((JBH)). See below.

The other two big movers come from the tech space, being BNPL company Zip Co ((Z1P)) and internet/cloud networking business Megaport ((MP1), which both fell from the 7% bracket into the 5% bracket. See below.  

Weekly short positions as a percentage of market cap:

10%+

No stocks

9.0-9.9

TGR, TPW, RSG

In: TPW          Out: WEB, FLT
           
8.0-8.9%

FLT, KGN, ING

In: FLT, KGN

7.0-7.9%

MTS, Z1P, MP1, TPW

In: WEB          Out: TPW, MTS, Z1P, MP1

6.0-6.9%

MTS, A2M, JBH

In: MTS, JBH             Out: ALK, IVC                     

5.0-5.9%

IVC, EOS, ALK, MSB, BVS, HUB, PNV, Z1P, MP1

In: MP1, Z1P, IVC, ALK                  Out: KGN, JBH, BGL, OBL

Movers & Shakers

Online furniture and homewares retailer Temple & Webster last month kicked off a bit of a reassessment of covid winners as quarterly updates cycled (year on year) the success that lockdowns brought. Could such growth be sustained?

It was not a great update from the company, so the market ran scared. But once analysts pointed out that the effective earnings “warning” was really all about stepping up investment to cash in on the structural shift to online, accelerated by covid, the stock recovered.

The shorters aren’t convinced nonetheless, taking Temple & Webster shorts up to 9.4% last week from 7.1%.

Just after Temple & Webster updated, Australia’s mini-Amazon, Kogan, followed suit. Kogan also faced the prospect of cycling year-ago success, and disappointed, being stuck with a lot of unsold inventory.

Analysts have long been debating whether the covid-inspired online binge would prove to be simply fly-by-night, or sustainable. Opinions basically land in the middle – covid has forced a step-jump in online penetration that represents a pull-forward of expected future growth, but there will likely be some easing back from those stellar initial numbers.

Kogan has been seen by the market as a bit of a canary in the coal mine, hence its shorts shot up to 8.7% last week from 5.3%, having entered the 5% bracket only the week before.

That canary led to a reassessment of another covid winner JB Hi-Fi – of work from home fame. While JB Hi-Fi is more bricks & mortar than online, the underlying question remains the same. Can covid sales levels be sustained? JB Hi-Fi shorts rose to 6.3% from 5.6% last week.

History suggests one shorts JB Hi-Fi at one’s peril.

We’re all familiar with the rise and rise of BNPL, with Zip Co seen as second runner to leader Afterpay ((APT)). But the general trend has not been without high levels of underlying volatility.

Having reported in mid-April the number of new customers it has secured in the US, Zip Co shares shot up 19% over two sessions. Not one to miss an opportunity, the company then announced a capital raising. The shares have been in steady decline ever since, but under the influence of the Nasdaq as much as anything else.

Zip Co shorts last week fell to 5.1% from 7.2%, as shorters likely cashed in on the raising.

No one much believed, or were even aware of, the Megaport story, right up until last month when the company provided an update. The stock then rallied 26% into this month. It has drifted off a bit since with Nasdaq weakness, but last week shorts fell to 5.1% from 7.1%.

Not much of a winner for the shorters.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.2	0.1	MQG	0.5	0.4
ANZ	1.0	1.0	NAB	1.1	1.1
APT	2.2	2.4	NCM	0.4	0.7
BHP	4.1	4.0	RIO	0.3	0.4
BXB	0.2	0.3	TCL	0.8	0.8
CBA	0.6	0.6	TLS	0.2	0.2
COL	0.5	0.4	WBC	0.9	1.0
CSL	0.3	0.2	WES	0.3	0.4
FMG	0.4	0.6	WOW	0.3	0.4
GMG	0.3	0.4	WPL	1.0	0.8

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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