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The Short Report – 03 Jun 2021

Weekly Reports | Jun 03 2021

This story features KOGAN.COM LIMITED, and other companies. For more info SHARE ANALYSIS: KGN

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

Summary:

By Greg Peel

Week Ending May 27, 2021.

Last week saw the ASX200 bottom out below 7000 before commencing a sharp rally back through 7100 and now 7200 this week, with just a brief profit-taking blip at end-month.

In terms of short position movements, as the table below suggests, there was very little going on last week. All the action was at the top.

There has been no new news out of Kogan ((KGN)) of late, but last week shorts increased to 12.6% from 9.9%. Having quantified its March quarter issues in late May, reflecting unmoved inventories, Kogan has since recovered the losses of that time.

Clearly the shorters see an opportunity.

Otherwise, Victoria went back into lockdown last week and the lockdown will now continue in Melbourne for another week, which has shorters fiddling around with their travel agent shorts. Webjet jumped back up to 10.4% shorted from 9.9%, while Flight Centre ((FLT)) fell to 9.3% from 10.4%.

No Movers & Shakers this week, but rather this is replaced with a warning out from ASIC with regard activist short selling. See below.

Weekly short positions as a percentage of market cap:

10%+

KGN   12.6
WEB   10.4
RSG    10.3

In: KGN, WEB           Out: FLT

9.0-9.9

TPW, TGR, FLT

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

EOS, MP1, ING

No changes                

7.0-7.9%

Z1P, JBH, MTS

No changes

6.0-6.9%

IVC, BVS, MSB, ALK, A2M

In: A2M                     

5.0-5.9%

BGL, OBL, PNV, NEA

In: COE          Out: A2M, AMP, NEA 

Movers & Shakers

See above.

ASIC Warning

“To protect the integrity of Australia’s securities markets, activist short sellers, target entities, market operators and market participants should apply the better practices outlined in INFO 255.

These include, for activist short sellers, releasing short reports outside normal trading hours; drawing on reliable information and avoiding overly emotive language. Target entities should seek a temporary trading halt to provide time to digest and comprehensively respond to the claims of activist short sellers.

ASIC also reminds market participants of their obligations to report suspicious short selling activity under the market integrity rules, and for market operators to maintain a fair, orderly and transparent market.”

The key here is separate “activist” short sellers from your common or garden short sellers.

Typically short sellers fall into two camps: those who genuinely believe a stock is overvalued and thus take on a “naked” short position in the expectation of a fall in share price; and those who hold an offsetting long position on the other side, such as another stock or options position, or ahead of a capital raising.

All of which is explained in detail in the Guide below.

An “activist” short seller is one who takes a short position in a stock, then informs the market of why it has done so – perhaps accusations of dodgy accounting or unrealistic projections or similar – setting off a run on the stock from which said short seller can buy back at a profit.

It is the reverse of the old “pump and dump” buy-side tactic popular last century, in which stock pickers of questionable repute would buy a stock, typically a little known small cap, espouse its virtues in a weekly Tip Sheet, and then take profits when the faithful rush in to buy.

ASIC calls the reports activist short sellers publish post selling the stock “short reports”. Please do not confuse this with FNArena’s weekly Short Report you are currently reading.

In recent times we’ve seen activist short sellers move in on the likes of TechnologyOne ((TNE)), Nearmap ((NEA)) and Tyro Payments ((TYR)).

Clearly any investor with some clout, such as a hedge fund, can undertake spurious activity via a “get set then tell everybody” strategy featuring a publicly published report on either sell or buy-side. ASIC is tasked with identifying these strategies as unlawful, in a similar vein to insider trading (being privy to non-public information and taking advantage).

It is notable that all funds in the US open to public investment must, following the end of each quarter, disclose all the stocks they bought and sold in that period and what they now hold. The most anticipated is that of Berkshire Hathaway, which always triggers a reaction in noted stocks.

Even though Buffett’s trades could be by now months old.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 0.2 0.3 MQG 0.2 0.3
ANZ 1.0 0.9 NAB 0.9 1.0
APT 1.9 1.9 NCM 0.1 0.3
BHP 4.2 4.2 RIO 0.3 0.3
BXB 0.5 0.5 TCL 0.6 0.7
CBA 0.6 0.6 TLS 0.2 0.2
COL 0.6 0.6 WBC 0.9 0.9
CSL 0.2 0.2 WES 0.3 0.3
FMG 0.6 0.5 WOW 0.3 0.3
GMG 0.2 0.3 WPL 1.0 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

FLT KGN NEA TNE TYR

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

For more info SHARE ANALYSIS: KGN - KOGAN.COM LIMITED

For more info SHARE ANALYSIS: NEA - NEARMAP LIMITED

For more info SHARE ANALYSIS: TNE - TECHNOLOGY ONE LIMITED

For more info SHARE ANALYSIS: TYR - TYRO PAYMENTS LIMITED