The Short Report – 29 Jul 2021

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

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

Summary:

By Greg Peel

Week Ending July 22, 2021.

Last week saw another choppy period for the ASX200 as the market tried to decide whether to focus on local lockdowns or new highs on Wall Street. Up until yesterday, Wall Street won.

While there was not a lot of movement in short positons last week, the movements we do see nevertheless tell a tale.

Who wins in a lockdown? Online sellers of household goods. Last week JB Hi-Fi ((JBH)) fell off the table from 5.6% shorted, while Temple & Webster ((TPW)) dropped to 6.3% from 7.4% a sly move ahead of this week’s strong earnings result.

But shorts in Kogan ((KGN)) – Australia’s (slightly smaller) Amazon — rose to 10.2% from 9.7%. Surely Kogan can be included in the same group as the two above? See below.

Otherwise, shorters may have moved too early in reducing a2 Milk shorts to 6.6% from 7.2% last week. The stock had been enjoying a comeback until plateauing this month, but this week it has tanked on the possible implications from China’s crackdown on US-listed Chinese stocks.

Speaking of tanks, fish farmer Tassal Group ((TGR)) had been top of the short table earlier in the year but on a steady decline in share price, shorters had been taking profits. Tassal shorts moved up to 8.2% from 7.8% last week, ahead of last weekend’s Fairfax fish farming expose.

Weekly short positions as a percentage of market cap:

10%+
WEB   11.9
ZIP      11.7
FLT     10.2
KGN   10.2

In: KGN                     

9.0-9.9

No stocks

Out: KGN
           
8.0-8.9%

ING, TGR

In: TGR

7.0-7.9%

EOS

Out: TGR, TPW, A2M

6.0-6.9%

A2M, PNV, MSB, TPW, MTS

In: A2M, TPW, PNV

5.0-5.9%

IVC, RSG, COE, BGL

In: COE                      Out: PNV, JBH

Movers & Shakers

Strictly, Temple and Webster’s -1.1 percentage point drop last week would rate as more of a mover & shaker than Kogan’s 0.5ppt increase, but the question here is to why a lockdown winner from last year should (a) not have enjoyed a rally along with other online retailers on the new lockdowns, and (b), seen its short position go up, not down.

From February 2020 to October 2020, Kogan’s share price rallied 366%. Then the wheels fell off. The share price has since halved.

Aside from momentum and FOMO likely having driven Kogan’s valuation beyond credibility last year, the company overloaded on inventory, and failed to foresee soaring storage costs.

While the new Sydney lockdown may provide an opportunity to finally offload some of that inventory, the risk is everyone bought what they needed for lockdowns last year and thus don’t need to do so again.

But if this were the case, the same would have to apply to both JB Hi-Fi and Temple & Webster – you don’t buy a new tablet or couch every year – yet both continue to enjoy elevated sales when analysts had all assumed the frenzy would have well abated by now.

Seems Kogan has a job in front of it.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.1	0.2	MQG	0.2	0.2
ANZ	0.8	1.0	NAB	0.9	0.9
APT	1.8	1.9	NCM	0.1	0.1
BHP	4.1	4.2	RIO	0.2	0.3
BXB	0.4	0.5	TCL	0.6	0.6
CBA	0.5	0.6	TLS	0.2	0.2
COL	0.6	0.6	WBC	0.8	0.9
CSL	0.2	0.2	WES	0.2	0.3
FMG	0.5	0.6	WOW	0.3	0.3
GMG	0.2	0.2	WPL	1.0	1.0

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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