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The Short Report – 03 Feb 2022

Weekly Reports | Feb 03 2022

This story features EML PAYMENTS LIMITED, and other companies. For more info SHARE ANALYSIS: EML

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

Summary:

By Greg Peel

Week Ending January 27, 2022.

Last week saw a Fed-led -7.3% capitulation for the ASX, with the ASX200 closing the week at 6801 ahead of the subsequent rebound. Such a move can inspire shorters to act in one of two ways.

Either they can seize the opportunity to take profits on short positions as share prices plunge, or they can take the reasons behind the plunge (not just the Fed, but also a slew of local profit-warnings with “supply constraints” the common theme) and decide there may be more to come.

As the sea of red on the table below suggests, they chose the latter. The ASX200 rebounded 4.2% this week.

Most of the red below is a result of stocks creeping up one percentage bracket. But there are lots of them.

Also we saw five stocks appearing or reappearing in the 5% shorted bracket last week, namely EML Payments ((EML)), Monadelphous ((MND)), InvoCare ((IVC)), New Hope Corp ((NHC)) and Clinuvel Pharmaceuticals ((CUV)), for a net addition of four stocks to the table.

Beach Energy ((BPT)) was the only stock to fall out, which may be a case of profit-taking.

Ignoring Kirkland Lake Gold ((KLA)), the big move up in shorts last week was for gold miner Regis Resources ((RRL)), to 7.6% from below 5%. See below.

On the flipside, BetMakers Technology ((BET)) fell out of the table from 7.1%. See below.

Lastly we note BHP Group ((BHP)) shorts were still sitting above 10% last week. The collapse to a sole Australian listing was completed yesterday, so we should see those shorts disappear this week.

Weekly short positions as a percentage of market cap:

10%+
KLA    15.6
FLT     15.3
KGN   12.0
BHP    10.4
Z1P     10.3

In: KLA                                 

9.0-9.9

MSB, WEB

In: WEB          Out: RBL
           
8.0-8.9%

RBL, PNV

In: RBL, PNV                        Out: WEB

7.0-7.9%

APX, RRL, MFG, NAN, OBL, TPW, AMA, TYR

In: RRL, MFG            , OBL, TPW, AMA                Out: PNV, BET

6.0-6.9%

EOS, ING

In: ING           Out: KLA, TPW, OBL, AMA, MFG

5.0-5.9%

COE, MTS, EML, MND, IVC, PBH, A2M, PBH, NHC, CUV, BRG

In: EML, MND, IVC, NHC, CUV                Out: ING, BPT

Movers & Shakers

While the USD gold price did take a hit last week on the Fed policy change, Regis Resources specifically announced a wall slip at its Rosemount mine, permanently halting production and leading to a downgrade to full-year production guidance. The stock fell -15% on the announcement.

The Rosemount open pit was nonetheless scheduled to cease production in FY22, but for now Regis’ fortunes lay with its McPhillamy’s development. Morgans, for one, believes negative sentiment towards Regis Resources will outlast the operational impact. The shorters appear to agree.

BetMakers Technology is one of a myriad of global bookmakers looking to make an impact in the US, as state by state the market is opened up for legal sports betting. They can’t all be winners.

Which is likely why BetMakers appeared in the low end of the table last year, and two weeks ago was 7.1% shorted. The company has subsequently hired a new CEO, an American, with 16 years experience in the US gaming industry. This news was worth a 21% pop for the share price.

BetMakers has disappeared off the 5%-plus table.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 0.1 0.1 MQG 0.2 0.3
ANZ 0.7 0.7 NAB 0.7 0.7
APT 0.0 0.2 NCM 1.2 1.5
BHP 10.5 10.1 RIO 0.4 0.5
BXB 0.4 0.4 TCL 0.3 0.3
CBA 0.6 0.6 TLS 0.4 0.4
COL 0.5 0.4 WBC 1.2 1.1
CSL 0.2 0.1 WES 0.3 0.2
FMG 2.2 2.2 WOW 0.3 0.2
GMG 0.3 0.1 WPL 1.6 1.6

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

BET BHP BPT CUV EML IVC KLA MND NHC RRL

For more info SHARE ANALYSIS: BET - BETMAKERS TECHNOLOGY GROUP LIMITED

For more info SHARE ANALYSIS: BHP - BHP GROUP LIMITED

For more info SHARE ANALYSIS: BPT - BEACH ENERGY LIMITED

For more info SHARE ANALYSIS: CUV - CLINUVEL PHARMACEUTICALS LIMITED

For more info SHARE ANALYSIS: EML - EML PAYMENTS LIMITED

For more info SHARE ANALYSIS: IVC - INVOCARE LIMITED

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

For more info SHARE ANALYSIS: MND - MONADELPHOUS GROUP LIMITED

For more info SHARE ANALYSIS: NHC - NEW HOPE CORPORATION LIMITED

For more info SHARE ANALYSIS: RRL - REGIS RESOURCES LIMITED