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The Short Report – 03 Mar 2022

Weekly Reports | Mar 03 2022

This story features TEMPLE & WEBSTER GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: TPW

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

Summary:

By Greg Peel

Week Ending February 24, 2022.

Last week was the biggest in the earnings season by a margin, and also the week the ASX200 succumbed to the invasion of Ukraine. The index fell -4.6% over the week.

The macro overlay made assessing the responses to earnings results difficult, if not meaningless. But we can note that in the bearish context, earnings beats were not necessarily rewarded and earnings misses were severely punished.

Online furniture & homewares retailer Temple & Webster ((TPW)) was one company defying market gravity when it reported back on February 9, jumping 11% before the macro down-force became too much in the interim. The market was set for a weak result. Last week Temple & Webster shorts fell to 7.1% from 8.1%.

The only other stock to see a reduction in short position last week from above 5% was New Hope Corp ((NHC)). It fell out of the table as coal prices soar.

Every other movement last week was an increase in short position, and lots of them, as the table below indicates. Shorters are not using market weakness to take profits – quite the opposite, especially among more vulnerable growth stocks.

These include Nanosonics ((NAN)), the shorts of which rose to 12.3% from 9.6%, and Appen ((APX)), up to 8.5% from 5.6%. See below.

Weekly short positions as a percentage of market cap:

10%+
FLT     15.5
NAN   12.3
BET     12.1
Z1P     11.3
KGN   10.9

In: NAN                     

9.0-9.9

MSB, WEB, PNV

In: PNV          Out: NAN
           
8.0-8.9%

RBL, APX, TYR, AMA

In: APX, TYR, AMA             Out: TPW

7.0-7.9%

OBL, EML, ING, TPW, MFG

In: TPW, EML, ING              Out: TYR, AMA

6.0-6.9%

PBH, EOS, RRL, CUV

In: CUV                      Out: ING, EML

5.0-5.9%

MTS, NEA, PDN, IEL, ADH, COE

In: NEA, PDN, IEL, ADH, COE      Out: APX, CUV, NHC

Movers & Shakers

Despite reporting in line with broker forecasts and its own guidance, medical device company Nanosonics fell -10% on the day of its result.

Nanosonics’ sales were up 41% in the half, and momentum appears to have continued into the early second half. The share price decline in response is a continuation of selling pressure that has seen the stock fall -25% in the past month, which Morgans attributes to concern around the GE Health transition and CORSIS commercial launch.

Staffing shortages are likely to affect US ultrasound procedures coinciding with the transition to a more direct distribution model. As a result, Ord Minnett is concerned sales growth may be stymied even when the pandemic recedes.

Shorters smell blood, increasing positions to 12.3% from 9.6%.

AI company Appen ((APX)) fell -29% on the day of its result release. This has to be put in the context of the ASX200 itself falling -2.8% on the day, but in contrast to Nanosonics, Appen missed broker forecasts and its own guidance.

The company has indicated it will stop providing annual guidance and focus on a five-year target to double revenue and increase margins as well as diversify. In this game, you don’t withdraw guidance and expect investors to be happy about it.

Appen shorts have shot up to 8.5% from 5.6%.

ASX20 Short Positions (%)

Code Last Week Week Before Code Last Week Week Before
ALL 0.1 0.1 NAB 0.6 0.6
ANZ 0.9 0.7 NCM 1.5 0.8
BHP 0.4 0.4 RIO 0.4 0.6
BXB 0.5 0.4 TCL 0.5 0.5
CBA 0.8 0.7 TLS 0.2 0.2
COL 0.5 0.5 WBC 1.8 1.7
CSL 0.2 0.2 WES 0.3 0.3
FMG 1.4 1.5 WOW 0.4 0.3
GMG 0.2 0.3 WPL 2.1 1.5
MQG 0.3 0.3 0.0 0.0

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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CHARTS

APX NAN NHC TPW

For more info SHARE ANALYSIS: APX - APPEN LIMITED

For more info SHARE ANALYSIS: NAN - NANOSONICS LIMITED

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

For more info SHARE ANALYSIS: TPW - TEMPLE & WEBSTER GROUP LIMITED