The Short Report

This story features SLATER & GORDON LIMITED, and other companies. For more info SHARE ANALYSIS: SGH

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.

Summary:

Week ending July 16, 2015.

Last week saw the ASX200 bottom out under the 5500 mark before taking off on Greek parliamentary approval of the new reform package and surging back through 5600 by week’s end.

In last week’s Report I noted average market short positions had reached their highest level for the year at 3.0%, compared to the trend level of 2.6%, which may explain why the index shot swiftly back up to 5700 before failing spectacularly yesterday. However our table below shows a fairly balanced mix of red and green, suggesting short-covering was not a lone driving force last week.

Top-of-the-table Myer was on stock which saw a reasonable reduction in shorts last week, but it’s rather academic given Myer retains the number one spot at 20% shorted.

Slater & Gordon ((SGH)) was welcomed into the elite 10% plus club for the first time, while pet care sensation Greencross ((GXL)) is also attracting some non-believers as it moves up the brackets. There were no short position reductions in our table in excess of one percentage point.
 

Weekly short positions as a percentage of market cap:

10%+

MYR   20.0
MTS    19.6
ORI     14.4
MRM  13.2
MND   13.1
MIN    12.7
CAB    11.1
WOR   11.1
PRY    10.9
SGH    10.2
FLT     10.1
FMG   10.0

In: SGH          Out: AGO

9.0-9.9%

UGL, AGO, SXY, CDD
 
In: AGO                      Out: MGX, DSH                   

8.0-8.9%

DSH, MGX, GEM, NWH, WOW, PRG, GXL

In: MGX, DSH, GEM, WOW, PRG, GXL           Out: SGH

7.0-7.9%

SEK, NXT, SGM, KAR, SUL, GWA, MSB, JBH, AWE

In: JBH                  Out: GEM, WOW, PRG, GXL, ACR, KCN, JHC

6.0-6.9%

KCN, ACR, JHC, WHC, DOW, SGN, ILU, SWM, PDN, SPO

In: KCN, ACR, JHC, PDN, SPO                  Out: JBH, IGO, OFX, AWC

5.0-5.9%

NWS, AWC, OFX, PBG, CAR, NEC, BCI, ARI, TFC, STO, IGO, TEN, ASL

In: AWC, OFX, IGO             Out: SPO, PDN, ALQ, TRS, BPT

Movers and Shakers

Anachronistic department store Myer ((MYR)) enjoyed a full 1.3 percentage points of short position reduction last week but even this wasn’t enough to prevent the stock maintaining its now long-held status as most shorted on the market. At 20.0%, Myer nevertheless only just pips under-siege Metcash ((MTS)) in second with 19.6%. Daylight is third.

Slater & Gordon ((SGH)) was thumped a couple of weeks ago on admissions of incorrect reporting by its new UK acquisition, and has not yet recovered. There has been no new news on that front, but S&G shorts continue to increase and last week the stock jumped into the 10% plus club with a 1.6ppt jump to 10.2% from 8.6%.

Fast-growing pet care specialist Greencross ((GXL)) has been a bit of a high flyer of late but brokers have lately become concerned the company might just be growing a little too much too quickly. Macquarie nevertheless reiterated its Outperform rating last week, but Greencross shorts rose 1.0ppt to 8.0% from 7.0%.
 

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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