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The Short Report

Weekly Reports | Apr 06 2017

This story features SYRAH RESOURCES LIMITED, and other companies. For more info SHARE ANALYSIS: SYR

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 March 30, 2017

Last week saw the ASX200 rally up to 5900 before meeting resistance, fuelled to a great extent by a flood of dividend payments that needed reinvestment.

There were some sizeable moves at the top of the 10% plus table last week but not enough to much shuffle around the top five most shorted stocks. Orecobre ((ORE)) shorts rose to 20.1% from 19.1% and Syrah Resources ((SYR)) shorts to 15.3% from 13.9%, while shorts in Western Areas ((WSA)) fell to 17.6% from 18.8%, Aconex ((ACX)) to 16.6% from 17.6% and Myer ((MYR)) to 13.1% from 14.7%.

The shorters continue to build positions around the battery theme (Orocobre, Syrah) while Myer continues to fall on speculation Solomon Lew’s Premier Investments ((PMV)) may be priming for a takeover.

On the subject of takeovers, last week saw Spotless Group ((SPO)) fall out of the 5% plus table altogether, from 6.5%, as one might expect following the sizeable bid from Downer EDI ((DOW)). Downer shorts have fallen to 5.0% from 8.6% on a steep drop in share price.

One might have expected Debbie would have done Ardent Leisure ((AAD)) no favours, but Ardent, too, is now the subject of takeover speculation. Ardent shorts jumped to 8.6% last week from 6.4%.

I noted last week that Harvey Norman ((HVN)) had suddenly appeared in the table at 7.4% shorted having come from oblivion. Last week had Harvey shorts at 8.0%. With a bullet?

Weekly short positions as a percentage of market cap:

10%+

ORE    20.1
WSA   17.6
ACX   16.6
SYR    15.3
MYR   13.1
QIN     11.4
VOC   11.4
NEC    10.8
DMP   10.6
MTS    10.2
MYX   10.0

In: MYX         Out: IGO                   

9.0-9.9%

ISD, IGO
 
In: IGO                      Out: MYX, OFX                                           

8.0-8.9%

OFX, ILU, PRU, AAD, BAL, FLT, HVN

In: OFX, AAD, BAL, HVN              Out: DOW, NWS      

7.0-7.9%

GTY, NWS, RWC, NXT, MND, BGA

In: NWS, BGA                       Out: BAL, HVN, A2M

6.0-6.9%

IPD, A2M, RFG, EHE, BDR, CSV, HSO, SGH, IFL, PDN, KAR, MYO, MTR, JHC, MSB

In: A2M, JHC             Out: AAD, BGA, SPO, GXL, IVC, BEN

5.0-5.9%

CTD, GXL, SEK, AAC, AWC, RIO, IVC, BEN, CSR, BKL, OSH, AWE, WOR, LNG, SUL, DOW

In: DOW, GXL, IVC, BEN              

Out: JHC, SRX

Movers and Shakers

Diversified contractor Downer EDI made a takeover bid for catering (among other things) company Spotless Group at a substantial premium and as is typically the case in a takeover situation, the share price of the target soared and of the suitor fell. In this case Downer shares fell quite hard, given analysts could not come up with anything positive to say about the move.

As we might expect, shorters of Spotless had to scramble to cover hence shorts in the company have now fallen to below 5% from 6.5% prior. We can only assume that the sharp fall in Downer’s share price was sufficient to prompt profit-taking among shorters given Downer shorts have fallen all the way to 5.0% from 8.6%.

Or maybe the ASIC data is wrong. We’ll keep an eye out next week.

Having suffered the tragedy at Dreamworld, then surprising the market with weak results from its flagship Main Event business in the US, you’d think the last thing Ardent Leisure needed was a tropical cyclone and Gold Coast floods. But Ardent shares rose 15% last week.

The reason is a move by property investor Ariadne Australia ((ARA)) on Ardent’s register, taking the company’s stake to over 6%. Naturally this sparked takeover speculation, prompting the subsequent jump in share price.

Ariadne has hosed down suggestions of a takeover, preferring, apparently, to work closely with Ardent’s board. Solomon Lew initially denied any interest in Myer as well. It appears the shorters are taking Ariadne on its word as they has increased, rather than covered, shorts in Ardent to 8.6% from 6.4%.
 

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

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

ARA DOW HVN MYR PMV SYR

For more info SHARE ANALYSIS: ARA - ARIADNE AUSTRALIA LIMITED

For more info SHARE ANALYSIS: DOW - DOWNER EDI LIMITED

For more info SHARE ANALYSIS: HVN - HARVEY NORMAN HOLDINGS LIMITED

For more info SHARE ANALYSIS: MYR - MYER HOLDINGS LIMITED

For more info SHARE ANALYSIS: PMV - PREMIER INVESTMENTS LIMITED

For more info SHARE ANALYSIS: SYR - SYRAH RESOURCES LIMITED