The Short Report – 14 Sep 2023

This story features FLIGHT CENTRE TRAVEL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: FLT

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

Summary:

By Greg Peel

Week Ending September 7, 2023.

The ASX200 plateaued last week after having recovered its losses from mid-August. This week Wall Street has been crushed by Apple, so we followed, exacerbated by the biggest week of ex-dividends.

Stop Press: as of last week there were no stocks shorted by 10% or more. I don’t believe this has ever happened in the history of this Report. Longstanding incumbent Flight Centre ((FLT)) dropped to 9.8% shorted from 10.5%, but recent moves suggest it could well be back up again by this week.

The big mover last week was Lake Resources ((LKE)), shorts in which fell to 5.9% from 8.3%. See below.

Shorts in perennial shorters’ favourite JB Hi-Fi ((JBH)) fell to 7.0% from 8.3%. This stock has chopped around since reporting in August but posted a modest rally last week. This may have prompted short covering, but JB Hi-Fi is a good candidate for long-short plays amongst discretionary retailers, so no conclusions can be drawn.

Shorts in Elders ((ELD)) had moved up a percentage bracket each of the past three weeks, but last week only ticked up to 9.1% from 9.0%.

I noted in last week’s Report that rare earths miner Arafura Resources ((ARU)) made a debut on the 5%-plus shorted table, having posted a bigger than expected FY23 loss due to the pullback in neodymium/praseodymium price.

Arufura joined a large cohort of “new world” metal miners on the table, which is challenged only by the list of discretionary retailers.

Well, last week another miner debuted, being Tietto Minerals ((TIE)). This one is a more old-fashioned gold miner, albeit in Africa's Ivory Coast.

Weekly short positions as a percentage of market cap:

10%+

No stocks

Out: FLT

9.0-9.9%

PLS, FLT, SYR, ELD

In: FLT, SYR                         

8.0-8.9%

IEL, LKE, JBH, IEL, BRN

Out: SYR, LKE, JBH, BRN

7.0-7.9%

BRN, SHV, MSB, CXO, APX, LLC, SYA, JBH

In: BRN, JBH, LLC, SYA                  Out: 29M

6.0-6.9%

ACL, BOQ, DMP, HVN, AMA, OBL, ZIP

Out: LLC, SYA

5.0-5.9%

LKE, ARB, TIE, TPW, LIC, ARU, BRG, VUL, BBN, CCP, LYC, IFL

In: LKE, TIE, IFL                 

Movers & Shakers

Lake Resources has lost over -70% since peaking in May amidst difficulties with its new lithium extraction technology, including -19% last week.

The company published a Preliminary Assessment of its Kachi Lithium Brine Project in Argentina and it was not good news. The assessment followed major management and board resets, which Bell Potter noted, in combination with the assessment, negatively affected the size and timing of the project.

The project’s Definitive Feasibility Study, now due by the end of this year, will address a 25ktpa Lithium Carbonate project, down from 50ktpa, prior to the preliminary assessment, and first production has been postponed to 2027 from 2024.

The capital expenditure bill has as good as doubled since last being projected in March 2021, and operational expenditure forecasts have increased 50%.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.7	0.7	NCM	0.3	0.3
ANZ	0.4	0.4	RIO	1.3	1.4
BHP	0.2	0.1	S32	0.3	0.2
CBA	1.4	1.4	STO	1.3	1.4
COL	0.8	0.7	TCL	0.3	0.4
CSL	0.5	0.4	TLS	0.3	0.2
FMG	1.2	1.3	WBC	1.9	1.8
GMG	0.6	0.5	WDS	1.0	1.0
MQG	0.6	0.6	WES	0.8	0.8
NAB	0.9	0.8	WOW	0.7	0.5

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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