Rudi’s View: Hope Trumps Uncertainties

Rudi's View | 12:11 PM

Hope Trumps Uncertainties

By Rudi Filapek-Vandyck, Editor

Pay attention to short positions.

The February result season for corporate Australia has hardly gained any traction thus far, as the bulk of releases occurs in the second half of the month, but already some market watchers have noted the outsized responses post market updates by Domino's Pizza ((DMP)) and Nick Scali ((NCK)).

Prior to last week's updates, some 12.85% of shares in Domino's Pizza were positioned for a further fall in the share price while the percentage of short positions in the furniture retailer stood only a smidgen short of 5%.

Both shares have rocketed higher following another weak performance from Domino's, but with management announcing further reductions in underperforming outlets, and following better-than-expected financials from Nick Scali, with further improvement to follow from the UK operations.

Other companies with large short positions include IDP Education ((IEL)), Star Entertainment ((SGR)), Megaport ((MP1)), Lifestyle Communities ((LIC)), Droneshield ((DRO)), Cettire ((CTT)), Johns Lyng ((JLG)), and Corporate Travel Management ((CTD)), outside of uranium companies and smaller cap resources companies.

If these two early examples prove indicative of what is yet to follow next over the coming three weeks, there will be a lot of fireworks in case financial releases prove not-as-bad-as-feared, or better.

FNArena keeps track of local shorts data as compiled by ASIC via a dedicated segment on the website: https://fnarena.com/index.php/analysis-data/the-short-report/

Analysts at Macquarie highlighted on Monday other consumer-related companies such as Eagers Automotive ((APE)), Endeavour Group ((EDV)), Lovisa Holdings ((LOV)) and BRG Group (Breville) ((BRG)) equally have sizable short positions.

In particular the latter company is currently the subject of a lively public debate among analysts. Has the share price rallied too far, too quickly in the face of potential headwinds from US import tariffs?

Some analysts have nominated BRG Group for a positive surprise when the company reports on February 11 (tomorrow), while others seem convinced the risk is to the downside.

The shares are up some 40% since mid last year, so this pre-result set up could prove interesting.

UBS' Picks For February

Analysts at UBS nominated Breville for a negative outcome, alongside packaging company Orora ((ORA)) and recycler Sims ((SGM)).

The broker's list for potential upside surprises is a lot larger: Amotiv ((AOV)), Downer EDI ((DOW)), Temple & Webster ((TPW)), BlueScope Steel ((BSL)), GPT Group ((GPT)), Cleanaway Waste Management ((CWY)), Servcorp ((SRV)), Worley ((WOR)), Light & Wonder ((LNW)), Dicker Data ((DDR)), and Life360 ((360)).

Here the inclusion of Dicker Data stands out as the leading distributor of IT hardware and software across the Tasman Sea has been identified elsewhere for downside potential.

The conference call between management at JB Hi-Fi ((JBH)) and analysts on Monday revealed some interesting on-the-ground insights, potentially, regarding BRG Group and Dicker Data.

JB HiFi's financial performance yet again beat market forecasts, although there was no reward for a share price that had already rallied by some 80% since April last year.

JB Hi-Fi has seen vacuum cleaner sales pick up post the collapse of Godfreys some 11 months ago while the coffee category has equally been a strong performer.

Its computing category is back into growth post two years of post-covid normalisation, assisted by new AI driven demand, but competition is fierce and consumers are looking for price discounts and bargains.

JB Hi-Fi's business in New Zealand continues to struggle with the overall downbeat environment and will remain loss-making in H2.

As also pointed out last week, a number of less-than-perfect market updates feature disappointment from US-based operations, including from Car Group ((CAR)) on Monday.

Ansell ((ANN) was included in UBS's positive selection too and this proved prescient when the manufacturer of latex products reported on Monday.