The Short Report

This story features RELIANCE WORLDWIDE CORP. LIMITED, and other companies. For more info SHARE ANALYSIS: RWC

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 December 1, 2016

Last week saw the ASX200 rise up to kiss the 5500 resistance level twice, and fail twice. It is in this week we’ve seen the rapid Italian referendum sell-off and rebound, and we have now pushed through 5500.

Last week saw telco Vocus Communications ((VOC)), which had already fallen sharply, tank once more on weak guidance. Shorters were not yet prepared to take profit however, given Vocus shorts increased to 9.5% from 8.7%.

It was in the current week infant formula exporter Bellamy’s Australia crashed over 40% on a profit warning. There’ll be some disappointed shorters out there, given last week Bellamy shorts fell to 11.4% from 12.8%.

As Bellamy’s moved slightly down the 10% plus table, SaaS company Aconex moved up, rising to 13.9% from 12.5% to take the position of third most shorted.

I noted in last week’s Report that plumbing supplier Reliance Worldwide had made a debut appearance into the bottom of the 5% plus table. Last week Reliance shorts moved up to 6.2% from 5.1%.

And last week we saw building materials supplier Boral leap up into the 5% table from nowhere, to 6.0% shorted. However in Boral’s case we can look to the company’s announced capital raising as a reason the shorters have moved in.

Weekly short positions as a percentage of market cap:

10%+

MYR   16.7
WSA   14.4
ACX   13.9
WOR   11.8
NEC    11.6
MTS    11.5
BAL    11.4
TFC     10.7
MND   10.2

No changes

9.0-9.9%

SYR, VOC, ORE
 
In: VOC, ORE                        Out: AWC, HSO       

8.0-8.9%

AWC, HSO, GEM, JHC, MTR, NWS

In: AWC, HSO                       Out: VOC, ORE                                

7.0-7.9%

FLT, IGO, DOW, MYO, EHE, BEN, NXT, CVO, GTY, IVC

In: EHE, NXT, GTY                          Out: IFL

6.0-6.9%

IFL, OFX, SGH, BKL, SEK, MSB, RWC, PRY, ILU, RIO, OSH, AWE, BLD

In: IFL, OFX, RWC, BLD                 Out: GTY, EHE, NXT, WOW, ORI

5.0-5.9%

WOW, ORI, BGA, GOR, CAB, SUL, MLX, PDN, CSV, CSR, SPO, DMP

In: WOW, ORI, CSV             Out: OFX, RWC

Movers and Shakers

It’s been a wild old year for dairy products company, and most specifically infant formula producer, Bellamy’s Australia ((BAL)). When the Chinese started buying every can of formula they could get their hands on last year, Bellamy’s share price flew. When at the beginning of the year Beijing jumped in to implement restrictions, the share price tanked.

When peers such as a2 milk Company and Blackmores (a peer in selling dietary supplements to the Chinese) suggested the impact of new restrictions were not proving material, Bellamy’s share price rose again. But last Friday, when the company issued a profit warning on the basis there was indeed an impact on sales to China, the shares fell 43% in one day.

In the week leading up to last Friday, Bellamy’s shorts fell 1.4 percentage points to 11.4%. There’ll be a short trader or traders out there ruing that decision.

Software-as-a-service company Aconex ((ACX)) has not said or done anything for a couple months that has prompted Australia’s major broking houses to update forecasts, yet it seems the stock appears in either the ASX top ten gainers or decliners list almost daily. The trend has been down since the company’s AGM, but daily moves are often all over the shop.

Suffice to say, Aconex shorts last week rose 1.4ppt to 13.9% to make the stock the third most shorted on the ASX.

Plumbing supplier Reliance Worldwide ((RWC)) is well liked by analysts but there is some disagreement on a rich valuation. This probably explains why Reliance, which again has issued no new news lately, snuck into the bottom of the 5% plus table the week before and last week rose another 1.1ppt to 6.2%.

Building materials supplier Boral ((BLD)) last week announced the acquisition of a US fly ash company and a subsequent $2 million capital raising at an attractive discount to the prevailing share price. From nowhere, Boral has appeared in the table at 6.0% shorted.

Nothing sinister, just a typical hedge fund play of attempting to arbitrage the discount by shorting the shares and buying the rights issue.

 

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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