The Short Report

This story features BIONOMICS LIMITED, and other companies. For more info SHARE ANALYSIS: BNO

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 June 26, 2014

Last week saw more ASX 200 volatility, almost solely attributable to end of financial year shenanigans. Profit-takers and tax sellers slugged it out with window dressers and the sellers mostly claimed victory, leading to a soft year-end ahead of yesterday's big reversal rally. Year-end is potentially a good time to lock in profits on short positions as well, which may have been behind a big fall in St Barbara shorts last week.

Mesoblast continues to become the new favourite pairs trade now that things are hotting up in the local biotech sector. Acrux is still attracting rusted-on short interest while Bionomics' ((BNO)) game-changing Merck deal is likely responsible for a jump in Meso shorts last week. Telco junior iiNet seems also to be attracting pairs interest, a la its multinational peer SingTel, while Transfield has seen some short-covering. The sharks continue to circle Metcash, which failed to inspire last week with its profit result and new strategy initiatives.
 

Weekly short positions as a percentage of market cap:

10%+

COH   18.1
ACR    13.6
JBH     13.1
MND   12.8
MTS    11.9
TRS     11.7
PDN    11.2
UGL    11.1
ALQ    10.4
MYR   10.4
NWS   10.4

No change

9.00-9.99%

AGO, ILU, SGT

Out: MTU, BLY

8.00-8.99%

BLY, MTU, CAB, ASL, NXT, BKN

In: MTU, BLY, BKN            

7.00-7.99%

WHC, DSH, WSA, RRL

In: RRL           Out: BKN, TSE

6.00-6.99%

FMG, TEN, MSB, MIN, TSE, NUF, SGM

In: TSE, MSB Out: RRL, SCP

5.00-5.99%

SCP, BRU, VET, HVN, GWA, FLT, OZL, WTF, KAR, LYC

In: SCP           Out: SBM, NWH, SLR

Movers and Shakers

Last week I noted Mesoblast ((MSB)) has become something of a pairs trader’s plaything, given its short positions have been jumping up and down sharply of late, and suggested “This week’s deal announced by fellow biotech Bionomics ((BNO)) with pharma giant Merck will likely affect more pairs play in MSB”. I was right. Having seen a 2.7% fall in shorts the week prior, last week Meso shorts jumped back 1.9ppt to 6.4% from 4.5% to thrust the stock back into our table.

Metcash ((MTS)) reported its full-year earnings result last week and managed to achieve the lower ended of most recent guidance, which in the current retail climate was almost a positive result. Profits still declined for the year nevertheless, and while management has plans to address the various issues, the shorters continue to smell blood. MTS has moved up to fifth most shorted stock from seventh the week before with a 1.3ppt increase to 11.9% from 10.6%. MTS attracts five Sell ratings from eight brokers in the FNArena database.

St Barbara ((SBM)) is not popular with analysts and despite a sharp single-session jump in the gold price last week, has continued merrily on its downward slide. At least one shorter decided to cash in last week as SBM shorts dropped 3.0ppt to 2.7% from 5.7%, shooting the stock out of our table.

Transfield Services ((TSE)) has found some share price support of late following its successful debt restructure in May. Last week TSE dropped down a bracket in our table as shorts decreased by 1.1ppt to 6.1% from 7.2%.

Finally, special mention this week for iiNet ((IIN)), which while not jumping into our table did see a substantial 2.2ppt increase in shorts to 4.3% from 2.1% the week prior. As a telco, IIN is also a potential pairs trading candidate along with perennial favourite SingTel.

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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