The Short Report

Array
(
    [0] => Array
        (
            [0] => ((MYR))
            [1] => ((MTS))
            [2] => ((WOW))
            [3] => ((SWM))
            [4] => ((SGH))
        )

    [1] => Array
        (
            [0] => MYR
            [1] => MTS
            [2] => WOW
            [3] => SWM
            [4] => SGH
        )

)

This story features MYER HOLDINGS LIMITED, and other companies.
For more info SHARE ANALYSIS: MYR
The company is included in ASX300 and ALL-ORDS

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 5, 2015.

According to data provided today by ASIC, REA Group is now 1632% shorted. Indeed, fourteen other stocks have seen their shorts jump into the 100% to 1000% range in the space of a week. Obviously this is representative of a major glitch in ASIC's system and as such should be duly ignored. The only problem with regard today's FNArena Short Report is that Orica, Iluka Resources, Seek and ALS all appeared on our 5% plus table (Orica 10% plus) last week and today appear to have short levels in the hundreds of percent. My response to this is to leave those stocks where they were last week, and each appears below with an asterix to acknowledge this.

Back in the real world, last week saw the ASX200 fall out of bed, driven by technical triggers and the fallout from rising global bond yields. Foreign investors were clearly dumping Australian stocks in general, and few were spared. Big moves in short positions were nevertheless few and far between, beyond micro specifics, suggesting short traders were happy just to stand back and let it happen, rather than race in to take profits.

One micro exception was Metcash, which having posted a shocker of a full-year result saw its shares tumble 16% on the day. Not only the shorters were not inspired to take profits, they increased positions, hence Metcash now joins Myer ((MYR)) in being 20% shorted. Other stocks to be affected by micro issues last week included Seven West Media and Slater & Gordon.

Weekly short positions as a percentage of market cap:

10%+

MYR   20.9
MTS    20.5
MND   14.4
MIN    13.9
ORI*  
FLT     11.6
WOR   11.1
MRM  11.0
PRY    10.6
UGL    10.4
AGO   10.3

Out: FMG

9.0-9.9%

FMG, CDD, DSH
 
In: FMG                     

8.0-8.9%

SXY, SWM, WOW, MGX, ACR

In: SWM, WOW         Out: PBG

7.0-7.9%

CAB, PBG, ARI, KAR, NWH, NXT, SGH, SGN, MSB, ILU*

In: PBG, SGH, SGN             Out: SWM, WOW, MSB, SGM, GEM

6.0-6.9%

SGM, MSB, GEM, SUL, GXL, KCN, WHC, ASL, JHC

In: MSB, SGM, GEM                        Out: SGN, SGH, JBH

5.0-5.9%

JBH, OFX, KMD, AWE, BPT, SPO, BCI, ALQ*, DLS, SEK*, TFC, TRS, PDN, VRT

In: JBH, TRS, PDN                Out: GWA, NWS
 

Movers and Shakers

Department store chain Myer is has arguably been cemented at the top of our table for months now because short players perceive a superseded retail model and a potential downward trajectory to ultimate demise. A similar story is likely behind supermarket wholesale/retailer Metcash's ((MTS)) jump to 20.5% shorted, up from 19.3% the week before. Not only is Metcash struggling against the domestic duopoly, its point of difference is being undermined by foreign invaders such as Aldi and Costco.

No one expected great things from Metcash's FY15 result, posted last week, but no one was prepared for quite how bad it was. The stock fell 16% on the day, and clearly this did not inspire any profit-taking from the short side.

We might note also that Woolworths ((WOW)) continues to creep up the brackets, and is now into the 8% range.

One might also argue that newspapers are now dead men walking, and that free-to-air TV, as we know it, is not far behind. This could explain why Seven West Media ((SWM)) has been gradually climbing up our most shorted table in recent times, and last week jumped another 1.4ppt to 8.6% from 7.2%. However the Seven story is complicated by the fact the company has recently raised capital and announced the pending conversion of preference shares into ordinary shares.

Both these capital events open up opportunity for arbitrage by going short ahead of receiving new shares in the raising or having prefs converted into new shares. Thus at this stage we cannot draw any conclusions regarding Seven, and will need to see what happens after both events are behind the company.

Ambulance chaser Slater & Gordon ((SGH)) is another stock that snuck into our 5% plus table recently and has been sneaking up the brackets ever since. Last month S&G took the bold step of acquiring a leading UK personal injury law group. Last week, S&G shorts increased 1.1ppt to 7.1% from 6.0%.

This game-changing acquisition clearly comes with execution risk, which could explain why shorters are increasing positions, however again we have the issue of the company conducting a large capital raising to fund the purchase, thus again we see arbitrage potential as a viable explanation.

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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