The Short Report

This story features METCASH LIMITED, and other companies. For more info SHARE ANALYSIS: MTS

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 12, 2015.

Thankfully whatever the glitch was in ASIC’s system last week that saw fifteen stocks showing short positions in the hundreds or thousands of percent appears to have been rectified. We now return you to normal programming.

The King is dead, long live the King. That is to say, Metcash has now acceded to the throne of the most shorted stock on the ASX, at 21.6%, just pipping long-time incumbent Myer on 21.1%. The shorters are likely taking bets on which company will be the first to roll down the shutters for good. Daylight is third until we get to Monadelphous on 14.8%.

Last week saw the ASX200 attempting to consolidate after its big drop the week before, building a floor in the 5500-5550 range. Consolidation brought about very few moves of any note amongst short positions, other than the usual bracket creep at the lower end of our 5% plus table. A fall in shorts for Seven West Media confirms capital raising arbitrage had been in play.

This leaves only Ozforex, jumping from the 5% racket into the 7% bracket, and STW Communications, falling to the 5% bracket from the 6% bracket, as posting fundamental moves of greater than one percentage point.
 

Weekly short positions as a percentage of market cap:

10%+

MTS    21.6
MYR   21.1
MND   14.8
ORI     14.1
MIN    13.3
FLT     12.0
MRM  11.4
WOR   10.8
PRY    10.7
UGL    10.5
AGO   10.3

No changes

9.0-9.9%

FMG, CDD, DSH
 
No changes                

8.0-8.9%

SXY, WOW, MGX

Out: SWM, ACR

7.0-7.9%

ACR, SGM, SGH, ARI, NWH, PBG, GXL, NXT, SUL, KAR, CAB, OFX, MSB

In: ACR, SGM, GXL, SUL, MSB                 Out: SGN, ILU

6.0-6.9%

KCN, ILU, GEM, WHC, JHC, SWM, SEK, ASL, JBH

In: SWM, ILU, SEK              Out: SGM, MSB, SUL, GXL

5.0-5.9%

SGN, AWE, DLS, SPO, BPT, TFC, BCI, TRS, DOW, KMD, PDN

In: SGN, DOW                       Out: SEK, ALQ, VRT
 

Movers and Shakers

There was a slight patch of sunlight among the rain clouds for Metcash ((MTS)) this week with the company’s announced sale of its auto business, allowing for debt to be paid down. But as of last week Metcash shorts were still building following the company’s shocker of a profit warning. They rose 1.1 percentage points to 21.6% from 20.5%.

Fellow zombie retailer (in the eyes of the shorters) Myer ((MYR)) saw a 0.6ppt increase to 21.1%, relegating the department store to second place, albeit neck and neck.

Last week I suggested a jump in shorts for Seven West Media ((SWM)) most likely related to the arbitrage opportunity provided by a capital raising and conversion of preference shares. This appears to be the case, as this week Seven shorts have fallen back 2.4ppt to 6.3%.

Advertising and media company STW Communications ((SGN)) has seen its share price more than halve in less than a year given ongoing weak demand for such services, but last week saw a ray of hope as the company provided a strategic update that was well received by analysts and the market. STW shorts fell 1.2ppt to 5.8% from 7.0%, indicating short-covering was influential in the subsequent share price rally.

International payments service Ozforex ((OFX)) saw its share price fall out of bed in May after the company posted a full-year result which met earnings forecasts but featured a big jump in capital expenditure. Analysts were not perturbed, noting the capex is all about building a presence in the US, but the market has de-rated the stock and the shorters have become more active.

Last week Ozforex shorts rose 1.4ppt to 7.1% from 5.7%.

 

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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