The Short Report

Array
(
    [0] => Array
        (
            [0] => ((CAB))
            [1] => ((MTS))
            [2] => ((MYR))
            [3] => ((WOR))
            [4] => ((CDD))
            [5] => ((SUL))
            [6] => ((GEM))
            [7] => ((ORI))
            [8] => ((JBH))
            [9] => ((STO))
        )

    [1] => Array
        (
            [0] => CAB
            [1] => MTS
            [2] => MYR
            [3] => WOR
            [4] => CDD
            [5] => SUL
            [6] => GEM
            [7] => ORI
            [8] => JBH
            [9] => STO
        )

)

This story features METCASH LIMITED, and other companies.
For more info SHARE ANALYSIS: MTS
The company is included in ASX100, ASX200, 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 September 10, 2015.

Last week saw the ASX200 slip towards the 5000 mark for the second time (close-to-close), and then a third time, before rallying back to another peak over 5200. We were back down near 5000 two days ago and guess what? We’re hitting 5200 again as I write.

The index is consolidating after its correction. Wild swings, yes, but we haven’t actually gone anywhere. Tonight’s Fed meeting may spark a break-out either way.

It’s all very confusing for those running short positions, as none of these moves have proven particularly definitive. Thus as while we do see quite a lot of green towards the bottom of our 5% plus table below, indicating short-covering, most moves are only minor. The story is a bit different at the top of the table.

No less than five stocks joined the elite 10%-plus club last week, taking the total to 17. There was a bit of jostling at the top end – Cabcharge ((CAB)) is now fourth after Metcash ((MTS)), Myer ((MYR)) and daylight, and Orica saw a sizeable reduction — but otherwise the new stocks snuck in at the bottom.

WorleyParsons ((WOR)) and Cardno ((CDD)) had simply taken a pass-out from the week before, but Super Retail ((SUL)), JB Hi-Fi and G8 Education are recent newcomers (albeit for JB Hi-Fi, it is familiar territory and Super has been hanging around the high end for a while).

Mention must also be made of quiet achiever Santos, which has crept and crept and last week hit the 9% bracket.

Weekly short positions as a percentage of market cap:

10%+

MTS    21.7
MYR   20.8
CAB    16.8
SGH    15.7
MND   15.3
ORI     14.9
PRY    12.4
MRM  12.4
MIN    12.3
FLT     11.7
DSH    11.3
UGL    11.0
JBH     10.5
WOR   10.3
SUL    10.0
GEM   10.0
CDD   10.0

In: JBH, WOR, SUL, GEM, CDD

9.0-9.9%

STO, MGX
 
In: STO           Out: GEM, WOR, CDD, SUL, JBH, FMG                          

8.0-8.9%

FMG, SEK, GXL, WOW, GWA, KAR, ALQ, AWC, AWE, PRG

In: FMG, AWC, PRG                        Out: STO, NEC         

7.0-7.9%

NEC, NWH, MSB, KCN, ARI, BKN

In: NEC                      Out: AWC, PRG

6.0-6.9%

JHC, PDN, NWS, SGN, WHC

Out: ILU, SXY, CAR, RRL

5.0-5.9%

RGF, SPO, SXY, ILU, IGO, TFC, NVT, CVO, NXT, IVC, RRL, SGM, FXL, VOC, CAR, SWM, AAC, DLS, TEN, IFL

In: SXY, ILU, RRL, CAR, NVT, VOC                    Out: SKI, PBG, NST, AAD

Movers and Shakers

The problem for G8 Education ((GEM)) is it is a company rapidly acquiring child care centres, and we’ve seen that movie before. ABC Learning was an antecedent of G8, and died in the GFC thanks to over-gearing. G8 is not over-geared, and funding is currently cheap anyway, but there is another reference point for G8 in the form of McMillan Shakespeare.

McMillan’s near death experience a couple of years ago was driven by the threat of a change to government regulation, in this case FBT rules. Child care enjoys government funding, so G8 also carries a risk of changes to policy. But it would be a brave politician, mind, who would seriously attacked child care subsidies. If anything, the trend is in the opposite direction.

Either way, G8 shorts only jumped slightly to take the stock over 10% shorted, but it’s been a steady rise through the table over several weeks to get there. It is likely G8’s rapid growth that has shorters interested.

Orica ((ORI)) shorts fell 1.5 percentage points last week to 14.9% from 16.4%. Having sold its chemical business a while back, Orica’s remaining explosives business makes it strictly a mining service provider, and that sector is well represented among the most shorted stocks.

Orica shares copped a thumping when the company posted a profit warning back in August, but have mostly zigged and zagged ever since in the market volatility. While someone appeared to have taken profits last week, at 15% shorted, nothing much has changed.

JB Hi-Fi’s ((JBH)) enduring party trick is to post forecast-beating results, and last month saw another such example. But for some reason, for years short-side players have targeted the electronics retailer despite being constantly frustrated. But they’re back again, restoring JB back into the 10% club which is so familiar to the stock, lifting shorts by 1.0ppt last week to 10.5% from 9.5%.

Santos ((STO)) shorts only rose 0.9ppt last week but I’m highlighting the stock here, a la G8, as the latest notable mover up the table. Facing high gearing at a time of low oil prices, Santos is likely a popular pairs trade candidate in the energy sector and last week snuck into the 9% bracket.

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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