The Short Report

Array
(
    [0] => Array
        (
            [0] => ((SGH))
            [1] => ((PRY))
            [2] => ((JBH))
            [3] => ((SUL))
            [4] => ((GXL))
            [5] => ((NWH))
            [6] => ((SPO))
            [7] => ((STO))
            [8] => ((AWE))
            [9] => ((SEK))
            [10] => ((IVC))
        )

    [1] => Array
        (
            [0] => SGH
            [1] => PRY
            [2] => JBH
            [3] => SUL
            [4] => GXL
            [5] => NWH
            [6] => SPO
            [7] => STO
            [8] => AWE
            [9] => SEK
            [10] => IVC
        )

)

This story features SGH LIMITED, and other companies.
For more info SHARE ANALYSIS: SGH
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 October 8, 2015.

The only way was up for the ASX200 last week, having bounced off a new correction low to reclaim 5000 and then push right through the top of the recent range at 5200, en route to 5280. We’ve since seen some consolidation, but former 5200 resistance has now become support.

In last week’s report I highlighted no less than six stocks dropping out of the 10% plus club, a couple of them significantly so. In this week’s report we see all of Slater & Gordon ((SGH)), Primary Health Care ((PRY)), JB Hi-Fi ((JBH)) and Super Retail ((SUL)) returning to the club. JB Hi-Fi needed only a bracket creep upward but Primary jumped back from 9.5% shorted while Super Retail returned from 7.5% and Slater & Gordon leapt all the way back to 17.1% shorted, to second place on the table, from 9.7%.

Such big moves down and up in consecutive weeks may possibly be justifiable, but always leave me suspicious of the accuracy of week on week ASIC data. We’ve seen some howlers before. And there was no new news for any of these stocks in the week in question.

I can otherwise note that a tick-up from Greencross ((GXL)) now puts that stock into the bottom of the 10% club for the first time, while Seek, which has been steadily climbing the 5% plus table over a period of time, is now knocking on the door with 9.9%.

The other big short increase for the week goes to Invocare, while NRW Holdings ((NWH)) and Spotless Group ((SPO)) both jumped back into the table in the 6% bracket last week from less than 5% the week before.

Brief 10% plus club visitor Santos ((STO)) slipped down another bracket last week into the eights, which is no great surprise given energy stocks featured heavily in the index rally through 5200. Junior peer AWE ((AWE)) nevertheless remains entrenched in the 10% plus bracket for now.
 

Weekly short positions as a percentage of market cap:

10%+

MTS    21.6
SGH    17.1
ORI     15.2
MND   15.0
CAB    14.8
MIN    14.8
MYR   14.4
FLT     13.9
DSH    13.1
AWE   12.2
PRY    11.9
JBH     11.5
GEM   11.4
SUL    10.5
WOR   10.1
GXL    10.1
MRM  10.0

In: PRY, JBH, SUL, GXL    

9.0-9.9%

SEK, CDD, AWC, UGL, NEC
 
In: SEK, NEC             Out: GXL, JBH, SGH, PRY, STO               

8.0-8.9%

WOW, STO, MGX, ARI, MSB, WSA, FMG, IVC

In: STO, MSB, WSA, IVC                Out: NEC, SEK, PRG

7.0-7.9%

ALQ, KAR, WHC, VOC

In: WHC         Out: SUL, MSB, WSA, KCN

6.0-6.9%

NVT, KCN, NWH, RFG, PRG, GWA, SPO, PDN, BKN, SGM, NWS, TFC

In: KCN, PRG, NWH, SPO, SGM                Out: IVC, WHC

5.0-5.9%

CAR, DLS, SGN, NXT, SWM, SXY, JHC, AAD, CVO, SVW, IFL, RRL, OFX, CQR, IMF, ILU, TEN

In: IFL, ILU, TEN      Out: SGM, FXL, AAC

Movers and Shakers

I’m not going to attempt to justify the big jumps back in short positions for Slater & Gordon and Super Retail given I’m not convinced of the veracity of the data over the two weeks.

Online employment classifieds leader Seek ((SEK)) has proven a success story of the twenty-first century and a banner waver for the transition from old world media to new. Often branded “overvalued”, Seek has regularly beaten profit estimates over past years and silenced the critics. More recently the company has invested heavily offshore which, while laying a platform for longer term growth, has impacted on the shorter term earnings outlook.

At the same time, forecasts having been suggesting through 2015 that unemployment will rise in Australia, eroding Seek’s core business. While this has been true to some extent, this morning’s unchanged 6.2% result underscores more recent thinking that maybe we won’t go too much higher. Yet, China-based correction notwithstanding, Seek’s share price has taken around a 40% hit in 2015 and short positions in the stock have been quietly building.

Last week saw Seek shorts rise 1.2 percentage points to 9.9% from 8.7%.

Another stock almost perennially drawing “overvaluation” claims is funeral director Invocare ((IVC)). In contrast to the new world story of online classifieds, death is a very old world story that is not about to be usurped by disruptor technology anytime soon. Invocare is one of the most defensive stocks on the ASX on that basis, paying a steady, if not unspectacular, dividend yield.

The stock is thus highly valued by longer term investors, to the point calls of “overvaluation” persist. Invocare has been hanging around the bottom of our 5% plus shorted table for a while now but last week saw a 1.6ppt increase to 8.0% from 6.4%.

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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