The Short Report

Array
(
    [0] => Array
        (
            [0] => ((SGH))
            [1] => ((DSH))
            [2] => ((JBH))
            [3] => ((SPO))
            [4] => ((STO))
            [5] => ((WSA))
            [6] => ((PRY))
        )

    [1] => Array
        (
            [0] => SGH
            [1] => DSH
            [2] => JBH
            [3] => SPO
            [4] => STO
            [5] => WSA
            [6] => PRY
        )

)

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 December 10, 2015.

As I write the ASX200 is powering on for its second session of rallying but it was a different story last week as the index again fell to, and ultimately breached, our old friend the 5000 mark. It was mostly to do with commodity prices.

There were, nevertheless, a few individual stock stories still in play. High on the list of stocks that were taken to the cleaners for their own various reasons in the prior week were Slater & Gordon, Dick Smith and Primary Health Care, while during last week Spotless joined that group.

These stocks have been among the most shorted for some time and so it was the shorters decided to take some profits, resulting in notable short reductions for all. Unfortunately for Primary shorters, the profit-takers moved to soon, unaware that MYEFO was set to send the stock plummeting this week.

Another stock to take a big tumble last week was the shorters’ favourite amongst the gas plays, Santos, thanks to another big fall in the oil price. But here the shorters continue to load up. A similar story played out for Western Areas, vis a vis nickel prices, and it is now the sixth most shorted stock.

Finally, the fallout from Dick Smith’s big problems is fear of a discounting war, thus the shorters lifted perennial short favourite JB Hi-Fi up to third most shorted stock on the market.

Weekly short positions as a percentage of market cap:

10%+

MTS    21.8
MYR   18.7
JBH     17.2
MND   17.2
MIN    14.9
WSA   13.6
FLT     13.5
ORI     13.2
CAB    12.6
GXL    11.9
AWC   11.9
AWE   11.2
SUL    10.7
GEM   10.0
SEK    10.0

In: SEK           Out: SGH       

9.0-9.9%

VOC, WOW, IVC
 
In: IVC           Out: SEK, PRY, DSH

8.0-8.9%

MRM, STO, WHC, ARI, PRY, DSH, SGH

In: SGH, PRY, DSH, STO                 Out: IVC, WOR

7.0-7.9%

WOR, FMG, ALQ, UGL, KAR, SPO

In: WOR, KAR          Out: STO, SPO

6.0-6.9%

TFC, RFG, MGX, CAR, NEC, PDN, SVW, NVT, SGM

In: CAR, PDN, SGM             Out: KAR, NWH

5.0-5.9%

NWH, GWA, SYR, IFL, NWS, AAC, SXY, SWM, ILU, CTD

In: NWH, CTD                       Out: PDN, SGM, BOQ, CDD

Movers and Shakers

A good deal of value has been wiped off ambulance chaser Slater & Gordon ((SGH)) recently due to issues with the UK business the board is no doubt ruing the day it ever thought of acquiring. If accounting practice queries were not enough, a hint from the UK government it might reduce payments for more minor injuries sent S&G into a tailspin once more.

But having built short positions up into the double-digits, the shorters decided it was time to finally take some profits last week. S&G shorts fell by 3.9 percentage points to 8.2% from 12.1%.

It was a very similar story for electronics retailer Dick Smith ((DSH)), which had crashed and burned first on disclosure of weak sales in FY16 to date and then on the announcement of a big inventory write-down. Dick shorts fell out of the 10% club the week before and with another 0.9ppt drop are sitting at 8.2% also.

Dick’s inventory write-down potentially presents a threat for rival JB Hi-Fi ((JBH)), were Dick to solve its excess inventory problems via massive discounting just before the critical Christmas period. Thus the shorters moved in on JB last week, lifting shorts by 1.0ppt to 17.2% from 16.2% and slotting the stock into third most shorted position after perennials Metcash and Myer.

JB Hi-Fi has itself been a perennial shorters’ favourite, spending years high up the short table at varying degrees. To my knowledge, shorters have never really profited much from their stoicism.

Outsourcing giant Spotless ((SPO)) shocked the market last week with a profit warning that no one expected, although the fact Spotless had been 7.6% shorted before last week suggests someone thought there must be downside risk. Problems with integrating acquisitions, contract delays and contract wins that had been assumed but didn’t happen were blamed for the guidance downgrade.

The shorters did not muck around in taking profits on Spotless’ subsequent share price plunge. From 7.6% the week before, Spotless disappeared out of the 5% plus table last week.

There’s no great mystery surrounding a 1.1ppt short increase for LNG hopeful Santos ((STO)) to 8.6% last week or a 1.5ppt jump for nickel producer Western Areas ((WSA)) to 13.6%. Oil prices and nickel prices alike were carted yet again.

Santos was the most indebted of the Big Gas names and despite a capital raising, is not out of the woods as it tries to ramp up its massive GLNG project in a period of collapsing energy prices. Western Areas was once the darling of the base metal junior plays when an Indonesian export ban was driving nickel prices higher. Prices have only fallen like a stone ever since, with little evidence is sight of sufficient supply-side cuts from the global nickel market.

Primary Health Care ((PRY)) has copped a hiding this week following the government’s shock reduction in pathology and imaging subsidies announced in the MYEFO budget update. The proposal still has to pass through the Senate, but analysts were surprised because there is already a Medicare review going on and this is where they saw Primary risk being centred.

Is has been that review, and fear of how it might impact MBS-reliant healthcare stocks, that has ensured Primary had been well-shorted previously and that its stock price has been heading south. Last week the shorters moved a little too soon in taking profits, dropping Primary shorts to 1.2ppt to 8.5%.

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.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.

Click to view our Glossary of Financial Terms