The Short Report

This story features SELECT HARVESTS LIMITED, and other companies. For more info SHARE ANALYSIS: SHV

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 February 4, 2016

Last week saw the ASX200 trying to pull away from the 5000 mark before it all came a cropper in the new month. Another stoic attempt to regain 5000 has since been shot down this week. Last week ushered in February and thus the beginning, in earnest, of the corporate reporting season.

Retailer JB Hi-Fi was yet to report, solidly yet again, last week when its shorts saw a reduction, but not enough to take the stock out of the 10% plus club. Mining servicer Orica admitted tough conditions, and a share price fall saw some shorters cash in.

The same was not true for peer WorleyParsons, which continues to suffer from lower oil prices, as is ALS, which issued a weak quarterly update. Both saw their shorts jump.

Perhaps most interestingly, last week saw the introduction of not one but two banks into the 5% plus shorted table, and on my recollection we’ve never had a bank in there before. Sign of the times?

Bendigo & Adelaide Bank has just snuck into the bottom of the table while CYBG Plc, known to you and me as National Bank’s UK spin-off Clydesdale Bank, debuted in the 7% shorted bracket.

I made note in last week’s Report of two other new kids to watch on the block, being lithium producer Orocobre ((ORE)) and almond producer Select Harvests ((SHV)), both of which had moved into our table. Alas, neither was sighted last week. It is possible the shorts have since reversed or otherwise the ASIC data has again proven spurious.

Weekly short positions as a percentage of market cap:

10%+

MTS    20.7
MYR   19.5
MND   17.2
WSA   15.2
MIN    15.0
FLT     14.3
ORI     13.9
AWC   13.7
GXL    12.7
PRY    12.3
WOR   12.0
JBH     11.9
CAB    11.6
VOC   10.3    
SEK    10.2

In: VOC         

9.0-9.9%

WOW, AWE
 
Out: VOC, SUL

8.0-8.9%

SUL, TFC, GEM, RFG, IVC, ALQ, FMG, SGH

In: SUL, ALQ                        Out: WHC

7.0-7.9%

ARI, WHC, KAR, SGM, CAR, MRM, CYB

In: WHC, CYB          

6.0-6.9%

DSH, PDN, SYR, GWA, SHV, ORE

Out: ALQ, SHV, ORE

5.0-5.9%

IFL, NWS, SVW, BKN, AAC, CTD, MGX, ILU, AHY, BPT, BEN, SCP, SWM, IMF

In: BEN, SCP             Out: RRL

Movers and Shakers

Electronics retailer JB Hi-Fi ((JBH)) reported another solid earnings result this week and as far as brokers are concerned, the company is set for a positive near-term future thanks to the demise of competitor Dick Smith ((DSH)). Perhaps in anticipation, JB shorts fell 1.3 percentage points last week to 11.9%.

But JB Hi-Fi remains in the 10% plus club where it almost perennially resides. With Dick Smith in administration, its own shorts are stuck on 6.8%.

Last week explosives producer Orica ((ORI)) tried to put a brave face on the fact conditions in mining are deteriorating further. A share price fall saw Orica shorts reduced by 1.9ppt to 13.9%.  Meanwhile fellow resource sector servicers continue to suffer from falling oil prices and as such are attracting increased short interest.

Last week WorleyParsons ((WOR)) shorts increased 1.1ppt to 12.0% and ALS ((ALQ)) shorts increased 1.2ppt to 8.1%.

Bendigo & Adelaide Bank ((BEN)) last week snuck into the bottom of our table at 5.0%. This is notable mostly because I do not believe we’ve ever had a bank in the 5% plus shorted table before, despite it being not so surprising given the current global banking climate and the fact Bendelaide is but a small, regional player.

But if you buy one you get one free. Another bank entered our table for the first time last week having only just listed on the ASX. Formally CYBG Plc ((CYB)), National Bank’s ((NAB)) UK spin-off of Clydesdale Bank has debuted at 7.5% shorted.

This is nonetheless understandable. Existing National Bank shareholders will receive a lump of Clydesdale shares, like it or not. If not, one can pare out the UK risk by shorting CYBG while still maintaining an exposure to NAB.
 

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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