The Short Report

Array
(
    [0] => Array
        (
            [0] => ((WOW))
            [1] => ((MYR))
            [2] => ((CVO))
        )

    [1] => Array
        (
            [0] => WOW
            [1] => MYR
            [2] => CVO
        )

)

This story features WOOLWORTHS GROUP LIMITED, and other companies.
For more info SHARE ANALYSIS: WOW
The company is included in ASX20, ASX50, 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 May 12, 2016

Last week saw the ASX200 continue on its upward path towards 5400.

The week culminated with a well-received quarterly update from Myer, sparking a rally in Myer shares. At second most shorted stock on the market the rally was no doubt aided by short-covering, and indeed in the lead-up to the release, shorters upped their positions to 15.7% shorted from 14.4% the week before.

The week began with travel insurer Cover-More providing an update and announcing the retirement of the company’s CEO. For Morgan Stanley, this added uncertainty was enough to prompt a downgrade to an equivalent Hold from Buy. UBS and Macquarie both retain Buy ratings. Shorters responded by increasing positions to 6.7% from 5.5%.

Beyond these two companies, no other movements of one percentage point or more was registered last week for stocks more than 5% shorted. Shorting activity remains subdued, with all other movements appearing on the table below reflecting no more than minimal bracket-creep.

Such lack of activity makes it difficult to produce an exciting Short Report each week, so to that end FNArena has decided to enhance the value of the Report from this week on. As well as focusing on the most shorted stocks on the ASX, readers may well be interested to know what short positions are being carried on the biggest stocks on the ASX.

To that end, a new table appears below noting short positions current on the S&P/ASX20 stocks, and week on week changes.

Only one stock appears in both tables – Woolworths ((WOW)).

Weekly short positions as a percentage of market cap:

10%+

MTS    16.7
MYR   15.7
WOR   14.6
FLT     11.5
ORI     10.8
MND   10.4
PRY    10.1

No changes

9.0-9.9%

JBH
 
Out: CAB, AWC       

8.0-8.9%

CAB, AWE, IGO, AWC, WOW, BAL

In: CAB, AWC, IGO             Out: WSA, GUD

7.0-7.9%

GUD, WSA, SHV, AAC, IVC

In: GUD, WSA                       Out: IGO, RFG

6.0-6.9%

SGH, CVO, BEN, RFG, OSH, NEC, SEK, NWS

In: RFG, CVO                        Out: BKL, MRM

5.0-5.9%PDN,

MRM, CDD, WHC, BKL, IFL, AHY, TFC, QUB, CTD, PDN, ILU, ALQ

In: MRM, BKL, ILU, ALQ               Out: CVO, CAR

Movers and Shakers

When you’re the second most shorted stock on the market, any snippet of good news has the potential to spark a share price spike on short-covering. That was the case with Myer ((MYR)) late last week when the department store announced a quarter of sales growth, and retained guidance.

Our cut-off in the data means Myer was yet to report before the most recent ASIC update, which shows Myer shorts increasing to 15.7% from 14.4% the week before. Next week’s Report might tell another tale.

The shares of travel and medical insurer Cover-More ((CVO)) took a hit back in February when the company provided a profit warning ahead of the official release of its interim results. At the time, the three brokers on the FNArena database covering the stock were disappointed, but all retained Buy or equivalent ratings on the longer term growth story, assuming margin issues to be addressable.

Early in the month Cover-More provided a quarterly update, highlighting the company’s new underwriting model. The retirement of the CEO as also announced. Brokers agreed the new model would provide for some uncertainty going forward, but two were happy to retain Buy. Morgan Stanley decided to downgrade to sell on the back of both model and CEO uncertainty.

Cover-More shorts rose to 6.7% last week from 5.5%.

ASX20 Short Positions (%)

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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