The Short Report

This story features NINE ENTERTAINMENT CO. HOLDINGS LIMITED. For more info SHARE ANALYSIS: NEC

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 27, 2016

Last week was not a good one for the ASX200. An international market-wide sell order(s) pushed the index down through resistance at 5400 and the floodgates opened. With investors struggling to find a good reason to buy, waiting for the index to settle would potentially mean picking up stocks at lower levels.

Things have only deteriorated further this week on US election fears.

This week’s table shows a bit of bracket creep up and down at the lower levels, but two stand-out moves into the upper levels.

Television dinosaur Nine Entertainment has had a tough time of late and short positions had been quietly building ahead of last week, in which they jumped to 10.6% from 8.7% to put Nine into the elite 10% plus shorted club for the first time.

Shorts in SaaS company Aconex have been building ever since the previous high-flyer disappointed at its earnings result in August. Shorts have been building over that period. Last week shorts surged to 10.0% from 7.7% to also introduce Aconex into the 10% plus club.

We’ll also give a nod to hospital operator Healthscope ((HSO)), which has popped up into the bottom of the 5% plus table this week despite its share price having been trashed after the company issued a profit warning last week.

Weekly short positions as a percentage of market cap:

10%+

MYR   17.5
WOR   14.4
WSA   13.9
BAL    12.2
MTS    10.7
NEC    10.6
MND   10.4
ACX   10.0

In: NEC, ACX

9.0-9.9%

AWC, TFC
 
No changes                            

8.0-8.9%

SYR, GEM, ORI

In: GEM                      Out: NEC, CVO, IGO                      

7.0-7.9%

JHC, CVO, FLT, MTR, ORE, MYO, DOW, IGO, VOC, EHE, IFL, BEN, BKL, SGM

In: CVO, IGO, VOC              Out: ACX, GEM, CAB

6.0-6.9%

IVC, RIO, SGH, NWS, GOR, WOW, AWE, PRY, CAB

In: CAB, GOR                       Out: VOC

5.0-5.9%

SEK, GTY, MSB, OSH, ILU, PDN, KAR, HSO, IPH, CSR, BOQ

In: HSO, BOQ                        Out: GOR

Movers and Shakers

Last week I highlighted lithium miner Orocobre ((ORE)), which had moved and shook with a jump into the 7-8% shorted bracket. This week Orocobre shares leapt 20% in one day on the excitement generated by Tesla’s new, much improved household battery storage system. Short-covering likely had a lot to do with it. The share price fell back 10% the next day.

Nine Entertainment ((NEC)) is still reliant on a relic of a bygone era – free to air TV. Aside from likely terminal structural industry decline, Nine has also individually suffered from falling market share, ensuring its share price has fallen steadily all year.

Structural issues led Deutsche Bank to downgrade Nine to Hold earlier in the month. The company was slow to respond to the digital takeover led by the Netflix and Apple TVs of the world, but last week Credit Suisse decided Nine’s digital Johnny-come-lately, Stan, is probably worth a lot more than the market is pricing, and upgraded to Outperform.

Last week Nine shorts rose 2.1 percentage points to 10.7% from 8.6%. A Summer of Cricket awaits, but Ten Network ((TEN)) has the rights to the now more popular bubble gum version.

Aconex ((ACX)) provides cloud-based software-as-a-service (SaaS) to the construction industry. Earlier in the year, any company associated with The Cloud was considered a high growth potential “disruptor” and bought by investors with with gay abandon.

Investors were forced back to earth when the company issued a disappointing earnings report in August, with cash conversion issues being the major stumbling block. Last week’s AGM saw another downgrade to expectations but brokers feel the stock price sell-off has now been stretched given longer term prospects. Citi and Morgan Stanley reiterated their Buy or equivalent ratings and Credit Suisse upgraded to Buy (Outperform).

The stock enjoyed a brief share price bounce, but last week Aconex shorts leapt 2.3ppt to 10.0% from 7.7%.
 

ASX20 Short Positions (%)

To see the full Short Report, please go to this link

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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