The Short Report

This story features JB HI-FI LIMITED, and other companies. For more info SHARE ANALYSIS: JBH

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 UIKeyInputLeftArrowamounts 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 November 1, 2018

Last week began with the ASX200 still correcting, but then came the sharp bounce.

In the prior couple of weeks, as the correction played out, I had noted that the plunging market had sparked little in the way of profit-taking on short positions. Well it appears the shorters were either expecting more downside, or were poised to cash in on any sign of a turnaround, or both.

There is an awful lot of green on the table below, and some big moves in percentage point terms.

The stocks with the biggest short reductions include JB Hi-Fi ((JBH)), BWX ((BWX)), Super Retail ((SUL)), all of which held AGMs last week, and IOOF Holdings ((IFL)), which provided a quarterly update.

Other big movers, for which there was no specific news last week, include Inghams Group ((ING)), Nine Entertainment ((NEC)) and CSR ((CSR)). CSR’s earnings result came out earlier this week. Yesterday Ingham’s announced a capital return.

All these stocks rate as “Movers & Shakers” for the week, and I will highlight the actual short position changes below. Those holding AGMs did see direct market responses, good or bad, but in the context of the market in general bottoming out, we might assume it was a rush to lock in profits before it was too late that drove most of the short-covering.

As an aside, we note AMP ((AMP)), which fell -25% at the beginning of last week, saw only a slight short reduction, to 5.5% from 6.3%.

We might also note that while Corporate Travel Management ((CTD)) has been under siege recently from a short-side hedge fund, its short position was recorded last week as only 4%.

Weekly short positions as a percentage of market cap:

10%+

ORE    16.5
GXY   15.8
JBH     15.8
SYR    15.8
IVC     12.0
DMP   11.6
MYR   11.1
BWX   10.6
NXT    10.2

Out: ING, MTS         

9.0-9.9

GEM, MTS, SDA

In: MTS                       Out: CSR, IFL, NEC, SUL, NUF, HVN
                                                                                               
8.0-8.9%

HVN, NWS, NUF, BAL, LYC, NAN, KDR, GXL

In: HVN, NUF, KDR            

7.0-7.9%

PLS, MND, FLT

In: FLT            Out: KDR, BOQ, AAC

6.0-6.9%

AAC, MLX, HT1, SUL, IFL, RSG, BKL, IGO, MSB

In: SUL, IFL, AAC, BKL                  Out: FLT, AMP, BIN, SIG, SEK

5.0-5.9%

GMA, BIN, SIG, BGA, KAR, AMC, ING, VOC, APT, CGF, CCP, A2M, AMP, CLQ, CSR, CAB, MOC, PTM, RCR, ASL, RFG, ALX, NEC, AHG, CQR

In: ING, CSR, NEC, AMP, BIN, SIG, ASL, RFG, CQR               

Out: BKL, NWL, GNC, MYO, SGM

Movers & Shakers

JB Hi-Fi shorts fell to 15.8% from 19.8%. AGM trading update was positive.

BWX shorts fell to 10.6% from 12.3%. Trading update was negative.

Super Retail shorts fell to 6.5% from 9.3%. Trading update was negative.

IOOF shorts fell to 6.4% from 9.9%. Broker responses to a trading update were mixed. We might note IOOF is basically a share market proxy.

Inghams shorts fell all the way to 5.8% from 13.1%. Last month the company appointed a new CEO. Yesterday a capital return was announced. No news last week.

CSR shorts fell to 5.5% from 9.9%. Last week saw brokers tweaking forecasts ahead of this week’s earnings result, which was a net miss of broker forecasts.

Nine Entertainment shorts fell to 5.0% from 9.7%. The company does not have to worry about poor cricket ratings but it is in the process of merging with Fairfax Media ((FXJ)). It was last month when Nine provided more details of merger expectations.

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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