The Short Report – 27 Jan 2022

This story features MONADELPHOUS GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MND

See Guide further below (for readers with full access).

Summary:

By Greg Peel

Month Ending January 20, 2022.

The Short Report is back for a new year following its annual leave, hence we begin with an update that covers the month to last week. Next week will revert to weekly updates.

The first point to note is that the ASX200 peaked (post covid) at 7589 on January 4 and had drifted down to 7346 by January 20. This week has seen the index fall to below 7000.

It will thus be interesting to find out next week just what short-side action the swift correction has prompted.

For now we note that only two stocks left the 5%-plus shorted table over the month, being Monadelphous ((MND)) from 7.2% and Tassal Group ((TGR)) from 5.1%.

On the other hand, six stocks have entered the table over the period.

Inghams Group ((ING)) spent most of last year in the table, and right up towards the top, beset by soaring chook feed costs and shuttered restaurants. It’s reappeared at 5.2%. PointsBet Holdings ((PBH)) had appeared low in the table last year and is back at 5.3%.

Medical devices manufacturer Nanosonics ((NAN)) is no stranger to the table but has reappeared despite little news recently at 7.3%. The stock is highly volatile and as a growth stock, is like many similar companies one that gets ditched at the first sign of market trouble. It’s back at 7.3%

Tyro Payments ((TYR)) has shot into the table at 7.0%. The EFTPOS and banking solutions company beat on total transaction forecasts in the December quarter but missed on profit, but has also suffered as have many from the surge in Australian bond rates.

It was a tale of woe for funds manager Magellan Financials Group ((MFG)) late in 2021 and the stock has never recovered. Shorters clearly don’t think it will, as Magellan has debuted at 6.6% shorted.

In terms of moves within the table only one stands out. Litigator Omni Bridgeway ((OBL)) is another highly volatile stock, correlated to wins and losses in its cases. The stock rallied 27% from early November to late December and has since fallen back -14%, albeit along with everything else recently. Profits on shorts appear to have been taken as the percentage of shorts is down to 6.8% from 8.3% a month ago.

I pointed out often enough last year that BHP Group’s ((BHP)) unlikely appearance in the table is all about the pending abandonment of the UK listing, and the Petroleum merger, opening up various arbitrage plays, and not at all a call on the company’s share price direction. To that end shorts have moved up to 10.0% from 8.0%.

And I have oft pointed out that Kirkland Lake Gold ((KLA)) is internationally triple-listed and hence its shorts represent only cross-border arbitrage. It’s down to 6.6% from 18.0%.

No Movers & Shakers this week.

Weekly short positions as a percentage of market cap:

10%+

FLT     14.8
KGN   11.0
Z1P     10.2
BHP    10.0

In: Z1P, BHP              Out: KLA, RBL        

9.0-9.9

RBL, MSB

In: RBL           Out: Z1P, WEB
           
8.0-8.9%

WEB

In: WEB          Out: BHP, APX, OBL

7.0-7.9%

PNV, APX, NAN, BET, TYR

In: APX, NAN, BET              Out: TPW, MND, ING

6.0-6.9%

TPW, OBL, AMA, KLA, MFG, EOS

In: KLA, TPW, OBL, MFG               Out: BET, COE

5.0-5.9%

A2M, MTS, COE, PBH, ING, BPT, BRG

In: COE, PBH, ING, BRG                Out: TGR

Movers & Shakers

See above.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.1	0.1	MQG	0.3	0.2
ANZ	0.7	0.6	NAB	0.6	0.6
APT	0.2	3.4	NCM	1.5	1.4
BHP	10.0	9.3	RIO	0.5	0.5
BXB	0.4	0.4	TCL	0.3	0.3
CBA	0.6	0.6	TLS	0.4	0.3
COL	0.4	0.5	WBC	1.1	1.1
CSL	0.1	0.2	WES	0.2	0.2
FMG	2.2	2.5	WOW	0.2	0.2
GMG	0.1	0.1	WPL	1.5	1.7

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

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.

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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