The Short Report – 24 Nov 2022

This story features MAGELLAN FINANCIAL GROUP LIMITED, and other companies. For more info SHARE ANALYSIS: MFG

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

Summary:

By Greg Peel

Week Ending November 17, 2022.

My word the short side of the market was in a frenzy last week, as the table below suggests. All the action was at the low end, where an awful lot of shuffling around in the 5-6% bracket led to a net four additions, and a total of 25 stocks.

I don’t recall that bracket ever being as crowded with more than half of all stocks shorted over 5% now residing in that bottom bracket.

Mad shuffling may have something to do with the low CPI number that came in at the beginning of the week, which sent the ASX200 surging on the day, before quietening down for the rest of the week.

There was, nevertheless, only one change in position greater than one percentage point. Magellan Financial Group ((MFG)) shorts fell to 5.3% from 7.7% the week before. This embattled fund manager is currently completely disconnected from the market it invests in, can be highly volatile from one day to the next, and is more soap opera than legitimate investment.

Only a few years ago brokers lauded Magellan as the most successful fund manager listed on the ASX.

Otherwise, we note lithium aspirant Sayona Mining’s ((SYA)) steady creep up the table, bracket by bracket each week, has now landed it at 9.3%. The table used to be littered with lithium miners, until the lithium price began a 1300% rally from late 2020.

Lake Resources ((LKE)) is the only other lithium representative left, and otherwise we might highlight cobalt aspirant Jervois Global ((JRV)), which debuted last week at 5.8% shorted having reported earnings.

Of the other five stocks entering the table last week, four were old friends. Aussie Broadband ((ABB)) was the only other debutant. See below.

Weekly short positions as a percentage of market cap:

10%+
BET     15.6
FLT     14.5
SQ2     11.8
DMP   11.4
MP1    10.5

Out: PPT

9.0-9.9

SYA, NAN, PPT

In: PPT, SYA, NAN               Out: BRG, TPW
           
8.0-8.9%

BRG, SBM, LKE, TPW

In: BRG, TPW            Out: SYA, NAN, ZIP

7.0-7.9%

ZIP

In: ZIP                        Out: MFG

6.0-6.9%

NXT, BRN, AWC, VUL, JBH, CCX, IEL

In: JBH           Out: KGN, PNV, CUV, BGL, PBH             

5.0-5.9%

CUV, GOR, KGN, JRV, BGL, PBH, ARB, EVN, RSG, ABB, NIC, CGC, BLD, PME, BOQ, MFG, ASM, APX, PNV, ING, PNI, JHG, PDN, CHN, ADH

In: MFG, CUV, BGL, PBH, PNV, KGN, JRV, RSG, ABB, NIC, PME, APX     

Out: JBH, WEB, DEG

Movers & Shakers

If Aussie Broadband is set to struggle in a highly competitive telco environment, it’s surely not for want of advertising spend. I wish they’d get a new ad though.

Morgan Stanley initiated coverage last month with an Underweight rating, citing intensifying competitive pressure in consumer broadband which will potentially suppress Aussie Broadband’s average revenue per user and kick operating costs higher.

But Morgan Stanley is at odds with the other two FNArena database brokers covering the stock. Credit Suisse and Ord Minnett both have Buy ratings, or Outperform in the case of Credit Suisse, and are far more upbeat.

Moreover, Ord Minnett has a target of $3.60 and Credit Suisse $3.61, suggesting some consensus, while Morgan Stanley has initiated with $2.10.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.6	0.6	NAB	0.9	1.0
ANZ	0.8	1.0	NCM	0.6	0.6
BHP	0.4	0.4	RIO	0.5	1.0
CBA	1.7	1.7	STO	0.5	0.4
COL	0.3	0.5	TCL	0.8	1.0
CSL	0.5	0.6	TLS	0.3	0.4
FMG	2.3	2.7	WBC	1.9	1.8
GMG	0.8	1.0	WDS	1.7	1.9
JHX	1.2	1.5	WES	1.7	1.9
MQG	0.7	0.8	WOW	0.6	0.7

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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