The Short Report – 25 Jan 2023

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

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

Summary:

By Greg Peel

Week Ending January 18, 2023.

FNArena’s Short Report returns for 2023 after a one month hiatus. Typically the Report is published on the Thursday, but given the holiday tomorrow we’ve brought it forward, before returning to its regular Thursday slot next week.

After dipping to 6912 post-Christmas, the ASX200 has from there put on an 8.5% rally to today, where as I write the index is trying to hold above 7500. As one might expect, a full month has brought about some notable moves in short positions, and the rally a net drop-out of five stocks from the 5%-plus shorted table.

We’ll start with New Zealand homewares and sport retailer Briscoe Group ((BGP)), which suddenly appeared before Christmas from oblivion at 10.8% shorted, but has now disappeared again. No idea why.

Similarly mysterious is Inghams Group ((ING)), which was last at 11.3% shorted and has also dropped off the table. The stock price has had its ups and downs but is little changed since Christmas, and there has been no news from the company. UBS noted this week chicken is the best value currently among the meats.

Lithium has been on a tear lately, which has either led to short-side scepticism or choosing between miners for long-short plays. Core Lithium ((CXO)) has moved up to 9.1% shorted from 6.7%, and Liontown Resources ((LTR)) has appeared at 6.1% from below 5%.

Nanosonics ((NAN)) spent 2022 all over the shop, and 2023 to date has been little different, although the stock is net higher. Nanosonics shorts have fallen to 6.1% from 8.2%. The company released a better-than-expected market update last week but, as reported by FNArena yesterday, broker scepticism remains high for the year ahead.

Technology has in general been back in favour, reflecting a rebound in the Nasdaq this month on falling US inflation and hopes for an upcoming Fed pause (as well as a -30% plunge on 2022). BNPL stocks have not been left out, and Zip Co ((ZIP)) shorts have dropped to 6.4% from 8.7%.

The sector generally is experiencing somewhat of a renaissance in 2023 as the likes of Sezzle ((SZL)) and Zip Co ((ZIP)) release market updates with more positives than negatives.

On a more general observation, shorts in consumer stocks have fallen over the period. Alongside Inghams we’ve seen other food-related short positions reduced, including Domino’s Pizza ((DMP)), Costa Group ((CGC)), Select Harvests ((SHV)) and Metcash ((MTS)), as well as discretionary JB Hi-Fi ((JBH)).

By most reports consumer stocks had a pretty solid Christmas/New Year period. Whether 2023 will be the same is another matter.

Weekly short positions as a percentage of market cap:

10%+
FLT     14.2
BET     12.9
PPT     12.6
MP1    10.2

Out: ING, BGP

9.0-9.9

SYA, CXO

In: CXO
           
8.0-8.9%

No stocks

Out: ZIP, LKE, NAN

7.0-7.9%

LKE, BRG, NXT

In: LKE, NXT           

6.0-6.9%

BRN, PBH, ABB, ZIP, ARB, VUL, CUV, AMA, NAN, LTR, TPW, SBM, CXO

In: ZIP, NAN, PBH, ARB, AMA, LTR        Out: CXO, NXT, CHN, DMP, JBH

5.0-5.9%

29M, JBH, DMP, NVX, CHN, IEL, NIC, WEB, PNI, AWC, SGM, UMG, PME, MTS, BLD, AMI, CGC, BOQ, SHV, GOR, PDN

In: JBH, DMP, CHN, 29M, PNI, UMG, PME                     

Out: PBH, AMA, ARB, MTS, BLD, AMI, CGC, BOQ, SHV, GOR, PDN

Movers & Shakers

As noted.

ASX20 Short Positions (%)

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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