The Short Report – 08 Jun 2023

This story features POINTSBET HOLDINGS LIMITED, and other companies. For more info SHARE ANALYSIS: PBH

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

Summary:

By Greg Peel

Week Ending June 1, 2023.

Last week the ASX200 broke down through 7200, sparking a technical sell-off, before recovering completely on US debt ceiling excitement. This week it has broken down again, with some help from the RBA.

While short positions remain crowded towards the bottom of the 5%-plus table, and heavily shorted stocks have become rare, there were some significant movements in position last week.

One of those was IDP Education ((IDP)), which rose to 7.5% shorted from 5.4%. See below.

Another was PointsBet Holdings ((PBH)), which fell to 5.5% shorted from 7.0%. PointsBet is selling its US business to the Americans while retaining its domestic business, and shareholders did not take kindly to the news, sending the share price down -28%, providing opportunity for short sellers to take profits.

Cobalt miner Jervois Global ((JRV)) has fallen some -75% year to date having suspended its project in Idaho, but the share price was stable last week when shorts fell to 5.9% from 8.4%. Jervois first entered the table when an options deal of undisclosed nature was transacted, so that may be behind the drop in position.

Another move to note is the one of Bank of Queensland ((BOQ)), which moved up to 6.0% shorted from 5.3% after running into trouble with the regulators. It’s not often you see a bank of such size in the short table.

Uranium miner/developers Boss Energy ((BOE)) and Deep Yellow ((DYL)) popped in at the bottom of the table last week. Deep Yellow’s operations are in Namibia, which last week scared the market by suggesting it would take minority stakes in miners in the country, but has since qualified this would only relate to new licences.

Weekly short positions as a percentage of market cap:

10%+
FLT     11.1

Out: CXO

9.0-9.9%

CXO

In: CXO

8.0-8.9%

LKE, MP1

In: MP1           Out: JRV, SYA

7.0-7.9%

AMA, TPW, IEL, APX, BRG, SYA, SHV, JBH, PLS

In: SYA, IEL, PLS                 Out: MP1, ZIP, PBH 

6.0-6.9%

ACL, BRN, ZIP, NVX, OBL, ARB, BOQ

In: ZIP, BOQ              Out: PLS, BET, NXT            

5.0-5.9%

JRV, BET, DOW, CCP, PBH, IMU, ABB, HVN, SYR, LLC, BOE, INA, AWC, EML, DYL

In: JRV, PBH, BET, BOE, DYL                    Out: IEL, BOQ

Movers & Shakers

IDP Education Limited engages in the placement of students into education institutions in Australia, the UK, US, Canada, New Zealand, and Ireland. Critical to its business is International English Language Testing System (IELTS).

Until this week, IDP was the only such service provider allowed to operate in Canada. Now Canada has opened the service up to competition. IDP shares fell -16% on the news.

Both management and brokers were nevertheless quick to point out a loss of market share had already been foreseen – exactly the same thing happened in Australia previously – and it will not impact on FY23 earnings (the change kicks in from August).

Any impact will kick in next year and brokers cut target prices but agreed the sell-off looked over-cooked. IDP shares have since clawed back at least some of the loss this week. Shorters nevertheless increased positions last week to 7.5% from 5.4%.

Goldman Sachs noted in response that while IDP may lose market share over time, IELTS' status as the premier globally-recognised English testing system will offer downside protection, and retained its Buy rating. Stock pickers at Wilsons had IDP Education included in their Conviction holdings, and have since stuck with their conviction.

ASX20 Short Positions (%)

Code	Last Week	Week Before	Code	Last Week	Week Before
ALL	0.7	0.6	NCM	0.3	0.3
ANZ	0.5	0.5	RIO	1.1	1.3
BHP	0.2	0.2	S32	0.4	0.4
CBA	1.4	1.5	STO	1.2	1.0
COL	0.8	0.8	TCL	0.6	0.5
CSL	0.3	0.3	TLS	0.2	0.3
FMG	1.3	1.3	WBC	1.9	1.9
GMG	0.4	0.6	WDS	1.0	0.8
MQG	0.6	0.7	WES	0.8	0.8
NAB	0.8	0.9	WOW	0.5	0.4

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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