The short report – 03 March 2022

Weekly reports | 11:30 AM

This story features TEMPLE & WEBSTER GROUP LIMITED and other companies. For more information STOCK ANALYSIS: TPW

To see Guide below (for readers with full access).

Summary:

By Greg Peel

Week ending February 24, 2022.

Last week was the biggest of the earnings season by a margin, and also the week the ASX200 succumbed to the Ukraine invasion. The index fell -4.6% over the week.

The macro overlay has made evaluating responses to earnings results difficult, if not meaningless. But it can be noted that in the bearish environment, beats in profits were not necessarily rewarded and misses in profits were severely punished.

Online furniture and homewares retailer Temple & Webster ((TPW)) was one of the companies defying the gravity of the market when it released its report on February 9, jumping 11% before the macro-economic strength does not become too great in the meantime. The market expected a weak result. Last week, Temple & Webster shorts fell to 7.1% from 8.1%.

The only other stock to see a reduction in the short position last week from more than 5% was New Hope Corp ((NHC)). It fell off the table as coal prices soared.

All of the other moves in the past week have been an increase in the short position, and a lot of them, as the chart below shows. Shorts are not using market weakness to take profits – quite the contrary, especially among the more vulnerable growth stocks.

These include Nanosonics ((NAN)), whose shorts fell from 9.6% to 12.3%, and Appen ((APX)), up 8.5% from 5.6%. See below.

Weekly short positions as a percentage of market cap:

10%+
FLT 15.5
NA 12.3
BET 12.1
Z1P 11.3
KGN 10.9

In: NOPE

9.0-9.9

MSB, WEB, PNV

In: NVP Outside: NOPE

8.0-8.9%

RBL, APX, TYR, AMA

In: APX, TYR, AMA Outside: TPW

7.0-7.9%

OBL, EML, ING, TPW, MFG

In: TPW, EML, ING Outside: TYR, AMA

6.0-6.9%

PBH, EOS, RRL, CUV

In: CUV Outside: ING, EML

5.0-5.9%

MTS, NEA, PDN, IEL, ADH, COE

In: NEA, PDN, IEL, ADH, COE Outside: APX, CUV, NHC

Movers and Shakers

Despite reporting in line with brokers’ forecasts and its own guidelines, medical device company Nanosonics fell -10% on its earnings day.

Nanosonics sales increased by 41% during the half and the momentum seems to have continued at the start of the second half. The share price decline in response is a continuation of the selling pressure that has seen the stock fall -25% over the past month, which Morgans attributes to concerns over GE Health’s transition and the commercial launch of CORSIS.

Staffing shortages will likely affect ultrasound procedures in the United States, coinciding with the transition to a more direct distribution model. As a result, Ord Minnett fears sales growth will be stalled even when the pandemic recedes.

Shorters smell of blood, increasing positions to 12.3% from 9.6%.

AI company Appen ((APX)) fell -29% on the day of its earnings release. This needs to be put in the context of the ASX200 itself down -2.8% on the day, but unlike Nanosonics, Appen missed broker forecasts and its own guidance.

The company said it would stop providing annual forecasts and focus on a five-year goal to double revenue and increase margins, as well as diversify. In this game you do not do withdraw the advice and expect investors to be happy with it.

Appen shorts jumped 5.6% to 8.5%.

ASX20 short positions (%)

Coded Last week A week before Coded Last week A week before
ALL 0.1 0.1 NAB 0.6 0.6
ANZ 0.9 0.7 MR 1.5 0.8
BHP 0.4 0.4 Rio 0.4 0.6
BXB 0.5 0.4 TCL 0.5 0.5
ABC 0.8 0.7 TLS 0.2 0.2
COLLAR 0.5 0.5 UK 1.8 1.7
CSL 0.2 0.2 WE S 0.3 0.3
GMF 1.4 1.5 WOW 0.4 0.3
GMG 0.2 0.3 WPL 2.1 1.5
MHQ 0.3 0.3 0.0 0.0

To see the full short report, please click on this link

Guide:

The abridged report draws on data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly movements in recorded short positions in stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETFs) and non-common stocks are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed material.

Please note the important information provided at the end of this report. The percentages given in this report refer to the percentage of ordinary shares issued.

Stock codes highlighted in green saw their short positions decline over the week by an amount sufficient to move them into a lower percentage range. Stocks highlighted in red saw their short positions rise over the week by enough to move them into a higher percentage range. Moves greater than a percentage point or more are discussed in the Movers & Shakers report below.

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is derived from daily reports issued by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena without qualification as a service to subscribers. FNArena would like to point out that immediate hypotheses cannot be drawn from the figures alone.

It is wrong to assume that the short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a decline in the respective stock prices. While some or all of some short percentages may indeed imply this, there are also myriad other reasons why a short position could be held, which does not make this position “naked” given the offsetting positions held elsewhere. . Regardless of the balance of the percentages, a “short” position would suggest that there are negative views on a stock held by some in the market and would also suggest that if the news flow on that stock suddenly turned positive, the “ short hedge” could trigger a short, sharp rally in the stock price. However, short positions held as an offset to another position may just be benign.

Often, large short positions can be assigned to a listed hybrid security in the same security, where traders seek to “strip” the option value of the hybrid by offsetting listed options and equity positions. Short positions can be part of a portfolio of short stocks offsetting a portfolio of long equity price index (SPI) futures – a popular trade that seeks to exploit windows of opportunity when the price of the SPI is trading at an excessive discount to fair value. Short positions may be held as cover by a brokerage that provides subscription services for dividend reinvestment plans (DRPs) or other similar services. Short positions will sometimes need to be taken by market makers in exchange-traded fund (ETF) products. All of the above are just a few of the reasons why a short position may be held in a stock, but may be considered benign in terms of the direction of the stock price due to offsets.

Equity and stock index options market makers will also hedge their portfolios using short positions if necessary. These delta hedges often form the other side of a client’s long equity put option protection trade, or perhaps a long equity short call position (“buy-write “). 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 this actually implies a “long” position in that stock.

Another popular trading strategy is “pair trading” in which one stock is held short against a long position in another stock. Such positions seek to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Besides all of the above reasons why it would be a potential misconception to simply jump to conclusions about short percentages, there are even broader issues to consider. ASIC itself will admit that data on short positions is not an exact science given that it is up to market participants to tell their broker when positions are truly “short”. Without any suggestion of deception, there are always participants who ignore the rules. Discrepancies can also arise when short positions are held by a large investment bank offering multiple exchange services as well as proprietary trading activities. Such activity can introduce the possibility of undercounting or double counting when custodians become involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also maintains its own register of short positions. The numbers provided by ASIC and ASX at any time are not necessarily correlated.

FNArena offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to conclusions or make investment decisions based solely on these unqualified numbers. FNArena strongly suggests that investors seek advice from their stockbroker or financial advisor before acting on the information provided herein.

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