Forum Topics The most shorted companies on the ASX
Bear77
5 years ago

28-Aug-2019:  From Marcus Padley's "Marcus Today" newsletter:

Inghams (ING) Love ‘em. Not. The shares collapsed yesterday, as the most shorted company on the ASX, proved the shorters had reasons to chirp. The company reported EBITDA of $209m, 2% below market consensus, but it was the outlook statement that put its neck on the chopping block, as feedstock price rises and production line "bottlenecks" hurt the outlook. The company indicated it expected its EBITDA would continue to decline this next financial year. The drought has pushed up chicken feed and ING hopes that in 2020 the drought will break and so reduce costs. Long shot.

Another private equity (PE) heist?  ING was down 17% on the day of their results (27-Aug-19).  They had been the most shorted stock on the ASX, with almost 20% of their stock sold short.  Sometimes the shorters do get it right.  [disclosure:  not an ING shareholder - or a shorter]

 

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Bear77
5 years ago

If you click on this link:  https://www.shortman.com.au/top   ...you should get a reasonably up-to-date list of the top 100 most shorted companies on our exchange here in Australia.  

As of today (Tuesday 13th August 2019), the top 11 contains 3 lithium miners (GXY, ORE & PLS), plus a graphite miner (SYR: Syrah Resources).  They still have JBH in there at #6 with 14.35% of the stock sold short, but that gives us a fair indication that these numbers are at least 24 to 48 hours old, as JBH reported well yesterday (12th August) and rose 10%, partly on short covering, and they're rising again this morning.

That lead me to thinking - are there any other opportunities there for us to profit from shorters being wrong?

The list today has Inghams (ING) at the top, and Nufarm (NUF) at #2.  NUF is a tricky one, as there is their possible exposure to legal action around the herbicide (weedkiller) Glyphosate (marketed as "Roundup" - among other names) which has now been proven to be carcinogenic (cancer causing) - apparently.  NUF have sold the chemical, but not manufactured it, but the main manufacturers/suppliers of Glyphosate in the US are potentially facing billions of dollars worth of legal settlements, and have already lost a number of cases (which they are appealing of course) in which the settlements were in the millions.  NUF's SP has been on a downhill slide since that news broke, and they have other factors affecting sentiment also, around drought in some parts of Australia and how much herbicide and other agricultural chemicals they are going to be selling to the sector. 

Ingham's is not a company I follow closely.  However, I know they process chickens and sell chicken meat and products.  I know they were a private company that had been operating for 95 years when US private equity group TPG Capital bought them in 2013.  TPG Capital, as they do, dressed Ingham's up and then floated them on the ASX, walking away with a tidy profit.  As happened when Anchorage Capital did the same thing with Dick Smith (which they bought off Woolworths for a pittance compared to what they sold out for), the issues don't tend to surface immediately after the float.  It takes a couple of years.  PE (private equity) need to get their own money out - and their profits - before the company implodes.

TPG Capital and Blum Capital bought Myer for A$1.4 billion from Coles Group in 2006, spent around A$370m updating logistics operations and renovating stores, then re-floated Myer for A$2.2 billion in 2009, which was less than they had hoped for at the time, but the GFC was still very fresh in people's minds.  Still, not a bad profit margin.

As with Dick Smith and Myer, these re-floated ex-PE-buyouts tend to go through some CEOs, and Ingham's is no exception.  ING has been a winner for shareholders who participated in the IPO, or bought in early after they commenced trading, as they rose from $3 to peak at $4.71 in early February this year.  Their SP has slid down from there however, and they're now trading at around $3.86.  ING are due to report on Tuesday 27th August according to one reporting calendar I've seen.  More bad news to come out of this ex-PE-float, or is this going to be one of the rare good ones?

As of right now, the Shortman.com.au site lists BAL (Bellamy's) as Australia's 4th most shorted stock, NXT (NextDC) at #7, BWX at #9, DMP (Dominos) at #10, and #12 to #30 are made up of HUB, HVN, BGA, RWC, BIN, MTS, IFL, SGM, BOQ, AMP, KGN, PPT, SDA, IVC, SUL, GWA, CGC, WSA and BKL (HUB24, Harvey Norman, Bega Cheese, Reliance Worldwide, Bingo Industries, Metcash, IOOF, Sims Metal, Bank of Queensland, AMP, Kogan, Perpetual, Speedcast, Invocare, Super Retail, GWA Group, Costa Group, Western Areas - a nickel miner - and Blackmores).

As with JB Hi-Fi (JBH), things may have already changed - especially if the company has already reported and reported well, but for those that haven't already reported, there could be opportunities in that list.  One way to play it is if a company on that list reports, and their share price rises nicely as a result - there will be short-covering, and that could extend into the second day, as we have seen with JBH, so quickly jumping on a shorted stock that reports well isn't the worst idea out there.  Personally, I would want the company to have been one that was already on my watchlist (one that I'd already done some work on), and one that I'd be happy to own even if the share price moves against me in the short term, but that's just me. 

Regardless, that short list is one I check regularly, because it does explain a few of the market's more surprising moves. 

And that's why I like shorters, when they're wrong.

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Strawman
5 years ago

I dont short, but i likewise think that's a useful resource. I'm a firm believer in needing to understand the bear case as well as the bull case for your investments -- just means that your going in with your eyes wide open. Also, regarding JB Hi Fi, i agree with my mate Toney at EGP Capital who tweeted: "$JBH showing how best to deal with your stock being widely shorted. Say nothing and keep delivering strong results..."

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BkrDzn
5 years ago

The website says data can be up to 4 days behind as ASIC releases on a T+4 basis. Typically the gross short data is released the next day and on the website, whilst its usually 4 days for the net short data which is what matters the most.

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