5 Top Stocks under Short Selling Radar – SYR, DMP, JBH, GXY and NAN

Syrah Resources Limited (ASX: SYR)

SYR Details

Well established in the battery supply chain segment: Health and safety have always been a priority for the Group and Balama development was underpinned by highest standards of health and safety and it met over 200 environmental license conditions in 2017. There are only a few major new suppliers of natural graphite and Syrah is one of the largest, lowest cost and highest quality producers of natural flake graphite. It commenced its first production in November 2017 and started its shipments in January 2018 and received first revenue in February 2018. Syrah’s strategy is focussed on the value that is enabled by a world-class deposit and fast-growing market. It is targeting to achieve the production ramp of up to 25 per cent of H1 and 75 per cent of H2. Recently, Macquarie Group Limited became the substantial holder of the Group by holding 17,018,124 securities and 5.72 per cent of the voting power of the Company.


Lithium ion battery demand (Source: Company Reports)

The Operating costs were in line with expectations, well positioned to achieve C1 less than US$400/t by the end of 2018. Syrah has become the first truly global supplier of natural flake graphite and marked its first significant import of graphite to China and focuses on diversification of sales book across geography and end-use markets. The Group reported a cash balance of US$80.5 million as at 31 March 2018, forecasted a net cash outflow US$25 million by the end of Q2 2018 and expects the cash outflow of US$55 million by the end of June 2018. The Group is targeting positive cash flows from operations at Balama by the mid of H2FY2018. Syrah estimates an increase in demand of nearly 400kt from the battery sector between 2017 and 2021, to ~500kt. Since the start of the year, the stock has been decreasing by 28.24 per cent, by 2.31 per cent in last three months. In last one month, the stock started moving upward that is by 4.32 per cent and by 5.30 per cent in last one week. Short sellers have been targeting Syrah as they feel that Balama project will not be profitable as it was expected earlier. It is worth noting that about 21.18 per cent of shares account to short positions. We recommend to “Hold” the stock at the current market price of $3.43.
 

SYR Daily Chart (Source: Thomson Reuters)
 

Domino’s Pizza Enterprises Limited (ASX: DMP)

DMP Details
 
Focussing on new products: The Group recently announced that Australian employees will remain on the Fast Food Industry Award (Modern Award), rather than continuing to pursue approval of a new Enterprise Bargaining Agreement. The Group issued239 fully paid ordinary shares at an issue price of $42.52 per share and was issued under the terms of the Group’s Employee Share Acquisition Plan. It was observed that since January the Modern Award has provided certainty and stability to team members and franchisees with labour costs within its forecasted range. The Group reaffirmed its guidance in February and confirmed that the wages on the Modern Award were similar to those in the proposed EBA.


Network Sales Growth (Source: Company Reports)
 
The Group is still strongly committed to achieving additional benefits and security for its employees and believes that it can be achieved more efficiently by putting more inputs into the current four-yearly review of the Modern Award that was conducted by the Fair Work Commission. It can now focus on providing great products, service and value to its customers and investing in its people. In the last one year, the stock was down by 30.28 per cent, by 6.22 per cent in last six months but witnessed some recovery in last one month and was up by 8.23 per cent in last one month. The stock experienced a short interest and reported for 16.5% of short positions. The stock looks “Expensive” at the market price of $ 43.85 and one can wait for a potential catalyst.
 

DMP Daily Chart (Source: Thomson Reuters)
 

JB Hi-Fi Limited (ASX: JBH)

JBH Details
 
Change in the guidance:The Board continues to monitor theCompany’sfinancial performance in the terms of guidance given to the Market by the Company. The Group revised its guidance and now expects a decrease of 3 per cent in NPAT from the mid-point of the Company’s previous NPAT guidance. Earlier the Group expected that short-term unfavourable weather conditions and heightened price competition will impact the earnings guidance of the Company but now it confirmed that it will not impact the medium or long-term performance.


Operating Model (Source: Company Reports)
 
In the third quarter 2018, JBH delivered a 6.8 per cent growth in the total sales (against 10.8 per cent noted in the prior corresponding period) and comparable sales growth of 4 per cent (down from 8.2 per cent of last year).However, the group is majorly focusing to expand its market share and is working continuously with suppliers to create value at a Group level. The stock was down by 15.13 per cent in last three months and by 9.37 per cent in last one month. The stock climbed up by 5.76 in last one week and witnessed 15.8% as short positions in the shares. While the group intends to revive the momentum, challenges in the sector and rising competition have been weighing over JBH. The stock looks “Expensive” at the current market price of $23.27.
 

JBH Daily Chart (Source: Thomson Reuters)
 

Galaxy Resources Limited (ASX: GXY)

GXY Details
 
Demand for lithium continues: The Group continues to project the demand and expects to grow ata CAGR of 15-25 per cent+ (2017-2025), which was driven primarily by increased global electric vehicle penetration forecasts and an increase in global energy storage demand. Moreover, the demand growth of the New Energy Vehicles (“NEV”) in China continued to accelerate with the total unit production of NEVs up by 140 per cent in the first 4 months of 2018.  Strong growth in lithium chemical production continued to grow in 2017 and was supported by 103 per cent increase year on year in feedstock imports for the year. Lithium hydroxide exports for Jan-Mar 2018 were 6.2kt compared to 3.8kt for the same period in 2017.


NEV Production in China (Source: Company Reports)
 
It reflected a decent cashflow to support future growth by recording a significant net cash balance of A$59.7 million as at 31 December 2017 after investing into operational and development activities and by completely paying down its debt.  The stock price was down by 10.99 per cent in the past six months with lithium price volatility while there was a speculation that the Group was looking for strategic options for its Sal de Vida operations, but the stock rose up by 12.89 per cent in the last month. The stock witnessed a short interest and reported for 14.6 per cent of short positions. The stock was up by 1.23 per cent as on 21 May 2018. We give a “Hold” recommendation at the current market price of $3.31.
 

GXY Daily Chart (Source: Thomson Reuters)
 

Nanosonics Limited (ASX: NAN)

NAN Details

Strong footprint in Canadian market: The Group was lately granted a receipt of the Medical Device Licence from Health Canada for the trophon2 system. With this, NAN will launch trophon2 both in the US and Canada during the first quarter of the 2019 financial year. Canada is an important market, representing an opportunity for trophon similar to Australia. Importantly, Canada has strong fundamentals for adoption with High Level Disinfection guidelines already in place. Recently, Macquarie Group Limited ceased to be a substantial holder of the Group since 1 May 2018.


 
Trophon’s Technology (Source: Company Reports)
 
The stock was down by 13.07 per cent in last six months and slipped by 5.02 per cent in last five days followed by a recovery of 2.03 per cent as on 21 May 2018. The stock experienced a short interest and reported 12.3% as short positions. However, given the potential, we put a “Speculative Buy” recommendation on the stock at the current price of $ 2.510.
 

NAN Daily Chart (Source: Thomson Reuters)

 
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