Tag Archives: Agriculture

Graincorp Reaps The Benefits

- Graincorp delivers record interim result
- Guidance for the full year upgraded
- Brokers lift forecasts and price targets
- Valuation remains an issue for ratings

By Chris Shaw

Graincorp ((GNC)) has been the beneficiary of successive bumper harvests, yesterday delivering a record interim profit result of $122 million. That's an increase of 39% in year-on-year terms and was better than the market had forecast.

At the same time management at Graincorp lifted full year net profit after tax earnings guidance by 11% to a range of $185-$205 million, the increase supported by high carry-over and expectations for another strong crop.

On the back of the guidance revisions brokers have been quick to adjust earnings models, Deutsche Bank lifting its net profit forecast for the year by 12% to $198 million and Citi increasing its forecasts by 8% this year and 10% in FY13.

Along with volume adjustments, the changes to Citi's numbers also reflect improved margins in the key malt division and better volumes. In earnings per share (EPS) terms consensus forecasts for Graincorp according to the FNArena database now stand at 100.8c for FY12 and 77.1c for FY13.

While earnings per share is expected to decline in FY13 as weather conditions normalise, Citi points out there is upside risk to estimates given current conservative guidance on receivables for FY12. Any post harvest receivables will be highly beneficial to earnings next year in Citi's view.

As earnings forecasts have been increased so too have price targets, the database showing a consensus price target for Graincorp now of $9.23. This compares to a consensus of $8.69 prior to the interim result.

Despite the changes in broker models there remain some valuation issues for Graincorp. As evidence, the revised consensus price target is around 1% below the current share price following recent price gains.

The gains in the stock of late have been enough for Citi to downgrade to a Neutral rating, moving the broker in line with the likes of Deutsche Bank and RBS Australia who also see valuation for Graincorp as fair at current levels.

Both JP Morgan and UBS remain more positive, the former despite the share price being above its price target at present. For JP Morgan there remains upside potential given possible benefits from reinvestment, which may include efficiency improvements and entry into new markets.

This makes capex an important driver of earnings going forward according to Citi, particularly as weather conditions return to more normal levels following successive good harvests. As well, JP Morgan suggests another source of potential share price gains going forward comes from the realisation of strategic upside in the value of Graincorp's asset base.

In response to the result shares in Graincorp today are down in a weaker overall market and as at 11.50am the stock was 26c lower at $9.39. The price range over the past year has been $6.74 to $9.65.

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Does High Frequency Trading Influence Commodity Prices?

The Rise Of The Machine: Does High Frequency Trading Alter Prices?

By David Bicchetti and Nicolas Maystre

Trade in commodity derivatives – such as oil futures – has grown tremendously over the last few decades. Some believe that the "financialisation" of commodity markets has made them more efficient. Others worry that financialisation has resulted in greater price distortions and volatility. This column presents high-frequency trading data suggesting that the sceptics may have a point.

What is causing the sharp price movements of many primary commodities? The debate goes on. (See Fattouh et al 2012 on Vox for a recent contribution.) Yet despite the range of views, three developments over the last decade are constantly referred to:

First, large developing economies have grown rapidly and steadily, boosting global demand for primary commodities.
Second, significant supply shocks like adverse weather and export bans have amplified price movements on some already tight markets.
Third, the growing presence of financial investors in commodity markets has become significant. While these developments are widely acknowledged, there is debate whether the ‘financialisation’ of commodity trading has affected commodity prices and their volatility and, ultimately, whether it benefits the commodity markets.

The growing ‘financialisation’ of commodities markets

Investing in commodities through futures markets has gained importance among ever since the burst of the dot-com bubble. Stung by losses, financial investors were on the lookout for a new asset class to diversify their portfolio and reduce their risks. The seminal paper by Gorton and Rouwenhort (2006) showing that commodity futures have historically offered the same return as equities but are negatively correlated with equity and bond returns owing to different behaviour over the business cycle - supported this diversification strategy.

Investment in commodities became a common part of a large investor portfolio allocation, which coincides with a significant increase of assets under management of commodity indexes. From less than $10 billion around the end of the last century, commodity assets under management reached a record high of $450 billion in April 2011 (Institute of International Finance 2011). Consequently, the volumes of exchange-traded derivatives on commodity markets are now 20 to 30 times greater than physical production (Silvennoinen and Thorp 2010). Similarly, financial investors, which accounted for less than 25% of all market participants in the 1990s, now represent more than 85%, in some extreme occurrences, of all commodity futures market participants (Masters 2008).

Does financialisation benefit the commodity markets?

The benefits of these developments have been debated. On the one hand, the proponents would argue that the presence of new players in the commodities markets would ease the price discovery problem and bring the price closer to its underlying fundamentals. In addition, it would provide further liquidity and transfer risks to those who are better prepared to take them on.

On the other hand, a growing number of studies provide evidence of price distortions linked to the financialisation of commodity markets (see UNCTAD 2011: Chapter 4.5, for an overview). According to Tang and Xiong (2011) and UNCTAD (2011) one manifestation of this pattern is reflected in the growing correlation between commodities and stock indices, owing to the growing importance of index trading. By contrast, Stoll and Whaley (2010) and (2011) conclude that commodity index flows have little impact on futures prices. Using non-public data from the Commodity Futures Trading Commission, Büyüksahin and Robe (2011) show that the daily correlation between the returns on commodity and equity indices soared after the demise of Lehman Brothers and remained exceptionally high through the winter of 2010. Their econometric analyses suggest that, besides macroeconomic fundamentals, hedge fund positions help explain changes in the strength of equity-commodity linkages. Unfortunately, their data do not allow them to distinguish between the types of hedge fund activities behind these positive correlations. Moreover, they cannot track the activities of market participants who do not hold position at the end of the day, because these actors do not have the obligation to report to the Commodity Futures Trading Commission. This leaves many unanswered questions regarding the determinants of these growing co-movements, in particular the role of economic fundamentals or of other type of investment strategies.

The rise of high-frequency trading

Looking at intra-day and high-frequency data allows us to get a firmer grip on some of the recent technical developments that have affected the commodity markets. Since 2005, pit trading has become more marginal and full electronic trading – which allows almost uninterrupted trading around the clock – has been introduced on the main commodity exchanges. Due to lower transaction costs, electronic trading has led to a sharp increase in the number of transactions and the volumes involved (Figure 1). Indeed, between 2005 and 2007, trades increase from about 380% up to 1200% on selected commodity markets. For the period between 2007 and 2011, the increase remains substantial, ranging from about 160% to 1100%. In addition, full electronic trading also paved the way for new types of market participants, including some with very short-term investment horizons like high-frequency trading strategies, which use algorithms and robots for their operations.

Evidence from high-frequency data

In recent research (Bicchetti and Maystre 2012), we analyse the short-term co-movements between returns on several commodity markets and on the US stock market over the 1997–2011 period, using tick data. We compute various rolling correlations at higher frequencies than the daily one, which remains the standard in existing literature. We analyse the co-movement of the returns of the futures contracts of oil (WTI) with the S&P 500 E-mini futures at high frequencies, including one-hour, five minute, ten-second and even one-second intervals (Figure 2). We find a synchronised structural break across commodity markets, which starts in September/October 2008 and continues until the latest observation of our dataset, the end of 2011. However, we observe a temporary decline in the correlation in 2011Q1 that we attribute to the Libyan uprising.

Figure 2. Monthly median of short-term rolling consequences between the returns on the WTI and the S&P 500 futures, by frequency, 2007m1-2011m12

We find similar results when we look at the correlation between the E-mini S&P 500 futures and five soft commodities futures (corn, soybeans, wheat, sugar, and live cattle). Soft commodities are supposed to differ even more from the US equities market than the ones for crude oil because their economic fundamentals. Yet, all these commodities present a similar pattern, except during 2011Q1, when there is no clear decline in the correlations.

Before 2008, high-frequency co-movements between commodity and equity markets rarely differed from zero. But during 2008 these correlations departed from zero and became strongly positive after the collapse of Lehman Brothers. The persistence of this trend until December 2011 remains difficult to explain. Further research is needed to get a complete understanding of the mechanisms at work behind this structural change. Yet, given the high frequencies, we think that high-frequency trading strategies, in particular the trend-following ones, are playing a key role. We believe a combination of factors made that change possible.

First, financial technical innovation spurred high-frequency trading through the gradual introduction of full electronic trading on exchange platforms since 2005.
Second, investors moved away from passive strategies and opted for active ones when the rising trends on equity and commodity markets stopped, in particular since the fall of 2008.
Third, lasting uncertainties and positive feedback effects reinforced this trend.

Why does it matter?

In our view, this finding adds to the growing empirical evidence supporting the idea that the financialisation of commodity markets has an impact on the price determination process. Indeed, the recent price movements of commodities are hardly justified on the basis of changes of their own supply and demand. In fact, the strong correlations between different commodities and the S&P 500 at very high frequency are really unlikely to reflect economic fundamentals since these indicators do not vary at such speed. Moreover, given the large selection of commodities we analyse, we would expect to have different behaviours due to their seasonality, fundamentals, and specific physical market dynamics. Yet, we do not observe these differences at any frequency. In addition, the fact that these correlations at high frequencies started during the 2008 financial shock provides additional support for the idea that there are financial-based factors behind this structural change. Therefore, the very existence of cross-market correlations at high frequencies favours the presence of automated trading strategies operated by robots on multiple assets. Our analysis suggests that commodity markets are more and more prone to events in global financial markets and more likely to deviate from their fundamentals.

This result is important for at least two reasons. First, it questions the diversification strategy and portfolio allocation in commodities pursued by financial investors. Second, it shows that, as commodity markets become financialised, they are more prone to external destabilising effects. In addition, their tendency to deviate from their fundamentals exposes them to sudden and sharp corrections.

David Bicchetti is Economist, Division on Globalization and Development Strategies, UNCTAD

Nicolas Maystre is Economic Affairs Officer, Macroeconomic and Development Policies Branch, UNCTAD

The views and opinions expressed herein are those of the authors and do not necessarily reflect those of the United Nations Conference on Trade and Development.

References

Bicchetti, D and Maystre N (2012), “The synchronized and long-lasting structural change on commodity markets: Evidence from high frequency data”, Munich Personal RePEc Archive Paper No. 37486.
Büyüksahin, B and Robe MA (2011), “Speculators, Commodities and Cross-Market Linkages”,mimeo.
Fattouh, B, L Kilian, and L Mahadeva (2012), “The role of speculation in oil markets: What have we learned so far?” CEPR Discussion Paper 8916, available for free at VoxEU.org.
Gorton, G and KG Rouwenhorst (2006), “Facts and Fantasies about Commodity Futures”, Financial Analysts Journal, 62(2):47–68.
Institute of International Finance (2011),

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The Short Report

By Chris Shaw

The Australian market saw more significant increases than decreases in short positions for the week from March 23, though in total only five companies experienced changes in total shorts of more than two percentage points.

Among the increases the largest was in Beach Energy ((BPT)), where total shorts rose from 0.64% to 5.43% during the week. The change comes after Beach announced it would raise $345 million through a rights and convertible notes issue, the money flagged for Cooper Basin capex in coming years and to top up general working capital.

Shorts in Bathurst Resources ((BTU)) rose to 4.0% from 1.23% the week prior, this coming after what was viewed as something of a sub par result from the company. As Credit Suisse noted, earnings are likely to be lower in coming periods than had been expected given delays to the appeals process relating to the Escarpment project. Unrealised forex losses and revaluations also impacted on the earnings result.

Independence Group ((IGO)) experienced an increase in shorts to 3.2% from 0.96% as the company moves closer to the first gold pour from the Tropicana project, while shorts in Singtel ((SGT)) increased to 5.4% from 3.38% at the same time as Macquarie revised its estimates to account for changes to forex assumptions and contributions from the Singapore and Indian businesses.

In terms of reductions in short positions, the largest during the week from March 23 was in Billabong ((BBG)), where total shorts fell to 8.67% from 11.3% previously. The market in Billabong retains some uncertainty stemming from tough trading conditions, balance sheet concerns and private equity interest in the company.

While Billabong's shorts fell the consumer discretionary sector continues to dominate the list of largest short positions on the Australian market. JB Hi-Fi ((JBH)) continues to dominate with total shorts of 21.76%, while others in the sector among the top 20 short positions include Myer ((MYR)) and David Jones ((DJS)) at more than 10% respectively and Harvey Norman ((HVN)) and The Reject Shop ((TRS)). Shorts in Myer have risen in the month from February 29 to 13.2% from around 10% the month prior.

Others associated with consumer discretionary spending with large short positions include Flight Centre ((FLT)), Carsales.com ((CRZ)), Wotif.com ((WTF)), while others with large short positions include Cochlear ((COH)), Lynas ((LYC)) and Perpetual ((PPT)).

As with weekly changes, the more pronounced among the monthly changes were increases, with seven companies seeing increases of more than two percentage points. In contrast, only one company, Alkane ((ALK)), saw shorts fall more than two percentage points to 2.0% for the month from February 29.

The largest monthly increase was in Echo Entertainment ((EGP)), where shorts rose to 7.4% from 0.77% previously as the share price continues to position for potential corporate activity involving the company.

Shorts in Carsales.com increased to 10.7% from 8.9% in the week from March 23 and have essentially doubled over the month to 10.7% as the market digests the move away from its traditional classifieds business via the taking of a stake on Torpedo7 in New Zealand, while shorts in Elders ((ELD)) increased to 4.45% from 0.69% despite no major news from the company in recent weeks.

Past research conducted by analysts at RBS suggests shorts data can be successfully used to predict underperformance for equities on a twelve month horizon.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21508373	98850643	21.76
2	MYR	77164400	583384551	13.22
3	ISO	721259	5703165	12.65
4	FXJ	266808705	2351955725	11.37
5	COH	6200900	56929432	10.90
6	DJS	56781241	524940325	10.82
7	CRZ	25055951	233674223	10.70
8	FLT	9425372	100017679	9.41
9	LYC	150007389	1714496913	8.75
10	BBG	22124924	255102103	8.67
11	HVN	79375909	1062316784	7.46
12	EGP	51084803	688019737	7.41
13	ILU	27209453	418700517	6.49
14	GNS	54998318	848401559	6.47
15	WTF	13184931	211736244	6.24
16	TRS	1551686	26071170	5.95
17	TEN	60463055	1045236720	5.78
18	BPT	60698815	1115960668	5.43
19	SGT	9559694	176974336	5.40
20	PPT	2230045	41980678	5.31

To see the full Short Report, please go to this link

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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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Out of 14 changes to ratings from brokers in the FNArena database over the past week only three were upgrades, which continues the recent trend of downgrades outweighing increases in ratings. Two of the three stocks upgraded were also downgraded by brokers elsewhere in the market. Total Buy recommendations now stand at 51.30%.

Among the upgrades was Aurora Oil and Gas ((AUT)), where JP Morgan has moved to a Neutral rating from Underweight previously. The upgrade reflects the broker factoring in lower risk assumptions for enhanced recoveries from the group's shale assets and an associated increase in valuation and price target.

At the same time as JP Morgan upgraded Aurora both UBS and Credit Suisse downgraded the stock to Neutral ratings from Buy previously. The change in both cases is a valuation call as Aurora's share price has risen more than 30% over the past two months. Price targets and earnings estimates for Aurora have also been adjusted across the market post the group's full year profit result.

News of a capital raising from Bank of Queensland ((BOQ)) has been followed by Deutsche Bank upgrading the stock to Buy from Neutral. In Deutsche's view new management has cleared the decks with respect to bad debts and moved to address balance sheet issues, so the stock offers value at current levels.

Again this is not a universal view as Macquarie has reacted to news of the raising by downgrading Bank of Queensland to Sell from Neutral. Macquarie continues to see a challenge for the regional lender in earning its cost of equity going forward, so the current premium to peers implies limited value in the broker's view.

The final upgrade during the week was Macquarie moving to Buy from Neutral on Tabcorp ((TAH)). The lift in rating is another valuation call, as recent share price weakness has the stock trading below the broker's valuation estimate.

Among stocks downgraded was Nufarm ((NUF)), with both Macquarie and BA Merrill Lynch lowering ratings to Neutral from Buy previously. A mixed interim result was enough for Macquarie to pull back earnings estimates and its price target, the changes enough to prompt the cut in rating. BA-ML's downgrade was a valuation call as the broker sees limited upside in the stock at current levels.

Forge Group ((FGE)) has also suffered a downgrade to Neutral from Buy, this coming from Citi. Forge shares have risen almost 40% year-to-date, which limits the valuation appeal in the broker's view. This is despite a new contract causing Citi to lift its earnings estimates and price target.

Having previously rated Leighton Holdings ((LEI)) as Outperform, Macquarie has shifted to an Underperform rating post a further write-down on problem contracts as part of yet another profit warning from management.

The issue for Macquarie is management credibility, particularly as the update comes only a couple of months after the last update. While there is value at current levels market scepticism is likely to limit share price performance shorter-term in Macquarie's view.

As with Leighton, Stockland ((SGP)) has also lowered earnings guidance and the market has reacted by adjusting earnings forecasts and price targets. For BA-ML this is enough to justify a downgrade to Neutral from Buy, especially given few obvious catalysts to drive the share price in the shorter-term.

While Oroton ((ORL)) delivered a good profit result, Credit Suisse has downgraded to Neutral from Buy. The price target has been increased and good earnings growth should continue, but the broker simply sees less upside following recent share price gains.

With respect to changes in earnings forecasts, Sigma ((SIP)) enjoyed the largest increases following what was generally regarded as a solid full year profit result. Among the larger cuts in forecasts were those associated with brokers factoring in Bank of Queensland's capital raising, while estimates for both David Jones ((DJS)) and Kathmandu ((KMD)) were cut post interim profit results.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	AURORA OIL AND GAS LIMITED	Sell	Neutral	JP Morgan
2	BANK OF QUEENSLAND LIMITED	Neutral	Buy	Deutsche Bank
3	TABCORP HOLDINGS LIMITED	Neutral	Buy	Macquarie
Downgrade
4	AURORA OIL AND GAS LIMITED	Buy	Neutral	UBS
5	AURORA OIL AND GAS LIMITED	Buy	Neutral	Credit Suisse
6	BANK OF QUEENSLAND LIMITED	Neutral	Sell	Macquarie
7	FORGE GROUP LIMITED	Buy	Neutral	Citi
8	LEIGHTON HOLDINGS LIMITED	Buy	Sell	Macquarie
9	MACQUARIE GROUP LIMITED	Buy	Neutral	RBS Australia
10	NUFARM LIMITED	Buy	Neutral	Macquarie
11	NUFARM LIMITED	Buy	Neutral	BA-Merrill Lynch
12	OROTONGROUP LIMITED	Buy	Neutral	Credit Suisse
13	STOCKLAND	Buy	Neutral	BA-Merrill Lynch

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	CER	50.0%	67.0%	17.0%	3
2	TAH	25.0%	38.0%	13.0%	8
3	ALS	40.0%	50.0%	10.0%	6
4	SKI	50.0%	57.0%	7.0%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	AUT	- 20.0%	- 40.0%	- 20.0%	5
2	ORL	40.0%	20.0%	- 20.0%	5
3	BTT	50.0%	33.0%	- 17.0%	3
4	CFX	71.0%	57.0%	- 14.0%	7
5	MQG	43.0%	29.0%	- 14.0%	7
6	SGP	71.0%	57.0%	- 14.0%	7
7	MAP	33.0%	20.0%	- 13.0%	5
8	PRU	33.0%	20.0%	- 13.0%	5
9	QRN	- 13.0%	- 25.0%	- 12.0%	8
10	MYR	25.0%	13.0%	- 12.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	AUT	3.430	3.758	9.56%	5
2	SKI	1.405	1.449	3.13%	7
3	ALS	1.656	1.705	2.96%	6
4	ORL	8.856	8.936	0.90%	5
5	TAH	3.264	3.283	0.58%	8
6	MQG	29.437	29.523	0.29%	7
7	CFX	1.959	1.964	0.26%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	FKP	0.760	0.726	- 4.47%	5
2	PRU	3.628	3.494	- 3.69%	5
3	SGP	3.639	3.507	- 3.63%	7
4	MYR	2.441	2.368	- 2.99%	8
5	MAP	3.225	3.134	- 2.82%	5
6	BTT	2.230	2.170	- 2.69%	3
7	CMJ	2.710	2.672	- 1.40%	6
8	TOL	5.783	5.723	- 1.04%	7
9	SEK	7.184	7.156	- 0.39%	7
10	EHL	1.283	1.280	- 0.23%	5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	SIP	3.886	4.686	20.59%	7
2	IGO	4.080	4.340	6.37%	5
3	RRL	16.375	16.800	2.60%	4
4	NVT	20.457	20.614	0.77%	6
5	QBE	131.820	132.719	0.68%	8
6	SEK	36.125	36.325	0.55%	7
7	NCM	174.000	174.750	0.43%	8
8	AAX	34.140	34.260	0.35%	5
9	BWP	13.225	13.250	0.19%	4
10	MIO	22.586	22.621	0.15%	4

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	BOQ	95.513	28.938	- 69.70%	8
2	DJS	22.538	20.263	- 10.09%	8
3	KMD	13.266	12.005	- 9.51%	5
4	ROC	4.979	4.577	- 8.07%	5
5	QAN	14.625	13.575	- 7.18%	8
6	BPT	9.440	8.860	- 6.14%	5
7	ALS	17.850	16.871	- 5.48%	6
8	AQG	75.548	72.146	- 4.50%	7
9	SGP	31.886	30.771	- 3.50%	7
10	QRN	16.138	15.663	- 2.94%	8

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Over the past week brokers in the FNArena database have upgraded three ratings while downgrading seven stocks. Total Buy ratings now stand at 51.66%.

Among the upgrades were David Jones ((DJS)), where Macquarie moved to a Buy rating from Neutral previously. This reflects the view a relief rally is possible as the downgraded earnings outlook is now in the price and issues on the credit card side of the business have now become exposed. This has driven down the share price and leaves scope for a bounce in the broker's view.

Others in the market reacted to the interim profit result and weak guidance far more harshly, with UBS, Deutsche Bank and RBS Australia all downgrading to Sell recommendations from Neutral ratings previously.

UBS continues to see downside earnings risk and suggests there is limited value at current levels given this risk. Deutsche Bank also sees some execution risk as David Jones attempts to restructure its operations, while RBS Australia suggests the re-basing of earnings over the next few years is not fully priced into the stock at present.

Macquarie also upgraded News Corporation ((NWS)) during the week, lifting its rating to Neutral from Sell as the sale of NDS was factored into its model. For Macquarie the sale is a positive for the valuation of News, which when added to the removal of a discount for regulatory uncertainty sees the broker move to a less negative view.

Sigma Pharmaceuticals ((SIP)) reported full year earnings this week and while metrics improved, the consensus view is the industry outlook remains difficult. Deutsche is the only broker in the database to rate Sigma as a Buy, seeing scope for additional earnings growth and capital management in coming periods.

Neutral and Sell ratings continue to dominate for Sigma, with brokers adjusting forecasts and price target post the full year result.

Among the other downgrades over the past week was RBS Australia cutting its recommendation on Graincorp ((GNC)) to Neutral from Buy. Potential for the company to be involved in corporate activity given consolidation in the sector is a potential positive for valuation, but in RBS's view this is priced in at current levels. The downgrade in rating is therefore a valuation call.

RBS also lowered its rating on Nexus Energy ((NXS)) to Neutral from Buy post the group's Longtom field review. The downgrade in reserves creates uncertainty, while the downgrade is also a valuation call given the impact on value and price target resulting from the reduction in reserves at the project.

While Reckon ((RKN)) will save some royalties from the ending of its relationship with international (ex) partner Intuit, the flip side in Macquarie's view is Reckon will need to spend more on R&D going forward to compete with peers. There is also the risk of some customer leakage from the decision, which reinforces the broker's downgrade to a Sell rating from Neutral previously.

For UBS, the de-merger of Telecom New Zealand ((TEL)) being completed means the market should now focus on the growth outlook, which is not overly positive in the broker's view. While mobiles are performing well, this won't be enough to offset broader declines. This implies the market is overpaying for growth at current levels. This has seen UBS downgrade to a Sell rating from Neutral previously.

Significant changes in price targets were limited to the downside over the past week, with targets for David Jones falling significantly as brokers adjusted their models to reflect lower earnings guidance. Fellow retailer Kathmandu ((KMD)) suffered a similar fate, as again brokers lowered forecasts and price targets to reflect a weak interim profit result.

Aside from Kathmandu and David Jones, the most significant cuts in earnings estimates were seem in Atlas Iron ((AGO)), the changes reflecting lost production due to Cyclone Lau causing operations to be shut down.

Beach Energy ((BPT)) enjoyed the most significant increases in earnings estimates, this as brokers adjusted their models to reflect the group's Egypt project commencing production earlier than had been expected.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	DAVID JONES LIMITED	Neutral	Buy	Macquarie
2	NEWS CORPORATION	Sell	Neutral	Macquarie
3	Sigma Pharmaceuticals Ltd	Buy	Buy	Deutsche Bank
Downgrade
4	DAVID JONES LIMITED	Neutral	Sell	UBS
5	DAVID JONES LIMITED	Neutral	Sell	Deutsche Bank
6	DAVID JONES LIMITED	Neutral	Sell	RBS Australia
7	GRAINCORP LIMITED	Buy	Neutral	RBS Australia
8	NEXUS ENERGY LIMITED	Buy	Neutral	RBS Australia
9	RECKON LIMITED	Neutral	Sell	Macquarie
10	TELECOM CORPORATION OF NEW ZEALAND LIMITED	Neutral	Sell	UBS

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	NWS	43.0%	57.0%	14.0%	7
2	CSR	13.0%	25.0%	12.0%	8
3	ALS	40.0%	50.0%	10.0%	6
4	TNE	67.0%	75.0%	8.0%	4

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	DJS	- 38.0%	- 75.0%	- 37.0%	8
2	KMD	60.0%	40.0%	- 20.0%	5
3	RRL	50.0%	33.0%	- 17.0%	3
4	GNC	67.0%	50.0%	- 17.0%	6
5	PRU	33.0%	20.0%	- 13.0%	5
6	PRY	63.0%	50.0%	- 13.0%	8
7	GMG	75.0%	63.0%	- 12.0%	8
8	SGT	57.0%	50.0%	- 7.0%	6

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	NWS	20.547	21.663	5.43%	7
2	RRL	4.210	4.413	4.82%	3
3	ALS	1.656	1.705	2.96%	6
4	TNE	1.220	1.240	1.64%	4

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	KMD	1.920	1.357	- 29.32%	5
2	DJS	2.604	2.248	- 13.67%	8
3	PRU	3.628	3.494	- 3.69%	5
4	CSR	2.435	2.379	- 2.30%	8
5	PRY	3.314	3.289	- 0.75%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	BPT	8.060	9.440	17.12%	5
2	ROC	4.713	4.978	5.62%	5
3	HZN	1.147	1.194	4.10%	4
4	STO	66.138	67.250	1.68%	8
5	OSH	11.677	11.845	1.44%	8
6	TOX	18.133	18.367	1.29%	3
7	FMG	48.489	49.091	1.24%	8
8	SIP	3.886	3.929	1.11%	7
9	TNE	7.200	7.275	1.04%	4
10	AUT	31.681	31.944	0.83%	5

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	KMD	16.591	11.990	- 27.73%	5
2	DJS	26.813	20.950	- 21.87%	8
3	AGO	7.300	5.863	- 19.68%	8
4	ALS	17.850	16.871	- 5.48%	6
5	ORL	66.420	64.300	- 3.19%	5
6	SYD	7.082	6.885	- 2.78%	6
7	AQG	75.592	73.544	- 2.71%	7
8	GMG	6.200	6.125	- 1.21%	8
9	MYR	24.525	24.288	- 0.97%	8
10	RIO	750.659	745.251	- 0.72%	8

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The Short Report

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By Chris Shaw

The week from February 28 saw a number of significant increases in short positions on the Australian market, while reductions in short positions were far more modest. Increases of more than five percentage points were experienced by three stocks and of more than two percentage points by eight companies, while only three companies saw short positions fall by more than one percentage point.

On the increase in short positions side the largest was in Echo Entertainment ((EGP)), total shorts increasing from a negligible 0.79% to 7.0% during the week. The change came after an interim earnings report that fell short of some expectations and was regarded in some quarters as a low quality result. Corporate activity remains a possibility with Echo but the likes of JP Morgan question whether there are enough synergies for a deal to be completed.

Beach Energy ((BPT)) saw total shorts increase to 7.21% from 1.74% previously, as while the company continues to try and develop its unconventional gas resources some brokers are cautious in terms of whether the resources can be brought to a successful financial conclusion.

Uncertain end markets remain an issue for Gunns ((GNS)) and this is reflected in short positions continuing to rise to 6.98% for the week from February 28 from 5.0% previously. Shorts also rose in QBE Insurance ((QBE)) to 4.44% from just over 3.0% previously, this coming prior to some modestly accretive acquisitions in the Hong Kong and South American markets.

Shorts increased in Mesoblast ((MSB)) post a slightly disappointing interim earnings result to 4.88% from 1.94% previously, while news of a stem cell trial by Baxter also indicates competition in the group's markets is increasing.

Having trended down in recent weeks shorts in Billabong ((BBG)) turned higher for the week from February 28, rising to 11.47% from 8.82% the previous week. This came on the back of news of Billabong management turning away interest from private equity.

Billabong has moved to number three in terms of the market's largest short positions overall, trailing only JB Hi-Fi ((JBH)) and Fairfax ((FXJ)). Consumer discretionary stocks continue to dominate overall short positions as the top 20 include Myer ((MYR)), David Jones ((DJS)), Harvey Norman ((HVN)) and the likes of Wotif.com ((WRF)) and Carsales.com ((CRZ)).

The Reject Shop ((TRS)) is another consumer discretionary stock where short positions rose for the week from February 28, increasing to 6.19% from 3.62%, while shorts in JB Hi-Fi rose for the week to 21.56% from 19.4% previously.

On the other side of the ledger shorts in Seek ((SEK)) fell to 4.51% from 5.69% in the week from February 28, this change coming post an interim profit result that was slightly better than most in the market had expected.

Shorts have also declined in both Treasury Wine Estates ((TWE)) and OneSteel ((OST)) by a little more than one percentage point for the week, to less than 2.4% for the former and to just over 3.2% for the latter.

With respect to monthly increases for the period from February 6, Iluka ((ILU)) was among the more significant as shorts rose from less than 3.6% to more than 6.1%, while shorts in Bradken ((BKN)) also increased to a more significant 3.09% from 1.21% previously.

The former may reflect the risk of weaker zircon prices if the Chinese property market falls, while for the latter the market may still be adjusting to a slightly weaker than expected interim result.

Bank of Queensland ((BOQ)) experienced one of the more significant declines in short positions for the month from February 6, falling to 3.33% from 5.36%, this despite brokers continuing to trim earnings estimates to reflect the expectation of further increases in bad debt charges.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21293893	98850643	21.56
2	FXJ	276796151	2351955725	11.79
3	BBG	29367544	255102103	11.47
4	MYR	66772210	583384551	11.42
5	DJS	58619085	524940325	11.14
6	ISO	602790	5703165	10.57
7	FLT	9710768	100017679	9.68
8	COH	5364695	56929432	9.41
9	LYC	154027177	1714396913	8.99
10	BPT	80158446	1113497051	7.21
11	EGP	48132371	688019737	7.00
12	GNS	59345650	848401559	6.98
13	HVN	73307885	1062316784	6.88
14	WTF	14261629	211736244	6.73
15	CRZ	14511701	233674223	6.19
16	TRS	1616407	26071170	6.19
17	ILU	25664725	418700517	6.13
18	TEN	61383524	1045236720	5.89
19	WSA	10332252	179735899	5.76
20	PPT	2357879	41980678	5.61

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

Technical limitations

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The Short Report

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By Chris Shaw

For the week from February 21 the most significant changes in short positions were reductions in total shorts, with five companies seeing reductions of more than 2.0 percentage points from the previous week.

The largest reduction in total shorts was in Gunns ((GNS)), where positions fell to 1.98% from 6.25% the week prior. The change in positions was prior to an interim profit result impacted by asset impairments and revaluations and followed a proposed capital raising that would strengthen the group's balance sheet. The share price rallied.

Shorts in retailer The Reject Shop ((TRS)) fell to 3.62% from 6.55%, the change again coming after interim earnings for the company that brokers viewed as solid and suggestive of reduced financial risks surrounding the company. Shares in The Reject Shop have since rallied strongly too.

Wesfarmers ((WES)) again saw a decline in shorts in its new securities ((WESN)) to a total position of just 0.11%, down from 2.44% the week before. This followed a solid interim, though Macquarie suggested some disappointment in that the company appears to have a focus on value creation while the market is looking for growth. Shorts in the regular Wesfarmers shares also declined during the week, to 2.53% from 3.39% previously. Shares in Wesfarmers have failed to rally, instead they discovered that trending south is the path of least resistance.

While still the number one stock for short positions on the market, total shorts in JB Hi-Fi ((JBH)) fell during the week from February 21 to 19.4% from 21.7%. While the company met guidance with its interim result, brokers remain cautious given a still tough consumer discretionary market. Shares in JB Hi-Fi have also failed to rally. Just like Wesfarmers, they have weakened instead.

Stocks exposed to the consumer discretionary sector continue to dominate the top short positions, as along with JB Hi-Fi the top 20 includes Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)), Harvey Norman ((HVN)) and Flight Centre ((FLT)).

Of these, Billabong also enjoyed a solid fall in total shorts for the week from February 21, positions declining to around 8.8% from nearly 11% the previous week as the company continues to look at restructuring options and remains of interest to private equity.

There were no increases in short positions of 1.0% or more in the week from February 21 but closest was Ten Network ((TEN)), where total shorts increased to 6.2% from 5.3% previously. Ten's latest guidance update was disappointing and left brokers with the expectation further cuts to consensus earnings numbers were likely. A similar increase in shorts was seen in Western Areas ((WSA)), which came after an interim report that fell a little short of expectations due to the timing of some ore shipments.

Among the monthly changes, Rialto Energy ((RIA)) saw shorts increase from 0.2% to around 5.0% and SingTel ((SGT)) to 5.4% from 3.1%, while shorts in Gunns, JB Hi-Fi and The Reject Shop all declined by 2.6% to 3.0%.

While Flight Centre remains among the top 20 short positions, BA Merrill Lynch is not sure the market's concerns over the outlook for consumer discretionary stocks is appropriate in this case. This is because Flight Centre has a more flexible business structure and a dominant market share and faces less short-term structural threats than others in the sector.

Tabcorp ((TAH)) remains well down the list in terms of total short positions, standing at just 1.31% for the week from February 21. But as RBS Australia notes, this has increased by almost double over the past few weeks, something RBS sees as a reflection of ongoing challenges including weak organic revenue growth and an expense base that is difficult to control. In RBS's view Tabcorp is a stock that will struggle to outperform the broader market given this issues.

Previous research conducted by RBS suggests increasing numbers in short positions are usually closely linked to share price underperformance in the following weeks, if not months.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	19175716	98840643	19.40
2	FXJ	269023275	2351955725	11.45
3	ISO	586412	5403165	10.85
4	MYR	61159541	583384551	10.46
5	DJS	52413224	524940325	9.96
6	FLT	9627616	100009946	9.59
7	BBG	22544808	255102103	8.82
8	COH	4990491	56922933	8.75
9	LYC	146148090	1714396913	8.53
10	WTF	14582724	211736244	6.87
11	HVN	70934517	1062316784	6.67
12	TEN	64765918	1045236720	6.19
13	SEK	19199119	337101307	5.69
14	PPT	2339462	41980678	5.57
15	CRZ	13024435	233264223	5.56
16	SGT	9943853	183608625	5.41
17	ILU	21922037	418700517	5.23
18	WSA	9352753	179735899	5.20
19	RIA	21505734	431256264	4.99
20	RIO	20840257	435758720	4.77

To see the full Short Report, please go to this link

IMPORTANT INFORMATION ABOUT THIS REPORT

Technical limitations

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The final week of reporting season for Australian equities has again seen downgrades from brokers in the FNArena database outweigh upgrades, this time by a score of 35 to 17. The ratings changes have brought total Buy ratings to 51.45%, down from 52.15% last week.

Among the companies to receive more than one upgrade were James Hardie ((JHX)) and QBE Insurance ((QBE)). Upgrades for the former came from UBS and Credit Suisse, both moving to Neutral recommendations from Sell previously.

The changes followed a 3Q result that gave some cause for optimism the worst may be behind the company, particularly with the prospect of additional capital management initiatives going forward. At the same time Macquarie downgraded to a Neutral recommendation from Outperform on valuation grounds.

More positive were the upgrades for QBE as Citi, BA-Merrill Lynch, JP Morgan and UBS all moved to Buy ratings from Neutral previously. The changes reflect a combination of factors, including value in the stock at current levels, better understanding of the company's margin outlook post its recent result and a more positive stance on general insurance stocks in general.

Among the other upgrades where brokers moved to Buy views were Aston Resources ((AZT)), Macquarie seeing some upside from the proposal for 10% of the group's stake in the Maules Creek project to be sold.

Deutsche Bank upgraded CSL ((CSL)) to a Buy from Neutral given its view the company should continue to enjoy margin expansion in coming years, while Citi has turned more positive on Insurance Australia Group ((IAG)) also in part due to an improved margin outlook.

Jetset Travelworld ((JET)) offers potential for a re-rating over the next 12 months according to Deutsche and this was enough to prompt an upgrade to Buy, while RBS Australia made the same change with Prime Television ((PRT)) given a somewhat more positive outlook and the potential for some corporate activity involving the company.

For Deutsche the potential for grade and production expansion is enough to justify upgrading to a Buy on Regis Resources ((RRL)), though at the same time UBS has downgraded to a Neutral rating on the stock on valuation grounds.

ResMed ((RMD)) offers scope for an increased buyback boosting earnings per share, which sees Credit Suisse lift its valuation and move to a Buy rating. It was a similar story for Seven Group ((SVW)), as BA-ML no longer sees working capital as an issue and expects valuation support from the group's media assets.

Warrnambool Cheese and Butter ((WCB)) was upgraded to a Buy by RBS following a stronger than expected profit result that implies good value at current levels, while JP Morgan upgraded Westpac ((WBC)) on relative valuation grounds following what appears to be excessive underperformance relative to ANZ Bank ((ANZ)). The broker downgraded ANZ to a Sell at the same time.

On the downgrades side, those receiving multiple cuts to ratings were Aristocrat Leisure ((ALL)), Australian Worldwide Exploration ((AWE)), Harvey Norman ((HVN)) and Newcrest Mining ((NCM)).

For Aristocrat, the downgrades were a factor of valuation after recent share price gains, as full year earnings were generally better than expected and prompted increases to earnings estimates and price targets.

UBS and Deutsche both moved to Neutral ratings on AWE from previous Buy ratings, again valuation calls following recent share price gains. Harvey Norman continues to deal with poor retail conditions and brokers now see additional pressure on franchise margins, which was enough for Macquarie and BA-ML to downgrade to Sell ratings from Hold previously.

Newcrest also has some issues as Lihir is again proving a problematic asset, enough that full year production expectations have been revised lower. The changes saw JP Morgan and UBS downgrade to Neutral views as shorter-term outperformance now appears less likely.

The other most significant downgrade this week came courtesy of Macquarie, the broker moving to a Sell on Air New Zealand ((AIZ)) from a Buy previously. The change in view reflects still tough operating conditions given a combination of weaker long haul demand and increases to operating costs.

In terms of changes to price targets, the largest increases were in Seven Group, Aristocrat and Ausdrill ((ASL)), the latter on the back of a better than expected interim result. Price target cuts were most significant for Jetset, as brokers adjusted for lower than expected interim earnings.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	ABACUS PROPERTY GROUP	Sell	Neutral	JP Morgan
2	ASTON RESOURCES LIMITED	Neutral	Buy	Macquarie
3	CSL LIMITED	Neutral	Buy	Deutsche Bank
4	INSURANCE AUSTRALIA GROUP LIMITED	Neutral	Buy	Citi
5	JAMES HARDIE INDUSTRIES N.V.	Sell	Neutral	UBS
6	JAMES HARDIE INDUSTRIES N.V.	Sell	Neutral	Credit Suisse
7	JETSET TRAVELWORLD LIMITED	Neutral	Buy	Deutsche Bank
8	PRIME TELEVISION LIMITED	Neutral	Buy	RBS Australia
9	QBE INSURANCE GROUP LIMITED	Neutral	Buy	Citi
10	QBE INSURANCE GROUP LIMITED	Neutral	Buy	BA-Merrill Lynch
11	QBE INSURANCE GROUP LIMITED	Neutral	Buy	JP Morgan
12	QBE INSURANCE GROUP LIMITED	Neutral	Buy	UBS
13	REGIS RESOURCES LIMITED	Neutral	Buy	Deutsche Bank
14	RESMED INC	Neutral	Buy	Credit Suisse
15	SEVEN GROUP HOLDINGS LIMITED	Neutral	Buy	BA-Merrill Lynch
16	WARRNAMBOOL CHEESE AND BUTTER FACTORY COMPANY HOLDING LTD	Neutral	Buy	RBS Australia
17	WESTPAC BANKING CORPORATION	Neutral	Buy	JP Morgan
Downgrade
18	AIR NEW ZEALAND LIMITED	Buy	Sell	Macquarie
19	ARISTOCRAT LEISURE LIMITED	Neutral	Sell	Macquarie
20	ARISTOCRAT LEISURE LIMITED	Buy	Buy	Citi
21	ARISTOCRAT LEISURE LIMITED	Neutral	Sell	Deutsche Bank
22	ASG GROUP LIMITED	Buy	Neutral	UBS
23	AUSDRILL LIMITED	Buy	Neutral	BA-Merrill Lynch
24	AUSTAL LIMITED	Buy	Neutral	Macquarie
25	AUSTRALIA & NEW ZEALAND BANKING GROUP	Neutral	Sell	JP Morgan
26	AUSTRALIAN WORLDWIDE EXPLORATION LIMITED	Buy	Neutral	UBS
27	AUSTRALIAN WORLDWIDE EXPLORATION LIMITED	Buy	Neutral	Deutsche Bank
28	BEACH PETROLEUM LIMITED	Buy	Neutral	Macquarie
29	BRAVURA SOLUTIONS LIMITED	Buy	Neutral	JP Morgan
30	CLARIUS GROUP LIMITED	Buy	Neutral	JP Morgan
31	CROWN LIMITED	Buy	Neutral	RBS Australia
32	ECHO ENTERTAINMENT GROUP LIMITED	Buy	Neutral	Citi
33	GLOUCESTER COAL LTD	Buy	Neutral	RBS Australia
34	GRANGE RESOURCES LIMITED	Buy	Neutral	RBS Australia
35	HARVEY NORMAN HOLDINGS LIMITED	Neutral	Sell	Macquarie
36	HARVEY NORMAN HOLDINGS LIMITED	Neutral	Sell	BA-Merrill Lynch
37	HENDERSON GROUP PLC.	Buy	Neutral	Citi
38	HUTCHISON TELECOMMUNICATIONS (AUST) LIMITED	Buy	Neutral	RBS Australia
39	JAMES HARDIE INDUSTRIES N.V.	Buy	Neutral	Macquarie
40	LINDSAY AUSTRALIA LIMITED	Buy	Neutral	RBS Australia
41	MACQUARIE ATLAS ROADS GROUP	Buy	Neutral	Macquarie
42	NATIONAL AUSTRALIA BANK LIMITED	Buy	Neutral	UBS
43	NEW HOPE CORPORATION LIMITED	Buy	Neutral	RBS Australia
44	NEWCREST MINING LIMITED	Buy	Neutral	JP Morgan
45	NEWCREST MINING LIMITED	Buy	Neutral	UBS
46	PREMIER INVESTMENTS LIMITED	Neutral	Sell	Credit Suisse
47	REGIONAL EXPRESS HOLDINGS LIMITED	Buy	Neutral	RBS Australia
48	REGIS RESOURCES LIMITED	Buy	Neutral	UBS
49	RETAIL FOOD GROUP LIMITED	Buy	Neutral	JP Morgan
50	TAP OIL LIMITED	Buy	Neutral	Credit Suisse
51	TELECOM CORPORATION OF NEW ZEALAND LIMITED	Buy	Neutral	Deutsche Bank
52	THORN GROUP LIMITED	Buy	Buy	RBS Australia

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	QBE	13.0%	63.0%	50.0%	8
2	SYD	- 25.0%	17.0%	42.0%	6
3	SVW	50.0%	75.0%	25.0%	4
4	JET	50.0%	75.0%	25.0%	4
5	AZT	80.0%	100.0%	20.0%	5
6	PRT	33.0%	50.0%	17.0%	6
7	SUL	57.0%	71.0%	14.0%	7
8	RMD	50.0%	63.0%	13.0%	8
9	WBC	38.0%	50.0%	12.0%	8
10	CSL	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	AIZ	100.0%	50.0%	- 50.0%	4
2	RHC	25.0%	- 13.0%	- 38.0%	8
3	TTS	13.0%	- 25.0%	- 38.0%	8
4	NHC	67.0%	33.0%	- 34.0%	3
5	ENV	17.0%	- 17.0%	- 34.0%	6
6	RFG	67.0%	33.0%	- 34.0%	3
7	AWE	71.0%	43.0%	- 28.0%	7
8	TAP	75.0%	50.0%	- 25.0%	4
9	ALL	38.0%	13.0%	- 25.0%	8
10	NCM	100.0%	75.0%	- 25.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	SVW	9.423	10.925	15.94%	4
2	ALL	2.656	2.989	12.54%	8
3	ASL	4.018	4.456	10.90%	5
4	TOL	5.436	5.783	6.38%	8
5	PRT	0.760	0.807	6.18%	6
6	TPI	0.878	0.923	5.13%	6
7	RSG	1.750	1.833	4.74%	3
8	AWE	1.961	2.050	4.54%	7
9	IAG	3.368	3.499	3.89%	8
10	ENV	0.763	0.792	3.80%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	JET	0.988	0.890	- 9.92%	4
2	FKP	0.798	0.760	- 4.76%	6
3	GCL	9.618	9.225	- 4.09%	5
4	RFG	3.017	2.917	- 3.31%	3
5	ILU	21.074	20.569	- 2.40%	8
6	NCM	42.969	41.965	- 2.34%	8
7	CWN	10.150	9.944	- 2.03%	8
8	DJS	2.656	2.605	- 1.92%	8
9	NHC	6.073	6.017	- 0.92%	3
10	TAP	1.085	1.075	- 0.92%	4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	CHC	17.800	22.417	25.94%	6
2	NWH	30.300	33.600	10.89%	4
3	SKI	12.600	13.938	10.62%	8
4	ASL	33.440	36.880	10.29%	5
5	PAN	4.700	5.050	7.45%	4
6	TAP	3.075	3.300	7.32%	4
7	ENV	4.083	4.367	6.96%	6
8	SVW	82.180	87.780	6.81%	4
9	IAG	22.013	23.450	6.53%	8
10	VBA	2.914	3.086	5.90%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GCL	5.480	- 22.520	- 510.95%	5
2	AGO	20.726	7.300	- 64.78%	8
3	AIZ	6.579	3.245	- 50.68%	4
4	QUB	14.075	7.600	- 46.00%	4
5	IGO	6.020	4.080	- 32.23%	5
6	ROC	6.532	4.716	- 27.80%	5
7	FKP	10.450	8.483	- 18.82%	6
8	HZN	1.365	1.148	- 15.90%	4
9	ILU	290.388	248.038	- 14.58%	8
10	FXJ	10.600	9.163	- 13.56%	8

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

In what may be either a barometer on reporting season to date or an indication recent market gains are making value harder to find, the FNArena database has seen 28 ratings downgrades over the past week. This compares to just eight upgrades and means total Buy recommendations now stand at 53.86%.

Among the upgrades was Commonwealth Bank ((CBA)), where Citi lifted its rating to Neutral from Sell to reflect a few factors becoming less negative than had been the case. Changes to earnings estimates meant a lift in price target and this also supported the rating upgrade.

Also scoring an upgrade by Citi was Graincorp ((GNC)), the broker moving to Buy from Neutral as the company's guidance for full year earnings came in above expectations. The guidance remains conservative in Citi's view and with valuation attractive at current levels a more positive rating is now justified. Price target was also increased.

There is also longer-term value on offer in JB Hi-Fi ((JBH)) in the view of Macquarie, who expects an eventual recovery in consumer spending and so an eventual recovery in the JB Hi-Fi share price. Others struggle to see such value, as Credit Suisse downgraded to Underperform from Neutral on the stock given an uncertain medium-term outlook and few shorter-term catalysts.

While Primary Health Care's ((PRY)) interim result missed expectations full year earnings guidance has been maintained, which was enough for both RBS Australia and Credit Suisse to adopt more positive views. Both brokers upgraded to Buy ratings from Neutral previously, with valuation the catalyst for the change following recent share price underperformance.

Interim earnings from Transfield ((TSE)) and updated full year guidance didn't prompt a lot of changes to broker models, but JP Morgan saw enough to upgrade to Overweight from Neutral. More disciplined capital use and improved efficiencies are positives, while the broker sees an expected share buyback as share price supportive as well.

AGL Energy ((AGK)) was among those stocks suffering a downgrade in rating, RBS moving to a Neutral recommendation from Buy previously. This is because while a move to acquire more of the Loy Yang A asset is likely, so too is a capital raising to pay for any such acquisition.

Alumina Ltd ((AWC)) has also been downgraded by both RBS and Credit Suisse to Neutral ratings from Buy, the former as while earnings were as expected the decision to pay a dividend rather than pay down debt was disappointing. For Credit Suisse the problem is the market and while prices mean some capacity will be removed, it will take some time for higher pricing to flow through to improved earnings for Alumina.

Credit Suisse has also downgraded both AMP ((AMP)) and ARB Corporation ((ARP)) to Neutral from Outperform recommendations, the former as the latest result showed a deterioration in balance sheet quality and the latter on valuation grounds given an elevated current earnings multiple.

For Beach Petroleum ((BPT)), Citi's downgrade to a Sell from Neutral comes despite guidance coming in well above the broker's estimate. The big concern for Citi remains the cost and viability of the Cooper Shale Gas operations, which leaves the broker preferring the likes of Santos ((STO)) in the sector.

Citi also downgraded Bunnings Warehouse Property ((BWP)) to Neutral from Buy, as while a solid profit result was posted a lack of valuation upside is likely to make any share price outperformance difficult from here.

Macquarie downgraded Carsales.com ((CRZ)) to Underperform from Outperform as post the interim result there appears to be more downside than upside risk. This largely reflects Macquarie's expectation of a market share war with rising competitor Carsguide.

David Jones ((DJS)) also offers some downside earnings risk in the view of Credit Suisse, enough for the broker to downgrade to an Underperform rating. The broker also has some shorter-term concerns given the loss of Stephen Goddard as CFO.

Still tough market conditions have seen Macquarie lower earnings estimates and price target for GWA ((GWA)). The broker has downgraded to a Neutral rating from Outperform. Valuation is the issue for James Hardie ((JHX)) according to UBS and sees a downgrade to Sell from Neutral, while RBS has downgraded Mermaid Marine ((MRM)) to Hold from Buy on the same basis.

A more cautious approach to the group's Middle East operations has been enough for Deutsche Bank to downgrade Leighton Holdings ((LEI)) to a Neutral rating from Buy previously, while tepid earnings guidance from Oakton ((OKN)) given still tough IT markets has prompted both UBS and Credit Suisse to downgrade to Neutral ratings from Buy previously.

Increased costs for non-core ventures prompted a profit warning from Mortgage Choice ((MOC)) and this was enough for UBS to downgrade to a Sell rating from Neutral. Earnings estimates were also adjusted lower, meaning a cut in price target.

Among resource plays both Oz Minerals ((OZL)) and Paladin ((PDN)) suffered two downgrades during the week, the former on valuation grounds and the latter given some concerns in the market with respect to cash generation ability leading into some debt maturities.

In the view of RBS, the slight miss with respect to earnings at Coles could put some pressure on the Wesfarmers ((WES)) share price, while Macquarie's downgrade on Westfield Group ((WDC)) reflects better value elsewhere in the sector.

Lower margins and higher costs at Royal Wolf Holdings ((RWH)) saw Macquarie downgrade forecasts and its recommendation to Neutral from Outperform, while the broker similarly downgraded its rating on Slater and Gordon ((SGH)) post what was perceived as a disappointing interim. Finally, recent share price outperformance from Tatts ((TTS)) has been enough for Deutsche Bank to downgrade to a Hold rating.

Most significant in terms of changes to price targets were increases for Domino's Pizza ((DMP)) as brokers lifted estimates on the back of a strong interim result, while targets for Alumina Ltd and Paladin both fell as lower earnings forecasts were incorporated into models.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	COMMONWEALTH BANK OF AUSTRALIA	Sell	Neutral	Citi
2	GRAINCORP LIMITED	Neutral	Buy	Citi
3	JB HI-FI LIMITED	Neutral	Buy	Macquarie
4	PRIMARY HEALTH CARE LIMITED	Neutral	Buy	RBS Australia
5	PRIMARY HEALTH CARE LIMITED	Neutral	Buy	Credit Suisse
6	TRANSFIELD SERVICES LIMITED	Neutral	Buy	JP Morgan
Downgrade
7	AGL ENERGY LTD	Buy	Neutral	RBS Australia
8	ALUMINA LIMITED	Buy	Neutral	RBS Australia
9	ALUMINA LIMITED	Buy	Neutral	Credit Suisse
10	AMP LIMITED	Buy	Neutral	Credit Suisse
11	ARB CORPORATION LIMITED	Buy	Neutral	Credit Suisse
12	BEACH PETROLEUM LIMITED	Neutral	Sell	Citi
13	BUNNINGS WAREHOUSE PROPERTY TRUST	Buy	Neutral	Citi
14	CARSALES.COM LIMITED	Buy	Sell	Macquarie
15	DAVID JONES LIMITED	Neutral	Sell	Credit Suisse
16	GWA GROUP LIMITED	Buy	Neutral	Macquarie
17	JAMES HARDIE INDUSTRIES N.V.	Neutral	Sell	UBS
18	JB HI-FI LIMITED	Neutral	Sell	Credit Suisse
19	LEIGHTON HOLDINGS LIMITED	Buy	Neutral	Deutsche Bank
20	MERMAID MARINE AUSTRALIA LIMITED	Buy	Neutral	RBS Australia
21	MORTGAGE CHOICE LIMITED	Neutral	Sell	UBS
22	OAKTON LIMITED	Buy	Neutral	UBS
23	OAKTON LIMITED	Buy	Neutral	Credit Suisse
24	OZ MINERALS LIMITED	Neutral	Sell	UBS
25	OZ MINERALS LIMITED	Buy	Neutral	Deutsche Bank
26	PALADIN ENERGY LTD	Neutral	Sell	Macquarie
27	PALADIN ENERGY LTD	Buy	Neutral	UBS
28	PRIMARY HEALTH CARE LIMITED	Neutral	Sell	Macquarie
29	PRIMARY HEALTH CARE LIMITED	Neutral	Neutral	Macquarie
30	ROYAL WOLF HOLDINGS LIMITED	Buy	Neutral	Macquarie
31	SLATER & GORDON LIMITED	Buy	Neutral	Macquarie
32	TATTS GROUP LIMITED	Buy	Neutral	Deutsche Bank
33	WESFARMERS LIMITED	Neutral	Sell	RBS Australia
34	WESTFIELD GROUP	Buy	Neutral	Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	PRY	38.0%	63.0%	25.0%	8
2	TSE	40.0%	60.0%	20.0%	5
3	GNC	50.0%	67.0%	17.0%	6
4	CPU	57.0%	71.0%	14.0%	7
5	COH	- 38.0%	- 25.0%	13.0%	8
6	GMG	63.0%	75.0%	12.0%	8
7	AQG	50.0%	57.0%	7.0%	7
8	ROC	75.0%	80.0%	5.0%	5

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	BWP	50.0%	- 25.0%	- 75.0%	4
2	TRS	67.0%	33.0%	- 34.0%	3
3	CRZ	67.0%	33.0%	- 34.0%	6
4	PDN	71.0%	43.0%	- 28.0%	7
5	ARP	50.0%	25.0%	- 25.0%	4
6	OZL	50.0%	25.0%	- 25.0%	8
7	AWC	50.0%	25.0%	- 25.0%	8
8	GWA	50.0%	33.0%	- 17.0%	6
9	DMP	67.0%	50.0%	- 17.0%	6
10	MRM	83.0%	67.0%	- 16.0%	6

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	DMP	7.105	8.098	13.98%	6
2	COH	58.681	59.806	1.92%	8
3	MRM	3.502	3.567	1.86%	6
4	GNC	8.517	8.658	1.66%	6
5	TRS	11.617	11.767	1.29%	3
6	CBA	50.431	51.038	1.20%	8
7	LEI	23.434	23.626	0.82%	8
8	CPU	9.174	9.246	0.78%	7
9	CRZ	5.452	5.492	0.73%	6
10	TLS	3.373	3.391	0.53%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	AWC	1.784	1.589	- 10.93%	8
2	PDN	2.454	2.191	- 10.72%	7
3	TSE	2.770	2.580	- 6.86%	5
4	WES	31.961	30.549	- 4.42%	8
5	PRY	3.459	3.314	- 4.19%	8
6	AMP	5.149	4.986	- 3.17%	8
7	PBG	0.760	0.737	- 3.03%	7
8	DJS	2.713	2.656	- 2.10%	8
9	GWA	2.462	2.413	- 1.99%	6
10	AGK	16.489	16.295	- 1.18%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GBG	0.086	1.343	1461.63%	6
2	TAP	2.125	3.075	44.71%	4
3	ROC	6.009	6.536	8.77%	5
4	TAH	44.513	48.163	8.20%	8
5	GNC	85.683	92.200	7.61%	6
6	CTX	119.583	126.817	6.05%	6
7	AQG	73.818	77.711	5.27%	7
8	NCM	173.363	181.000	4.41%	8
9	PPT	134.986	140.157	3.83%	7
10	DMP	36.317	37.500	3.26%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	SGM	111.971	- 10.914	- 109.75%	7
2	AQP	7.129	- 0.273	- 103.83%	5
3	AWC	1.417	0.181	- 87.23%	8
4	HZN	2.066	1.366	- 33.88%	4
5	WHC	27.717	20.317	- 26.70%	6
6	WSA	40.150	31.750	- 20.92%	6
7	GFF	6.363	5.450	- 14.35%	8
8	SAI	29.725	26.925	- 9.42%	8
9	OZL	88.271	80.663	- 8.62%	8
10	FMG	53.066	48.584	- 8.45%	8

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A Coming Great Global Angst

By Richard (Rick) Mills, Ahead of the Herd

As a general rule, the most successful man in life is the man who has the best information

Our agriculture system is concentrated on producing a very few staple crops - there is a very serious lack of crop diversity. Corn, wheat, rice and soy are the main staples and production is oftentimes half a world away from where the majority of the crop would be consumed. The world’s extreme poor exist almost exclusively on what is a ‘buy today, eat today’ plant based diet - wheat, corn, soy or rice provide the bulk of their calories.

Taken together, this means if we get hit by a particularly bad harvest in one area, if a severe El Nino strikes, or more localized severe weather phenomena strikes, food supplies can get totally out of control in many countries.

Considering that the global food supply chain is weak (easily disrupted by lack of transportation, weather, insurgency, stealing) and non-existent in many areas then you have a recipe for potential disaster in many regions of the world.

Inefficient supply chains, intensified weather phenomena and a race to secure dwindling supplies of commodities by developed economies (and their richer inhabitants) all mean the very basics of human survival will become increasingly scarce for the poorer people in the developing world.

Hundreds of millions of marginalized people, people perhaps counted by the billions, across all nations, will feel the extreme pinch of increased prices, across all asset classes, on their household budgets. But especially so in what those people need the most – water, food and clothing – the bare essentials necessary for survival. Socio-economic turmoil - lawlessness, poverty, lack of adequate medical facilities and attention, low to no employment, low wages, disease, no clean drinking water or water for irrigation and shortages of food or unaffordable food can all cause socio-economic pressure to build in many countries.

The increase in the price of food is the straw that breaks the camel’s back - the real cause of global angst is the rising cost of survival. Many people, already living in poverty, and those on poverties edges, are far less capable of absorbing the increased costs of what is really just basic survival for themselves and their families. Yet this is the first group of people who will be impacted by the coming unstoppable waves of inflation and real shortages - whether localized or temporary because of supply chain breakages or poor harvests.

The most severe consequences of non-existent or more expensive staple foods are first felt in developing countries whose citizens spend an exorbitant percentage of their incomes feeding themselves and their family compared to families in the western world. Almost half of the planets population lives on less than $2.50 a day - roughly 1.4 billion people live on less than $1.25 per day. When food prices soar these people lack the money to feed themselves and their children - when your living on a couple of dollars a day, or less, and most of your income already goes to feed your family there’s no money to cover a price spike in the cost of survival.

On average developing countries citizens spend a much larger percentage of their wages on food than do their counterparts in developed nations. Some published estimates are as high as 50 to 60 percent of income going towards food - when, not if, a food supply shortfall happens, for whatever reason, then almost any city, and almost any countryside could be aflame with strikes, riots and civil disobedience.

When a countries citizens get upset, when the drama hits the streets, when the riots start, regime change in many of these developing countries can quickly become a reality.

Conclusion

“Angst denotes the constant struggle one has with the burdens of life that weighs on the dispossessed.” urbandictionary.com

Narrowly focusing on increasing production as the Green Revolution did cannot alleviate hunger because it failed to alter three simple facts:

- An increase in food production does not necessarily result in less hunger - if the poor don't have the money to buy food increased production is not going to help them
- A narrow focus on production ultimately defeats itself as it destroys the base on which agriculture depends – topsoil and water
- To end hunger once and for all, we must make food production sustainable and develop secure distribution networks of needed foodstuffs

The combination of a supply chain breakdown, crippling national debts, out of control government spending, climate change and runaway inflation might cause a global food crisis. Is the rising cost of survival on your radar screen?

If not, maybe it should be.

Richard (Rick) Mills

rick@aheadoftheherd.com

www.aheadoftheherd.com

If you're interested in learning more about the junior resource sector, bio-tech and technology sectors please come and visit us at www.aheadoftheherd.com

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All views expressed are the author's, not FNArena's (see our disclaimer).

***

Richard is host of Aheadoftheherd.com and invests in the junior resource sector. His articles have been published on over 300 websites, including: Wall Street Journal, SafeHaven, Market Oracle, USAToday, National Post, Stockhouse, Lewrockwell, Uranium Miner, Casey Research, 24hgold, Vancouver Sun, SilverBearCafe, Infomine, Huffington Post, Mineweb, 321Gold, Kitco, Gold-Eagle, The Gold/Energy Reports, Calgary Herald, Resource Investor, Mining.com, Forbes, FNArena, Uraniumseek, and Financial Sense.

***

Legal Notice / Disclaimer

This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment.

Richard Mills has based this document on information obtained from sources he believes to be reliable but which has not been independently verified; Richard Mills makes no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Richard Mills only and are subject to change without notice. Richard Mills assumes no warranty, liability or guarantee for the current relevance, correctness or completeness of any information provided within this Report and will not be held liable for the consequence of reliance upon any opinion or statement contained herein or any omission.

Furthermore, I, Richard Mills, assume no liability for any direct or indirect loss or damage or, in particular, for lost profit, which you may incur as a result of the use and existence of the information provided within this Report.

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