Tag Archives: Consumer Discretionary

article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Changes in broker ratings over the past week have returned to the recent trend of downgrades outnumbering upgrades, with the eight brokers in the FNArena database lifting just five ratings while cutting 11 recommendations in the period. Total Buy ratings now stand at 49.07%.

Alumina ((AWC)) was one to be upgraded, BA Merrill Lynch moving to a Neutral rating from Underweight while suggesting news Chinalco is to cut output will be a positive in terms of bringing the global aluminium market into better balance. Other positives for the stock in the broker's view are some improvements on costs and improved value following recent share price weakness.

Views on Alumina were not all positive however, as JP Morgan downgraded to Underweight from Neutral on the view the current tough aluminium market conditions mean there are a lack of positive catalysts to drive the share price shorter-term. The broker is also concerned margin pressure could see dividends cut.

While a review saw RBS Australia lower earnings forecasts and price target for Billabong ((BBG)), the view is new management should be able to run the business more appropriately going forward. As well, RBS sees good relative value in the stock following recent share price weakness and so has upgraded to a Buy rating from Hold.

UBS has upgraded DuluxGroup ((DLX)) to Buy from Hold following the pre-release of full year earnings from potential target Alesco ((ALS)). The Alesco result showed enough that UBS estimates a successful acquisition by Dulux would be around 7% earnings accretive, while recent share price moves have improved the value offering at current levels.

Following changes to oil price assumptions JP Morgan has adjusted its model for Woodside ((WPL)), the result being a modest increase in price target. With improved valuation support the broker has upgraded to an Overweight rating from Neutral previously.

The changes to JP Morgan's expectations were not positive across the sector, as both Aurora Oil and Gas ((AUT)) and Beach Energy ((BPT)) were downgraded to Underweight ratings from Neutral previously on the changes to earnings expectations and price targets stemming from revised oil price forecasts.

On the downgrades side of the ledger, Ten network ((TEN)) as the only stock to suffer multiple downgrades with both BA-ML and UBS cutting ratings to Sell from Hold. The changes follow the decision by Ten Network to raise capital for programming and to strengthen the balance sheet.

UBS suggests the stock is now expensive at current levels given a soft earnings outlook, while BA-ML's view is the attempt to copy Seven's ((SWM)) strategy isn't working and a return to being a low cost broadcaster would be appropriate. Targets and earnings for Ten Network were cut across the market on news of the capital raising.

While Alesco's pre-released earnings were reasonably well received recent share price moves have the stock trading in line with valuation for Deutsche Bank. As a result, rating is downgraded to Neutral from Buy.

Macquarie was also busy with downgrades during the week, cutting Echo Entertainment ((EGP)), Qantas ((QAN)) and Telecom New Zealand ((TEL)) to Neutral recommendations from previous Buy ratings.

For Echo, a trading update saw Macquarie revise earnings forecasts and price target down modestly. A takeover could see a valuation of around $5.00 but a this suggests somewhat limited upside the broker has downgraded to a Neutral rating.

Qantas also lowered earnings guidance and Macquarie cut its numbers and price target accordingly. While seeing value at current levels Macquarie also sees few catalysts to suggest a share price rebound shorter-term, so rating is downgraded.

Increased competition remains an issue for Telecom New Zealand in Macquarie's view, as is an apparent lack of clear growth drivers. With this in mind valuation is fair rather than attractive in the broker's view.

Macquarie also downgraded Stockland ((SGP)) but to Sell from Neutral, suggesting the stock is now over-valued given consensus earnings forecasts appear too high for the medium-term. A review of assumptions sees minor cuts to earnings estimates.

Telstra ((TLS)) shares have enjoyed a solid run in recent months and in RBS Australia's view this reflects greater comfort with respect to future cash flows. The share price gains have probably run their course according to the broker, who downgrades to a Hold from Buy on valuation grounds.

While there were only minor positive changes in price targets over the week targets for both Qantas and Ten Network saw significant cuts, the former given lower earnings guidance and the latter as brokers adjusted their models for a capital raising.

From an earnings forecast perspective Whitehaven ((WHC)) and Goodman Group ((GMG)) saw brokers lift their expectations significantly, while Qantas, Ten and Echo were the stocks with the largest cuts in earnings estimates during the week.

 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 ALUMINA LIMITED Sell Neutral BA-Merrill Lynch
2 BILLABONG INTERNATIONAL LIMITED Neutral Buy RBS Australia
3 DULUX GROUP LIMITED Neutral Buy UBS
4 QR NATIONAL Neutral Buy Macquarie
5 WOODSIDE PETROLEUM LIMITED Neutral Buy JP Morgan
Downgrade
6 ALESCO CORPORATION LIMITED Buy Neutral Deutsche Bank
7 ALUMINA LIMITED Neutral Sell JP Morgan
8 AURORA OIL AND GAS LIMITED Neutral Sell JP Morgan
9 BEACH ENERGY LIMITED Neutral Sell JP Morgan
10 ECHO ENTERTAINMENT GROUP LIMITED Buy Neutral Macquarie
11 QANTAS AIRWAYS LIMITED Buy Neutral Macquarie
12 STOCKLAND Neutral Sell Macquarie
13 TELECOM CORPORATION OF NEW ZEALAND LIMITED Buy Neutral Macquarie
14 TELSTRA CORPORATION LIMITED Buy Neutral RBS Australia
15 TEN NETWORK HOLDINGS LIMITED Neutral Sell BA-Merrill Lynch
16 TEN NETWORK HOLDINGS LIMITED Neutral Sell UBS
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 WPL 50.0% 63.0% 13.0% 8
2 QRN - 25.0% - 13.0% 12.0% 8
3 ANZ 13.0% 25.0% 12.0% 8
4 HGG 40.0% 50.0% 10.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 TEN - 13.0% - 38.0% - 25.0% 8
2 EGP 38.0% 13.0% - 25.0% 8
3 AUT - 20.0% - 40.0% - 20.0% 5
4 SGP 57.0% 43.0% - 14.0% 7
5 TEL - 13.0% - 25.0% - 12.0% 8
6 TLS 50.0% 38.0% - 12.0% 8
7 QAN 75.0% 63.0% - 12.0% 8
8 LLC 71.0% 63.0% - 8.0% 8
9 SGT 40.0% 33.0% - 7.0% 6
10 VBA 86.0% 83.0% - 3.0% 6
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 HGG 2.150 2.213 2.93% 4
2 TLS 3.460 3.485 0.72% 8
3 QRN 3.719 3.738 0.51% 8
4 AUT 3.870 3.874 0.10% 5

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 TEN 0.816 0.614 - 24.75% 8
2 QAN 2.120 1.638 - 22.74% 8
3 EGP 4.620 4.473 - 3.18% 8
4 LLC 9.089 8.896 - 2.12% 8
5 ANZ 24.404 24.256 - 0.61% 8
6 WPL 41.663 41.484 - 0.43% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 WHC 6.957 10.371 49.07% 7
2 GMG 16.975 23.088 36.01% 8
3 IAG 25.163 25.538 1.49% 8
4 CTX 114.400 115.917 1.33% 6
5 AUT 27.953 28.168 0.77% 5
6 STO 70.088 70.625 0.77% 8
7 ALL 17.388 17.513 0.72% 8
8 PRY 23.050 23.200 0.65% 8
9 FWD 91.000 91.560 0.62% 5
10 AAX 32.860 33.040 0.55% 5

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 QAN 9.663 5.485 - 43.24% 8
2 TEN 3.525 2.328 - 33.96% 8
3 EGP 20.438 16.963 - 17.00% 8
4 SYD 5.700 5.200 - 8.77% 6
5 SGT 21.308 19.969 - 6.28% 6
6 WPL 254.843 241.337 - 5.30% 8
7 AIZ 3.211 3.056 - 4.83% 4
8 TCL 14.257 13.857 - 2.81% 7
9 BXB 40.345 39.914 - 1.07% 8
10 RIO 707.101 700.690 - 0.91% 8
 

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The Short Report

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By Chris Shaw

For the week from May 22 the largest short position increase on the ASX was in Sundance Resources ((SDL)), where positions rose from just 0.27% to 2.24%. This occurred just prior to the company presenting at a mining forum in Cameroon and agreeing some key terms for its Mbalam iron ore project.

The next largest increase was in Iluka ((ILU)), where shorts increased to 8.93% from 7.08% after the company updated both zircon sales guidance and the outlook for the zircon market in general. Lower sales volumes and a slow recovery in the market are priced into the stock at current levels in the view of Macquarie.

A jump in shorts to 8.89% from 7.46% previously for Gunns ((GNS)) comes on the back of an update from management that included news of the sale of the Heyfield timber business. Further asset sales are expected as is a significant capital raising, so changes in shorts likely reflect positioning for such an event.

Among those to enjoy significant falls in short positions for the week from May 22 were retail plays David Jones ((DJS)) and Myer ((MYR)), the former seeing a decline in shorts to 8.81% from 10.51% and the latter to 9.72% from 11.21%.

The change for David Jones came ahead of what was viewed by most as a disappointing 3Q sales result, though the result did at least give some indication sales were stabilising. The change for Myer follows a trading update that included a cut in earnings guidance, which led brokers to comment upcoming sales periods for both companies will be important for full year earnings.

Despite the falls in respective short positions both David Jones and Myer remain among the top 20 short positions on the Australian market, along with other consumer discretionary plays such as JB Hi-Fi ((JBH)), Billabong ((BBG)), Harvey Norman ((HVN)), Flight Centre ((FLT)) and Carsales.com ((CRZ)).

Also among the top 20 are Iluka, Paladin ((PDN)) and Lynas ((LYC)) among resource plays, Echo Entertainment ((EGP)) in the gaming sector, building materials play CSR ((CSR)), rural group Elders ((ELD)) and biotech play Mesoblast ((MSB)). Shorts in both Echo Entertainment and Paladin fell by around 1.0 percentage point in the week from May 22.

Shorts in Western Areas ((WSA)) declined to 4.66% from 6.07% the week prior after the market updated expectations to reflect higher production and sales guidance from the company, while shorts in Whitehaven Coal ((WHC)) also declined to 0.74% from 1.94% as the company supplied an initial resource for the Ferndale project.

From the perspective of monthly changes in shorts for the period from April 26, Iluka experienced the largest increase with a move to 8.93% from 6.48% the month prior. Sparsely covered Linc Energy ((LNC)) also saw a jump in shorts to 5.58% from 3.34%, this despite management responding to an ASX query by confirming previous guidance for oil production and cash management for the full year.

A number of the top 20 short position stocks saw total positions increase by around 1.0% or more in the month from April 26, these including Billabong, Gunns, Harvey Norman, Flight Centre, Western Areas, CSR and Elders.

On the side of falling short positions, Whitehaven saw the greatest decline for the month, while utilities Spark Infrastructure ((SKI)) and Australian Pipeline Trust ((APA)) also enjoyed solid falls in total positions. For the former shorts fell to 2.29% from 5.46% and for the latter to 1.02% from 3.23% as the market continues to digest potential acquisitions in both cases.

Shorts in SingTel ((SGT)) declined to 3.6% from 5.93% the month before as the market viewed full year earnings as broadly in line with expectations, while a solid update indicating fund performance has been good and there is potential for an increase in fund inflows in coming months may have helped shorts in Henderson Group ((HGG)) fall to 0.69% from 2.26% previously.

Elsewhere in the market, RBS Australia notes Metcash ((MTS)) short positions have increased by more than 50 basis points over the past three weeks and now stand at 5.5%. In RBS's view such an increase is justified by weak trading conditions, which are expected to pressure independent supermarkets more than those of Coles and Woolworths ((WOW)). Such a trend would make it more difficult for Metash to sell many of its Franklins stores.

Investors should note past research conducted by RBS has shown that increasing/decreasing short positions for an individual stock can function as an early indication for the share price underperforming/outperforming respectively in the weeks/months ahead.
 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 23026494 98850643 23.29
2 FLT 11708664 100031742 11.70
3 CRZ 27135451 233689223 11.60
4 FXJ 269444917 2351955725 11.48
5 COH 6460589 56929432 11.32
6 LYC 175865064 1714846913 10.26
7 ISO 564043 5703165 9.89
8 MYR 56759223 583384551 9.72
9 BBG 24988441 257888239 9.69
10 ILU 37466989 418700517 8.93
11 GNS 75481203 848401559 8.89
12 HVN 94109184 1062316784 8.83
13 DJS 46649603 528655600 8.81
14 EGP 52714970 688019737 7.66
15 WTF 15883143 211736244 7.49
16 CSR 36894219 506000315 7.29
17 PDN 60483039 835645290 7.22
18 MSB 16644576 284478361 5.85
19 GWA 17206537 302005514 5.71
20 ELD 25258709 448598480 5.63

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Can Wesfarmers Continue To Outperform?

- Analysts attended a Strategy Day organised by Wesfarmers
- Coles turnaround is expected to continue
- Some issues at Target and in coal operations
- Bunnings faces some challenges
- Neutral views on stock continue to dominate

By Chris Shaw

A strategy day from Wesfarmers ((WES)) provided some insights into how management intends to continue delivering growth in coming years, but it was not enough to shift brokers from essentially neutral views on the stock at current share price levels.

As Citi notes, the update showed management at Wesfarmers continues to be excellent but this is not enough to allow the company to beat the consensus earnings outlook. This reflects the fact while Coles will continue to lift performance, Target's position is being re-set, which implies another 18 months or so of falling comparable store sales. As well, JP Morgan is cautious on the outlook for Bunnings given a number of headwinds including a weak consumer and housing environment and stronger competition.

For Coles, JP Morgan suggests there continues to be growth opportunities from strengthening the loyalty program, not only in converting additional customers but in improving sales per square metre from better utilisation of store space.

With respect to Target, BA Merrill Lynch suggests the new management team appears to take the view a heavy restructuring is needed, this despite the broker's view the business is not broken. Coal division earnings are also an issue for BA-ML given more bearish expectations with respect to operating costs and a sustained lower quality mix of coal being produced.

Post the update from management there have been relatively minor changes to earnings estimates across the market, UBS trimming its earnings per share (EPS) forecasts by 1-2% and RBS Australia adjusting its numbers by a similar magnitude. Consensus EP estimates for Wesfarmers according to the FNArena database are 184.2c for FY12 and 203.3c for FY13.

On UBS's numbers, Wesfarmers is likely to generate three-year capitalised annual growth in earnings of around 6%, or 9% ex-resources. Despite this modest growth, the stock is trading on a forecast 14 times earnings in FY13, which is a solid premium to the market.

To deliver share price outperformance from current levels UBS suggests positive earnings revisions are required, something that doesn't appear likely given retail sales are being constrained by deflation and there are rising cost pressures across the businesses of Wesfarmers.

JP Morgan is similarly cautious, noting while the Coles turnaround remains on track, there is potential for slippage in the rate of earnings growth over the short to medium-term. Add in increasing competition for Bunnings and the implication is there is some short-term downside risk for Wesfarmers shares.

Most of the brokers in the FNArena database agree, as Wesfarmers is rated as Hold six times, compared to one Buy and one Sell recommendation. The exception on the Buy side is BA-ML, who argues there continues to be material upside potential in Coles from operational improvements and efficiencies, while Bunnings should continue to grow via an increased store footprint.

Goldman Sachs is not in the FNArena database but also rates Wesfarmers as a Buy, this on the expectation the key Coles food and liquor operations continue to deliver strong earnings momentum thanks to continued improvements within the operations. Post the update, Goldman Sachs has added Wesfarmers to its Conviction Buy list.

At the other end in terms of ratings sits RBS Australia, who maintains a Sell call on Wesfarmers given at current levels the market appears to be overlooking relative earnings cyclicality and is not pricing the stock for the potential to miss on what are high earnings expectations. 

RBS's Sell rating is accompanied by a price target for Wesfarmers of $26.20, which is comfortably the lowest in the database. Targets range as high as BA-ML at $33.00, the consensus target standing at $29.71. This is down slightly from $29.91 prior to the investor day update. Goldman Sachs has a target on Wesfarmers of $39.78.

Shares in Wesfarmers today are stronger despite a weak overall market and as at 12.00pm the stock was up 13c at $29.08. Over the past year the stock has traded in a range of $26.04 to $33.38, the current share price implying upside of around 2% relative to the consensus price target in FNArena's database.

 
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

The Short Report

.ref1 {background-color:#B8E3F8;}

By Chris Shaw

Earlier this month Western Areas ((WSA)) lifted production and sales guidance for FY12 but the news was not enough to stop the company from experiencing the largest increase in short positions for the week from May 15. Shorts in the stock rose to 6.07% from 4.66%.

The next most significant increase occurred in Goodman Fielder ((GFF)), where shorts rose to 2.9% from 1.63% the week prior. The increase preceded news Cargill was again showing interest in acquiring Goodman's Integro edible fats and oils business. The revived interest from Cargill was seen as something of a surprise given the previous approach had been rejected by the ACCC.

Among the falls in short positions for the week from May 15 the largest was in Mirabela Nickel ((MBN)), the change in positions to 2.97% from 5.17% coinciding with a capital raising by the company. An equity issue of $120 million was announced, Credit Suisse expecting the move will allay some of the market's concerns with respect to Mirabela's balance sheet.

SingTel ((SGT)) also enjoyed a fall in short positions, the total declining to 3.79% from 5.58% previously. The change followed a full year earnings result that broadly met market expectations, though Citi notes guidance for the coming year was somewhat uninspiring.

The next largest decline in shorts for the week was in M2 Telecommunications ((MTU)), where positions fell to 0.15% from 1.59% previously. As with Mirabela the change in positions in M2 follows a capital raising, as an entitlement offer raised more than $83 million to partially fund the recent acquisition of Primus Telecoms Holdings.

With none of the top 20 short positions experiencing much change over the week the consumer discretionary sector continues to dominate, with large short positions remaining in JB Hi-Fi ((JBH)), Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)) and Harvey Norman ((HVN)).

For the week from May 15 Flight Centre ((FLT)) and Carsales.com ((CRZ)) were the second and third largest short positions in the market behind JB Hi-Fi, Flight Centre seeing shorts increase in the month from April 20 to 11.66% from 10.09%.

Other significant increases for the month from April 20 were seen in both the aforementioned Western Areas and Paladin ((PDN)), the latter given the view in the market attention in coming months would focus on balance sheet and cash flow issues rather than production performance. For the month Paladin's shorts increased to 8.21% from 5.74% previously.

Dart Energy ((DTE)) experienced a doubling in shorts for the month from April 20 to 4.43% from 2.16% previously, this despite the company lifting its shale gas estimates to as much as 143TCF and indicating during the period its European business remained on track.

Whitehaven Coal ((WHC)) enjoyed the largest fall in short positions for the month, positions declining to 1.94% from 7.26% previously at the same time as the company announced a takeover attempt for Coalworks ((CWK)), in which Whitehaven already held a 17% stake.

Spark Infrastructure ((SKI)) also saw shorts decline significantly for the month to 2.19% from 5.42% the month prior, this as brokers continue to adjust models and opinions on the stock to account for Spark's interest in acquiring the Sydney Desalination Plant.

Having previously indicated its intention to acquire Hastings Diversified ((HDF)) the need to address ACCC concerns saw Australian Pipeline Trust ((APA)) make some revisions to its proposal that Credit Suisse at least sees as increasing the likelihood the acquisition is allowed to proceed. As this was playing out shorts in APA fell for the month to 0.96% from 3.2% previously.

RBS Australia notes shorts in Telecom Corporation ((TEL)) have been edging higher over the past two months, the broker seeing this as reflective of ongoing earnings concerns over the medium-term. According to RBS, it will likely take around two years for Telecom to establish a solid base for operating gains, while an eventual re-focus on growth is likely to be somewhat painful shorter-term and require additional resources to be fully implemented. 

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 23018840 98850643 23.29
2 FLT 11678508 100031742 11.66
3 CRZ 27060531 233684223 11.60
4 ISO 650567 5703165 11.41
5 MYR 65516262 583384551 11.21
6 FXJ 259056138 2351955725 11.04
7 COH 6238534 56929432 10.90
8 DJS 55607570 528655600 10.51
9 LYC 167718400 1714846913 9.78
10 BBG 23327926 257888239 9.02
11 HVN 95272471 1062316784 8.95
12 EGP 60321600 688019737 8.76
13 PDN 68323012 835645290 8.21
14 GNS 63345192 848401559 7.46
15 CSR 37024145 506000315 7.31
16 WTF 15263261 211736244 7.21
17 ILU 29689294 418700517 7.08
18 WSA 10906664 179735899 6.07
19 ELD 26464169 448598480 5.91
20 TRS 1516903 26071170 5.83

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Over the past week the changes in recommendations by the eight brokers in the FNArena database have been fairly evenly spread between upgrades and downgrades. The changes bring total Buy ratings to 49.13%.

Among the stocks upgraded were three companies in the oil and gas sector, where Citi has reviewed ratings following recent share price underperformance. For both Aurora Oil and Gas ((AUT)) and Beach Energy ((BPT)) Citi has upgraded to Neutral ratings from Sell previously, while Oil Search ((OSH)) has been upgraded to Buy from Neutral. 

In all three cases valuation has improved despite a weakening share price, the analysts assure. They like Oil Search in particular for its low risk growth and the upside from LNG projects being developed.

Elsewhere, Macquarie has upgraded Bendigo and Adelaide Bank ((BEN)) to Outperform from Neutral, as while earnings estimates and price target are unchanged, the broker sees margin concerns for the regional lender as being overplayed by the market at present. This implies value at current levels.

Macquarie has also upgraded a number of other ratings, moving to Outperform from Neutral on Ramsay Health Care ((RHC)) post a review of private health expectations. Revenue growth and margin expansion should continue and given this Macquarie has lifted earnings estimates and price target, which supports the upgrade.

Royal Wolf ((RWH)) has expanded its rental fleet and this has prompted Macquarie to adjust earnings forecasts and price target. The changes have improved the value on offer and sees the broker upgrade to an Outperform rating. On valuation grounds Macquarie has also upgraded QBE Insurance ((QBE)) to Outperform from Neutral.

While still seeing BlueScope ((BSL)) as a high risk play, BA Merrill Lynch has upgraded to a Buy rating from Hold previously. The shift to a more positive view reflects current increases in steel margins, an improved balance sheet and an improvement in downside risk scenarios.

James Hardie ((JHX)) beat Deutsche Bank's forecasts with its full year profit result, by enough so the broker has lifted estimates and its price target for the stock. Growth potential from a recovery in the US economy has prompted Deutsche to upgrade to a Buy rating from Neutral.

JP Morgan has reviewed the Australian media sector and the result is changes to earnings estimates and price targets across the sector. For Prime Media ((PRT)) specifically the stockbroker's price target has increased slightly, which justifies a shift to an Outperform rating from Neutral previously.

Following the sale of its 50% stake in the Port of Portland, Deutsche sees risk Australian Infrastructure ((AIX)) uses the proceeds to internalise management. The asset sale generates an increase in price target but on valuation grounds the broker downgrades to Hold from Buy.

Campbell Brothers ((CPB)) delivered a solid profit result but Macquarie continues to see risk of a pullback in exploration spending by junior resources companies. This has the potential to impact on Campbell's minerals division earnings and this suggests limited scope for outperformance. To reflect this Macquarie downgrades to a Hold rating from Buy previously.

Macquarie has also downgraded to a Hold rating on Westpac ((WBC)) given lower margin expectations for banks in general. The resulting changes in forecasts saw the broker lower its price target for the stock.

Interim earnings for Elders ((ELD)) disappointed relative to Citi's expectations, a major issue being the lack of progress evident in operations in the core rural services business. Cuts to earnings forecasts and price target support the broker's downgrade in rating (to Neutral from Buy, High Risk).

Citi also downgraded Graincorp ((GNC)) to Hold from Buy post interim profit results, though in this case not because of any disappointment with the result. Rather, Citi was impressed and lifted earnings forecasts through the next three years on the back of the result; the downgrade in rating reflects the recent share price increase.

Weak earnings guidance from Ridley Corporation ((RIC)) was enough for RBS Australia to downgrade to Hold from Buy, as revised earnings forecasts suggest the stock is fair value around current levels. Price target was also adjusted lower following the earnings adjustments.

Still weak retail sales and the expected impact on volumes and margins for Myer ((MYR)) saw RBS also downgrade its rating to Hold from Buy. While management are doing a reasonable job in RBS's view, there is little that can counter the weak trading environment at present and this limits any scope for share price outperformance.

In terms of changes to price targets and earnings forecasts, the largest increase in target was for Panoramic Resources ((PAN)), while the largest cut was for Thorn Group ((TGA)) post the company's full year profit result.

With regards to earnings changes, Goodman Group ((GMG)) enjoyed the largest increases to forecasts as Macquarie revised its model, while the major cuts were experienced by Sydney Airport ((SYD)) given concerns over duty free sales and the upcoming expiry of a rental guarantee, and by Australian Infrastructure ((AIX)). 

 

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 Citi
2 BEACH ENERGY LIMITED Sell Neutral Citi
3 BENDIGO AND ADELAIDE BANK LIMITED Neutral Buy Macquarie
4 BLUESCOPE STEEL LIMITED Neutral Buy BA-Merrill Lynch
5 JAMES HARDIE INDUSTRIES N.V. Neutral Buy Deutsche Bank
6 OIL SEARCH LIMITED Neutral Buy Citi
7 PRIME MEDIA GROUP LIMITED Neutral Buy JP Morgan
8 QBE INSURANCE GROUP LIMITED Neutral Buy Macquarie
9 RAMSAY HEALTH CARE LIMITED Neutral Buy Macquarie
10 ROYAL WOLF HOLDINGS LIMITED Neutral Buy Macquarie
Downgrade
11 AUSTRALIAN INFRASTRUCTURE FUND Buy Neutral Deutsche Bank
12 Campbell Brothers Limited Buy Neutral Macquarie
13 ELDERS LIMITED Buy Neutral Citi
14 GRAINCORP LIMITED Buy Neutral Citi
15 MYER HOLDINGS LIMITED Buy Neutral RBS Australia
16 RIDLEY CORPORATION LIMITED Buy Neutral RBS Australia
17 WESTPAC BANKING CORPORATION Buy Neutral Macquarie
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 AUT - 40.0% - 20.0% 20.0% 5
2 PRT 50.0% 67.0% 17.0% 6
3 PAN 50.0% 67.0% 17.0% 3
4 BSL 43.0% 57.0% 14.0% 7
5 MND 20.0% 33.0% 13.0% 6
6 WOW 38.0% 50.0% 12.0% 8
7 PRY 38.0% 50.0% 12.0% 8
8 QBE 38.0% 50.0% 12.0% 8
9 OSH 88.0% 100.0% 12.0% 8
10 JHX 13.0% 25.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 TGA 100.0% 33.0% - 67.0% 3
2 GNC 50.0% 17.0% - 33.0% 6
3 AIX 83.0% 67.0% - 16.0% 6
4 WBC 25.0% 13.0% - 12.0% 8
5 SGT 50.0% 40.0% - 10.0% 5
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 PAN 2.070 2.300 11.11% 3
2 GNC 8.692 9.350 7.57% 6
3 WOW 27.129 27.450 1.18% 8
4 AIX 2.318 2.338 0.86% 6
5 PRT 0.807 0.813 0.74% 6
6 PRY 3.276 3.285 0.27% 8
7 AUT 3.864 3.870 0.16% 5

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 TGA 1.893 1.687 - 10.88% 3
2 RRL 4.548 4.480 - 1.50% 5
3 JHX 7.583 7.520 - 0.83% 8
4 WBC 23.441 23.259 - 0.78% 8
5 BSL 0.603 0.599 - 0.66% 7
6 MND 23.346 23.288 - 0.25% 6
7 QBE 14.661 14.636 - 0.17% 8
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 GMG 6.125 16.975 177.14% 8
2 GNC 92.200 102.600 11.28% 6
3 TWE 19.271 19.986 3.71% 7
4 MND 132.500 135.167 2.01% 6
5 CPU 46.431 47.120 1.48% 8
6 WHC 6.914 6.957 0.62% 7
7 RMD 16.343 16.442 0.61% 8
8 BRG 32.333 32.500 0.52% 3
9 TGA 20.400 20.500 0.49% 3
10 SUL 53.214 53.457 0.46% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 SYD 6.450 5.700 - 11.63% 6
2 AIX 18.467 16.767 - 9.21% 6
3 JHX 39.061 37.093 - 5.04% 8
4 DUE 8.725 8.463 - 3.00% 8
5 ROC 4.916 4.781 - 2.75% 5
6 QBE 138.232 135.588 - 1.91% 8
7 RRL 15.875 15.620 - 1.61% 5
8 AUT 28.384 27.932 - 1.59% 5
9 EHL 10.972 10.805 - 1.52% 5
10 FXJ 8.738 8.613 - 1.43% 8
 

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article 3 months old

No Joy Ahead For Myer

 - Myer 3Q sales broadly as expected
 - Full year guidance cut on weak trading environment
 - Brokers lower earnings forecasts and price targets
 


By Chris Shaw

While March quarter sales results for Myer were in line with guidance, meaning top-line sales fell 0.9% and like-for-like sales declined 2.1%, the market was more concerned with a further downward revision to earnings guidance for FY12 (year ending July).

The updated guidance factored in a further significant drop in sales activity in both April and May. Guidance is now for FY12 net profit after tax down no more than 15% relative to FY11, which is a cut of 5% from previous indications.

Brokers have been quick to respond by lowering earnings forecasts, RBS Australia trimming its net profit forecasts in both FY12 and FY13, the former by 3% to $138 million while the latter falls to $135.5 million.

JP Morgan has similarly lowered its forecasts by 2% this year and by nearly 6% in FY13, while Macquarie's numbers have come down by 6.9% and 6.8% respectively in earnings per share (EPS) terms. Consensus EPS forecasts for Myer according to the FNArena database now stand at 23.6c and 23.3c respectively.

The changes in earnings estimates have resulted in adjustments to share price targets, the consensus target for Myer according to the database declining to $2.22 from $2.37 previously. Targets range from BA Merrill Lynch at $1.80 to Credit Suisse at $2.80.

Given the range in targets there is also a range of views on Myer, the FNArena database showing the stock is rated as a Buy twice, Hold four times and Sell twice.

Among those with an Underweight recommendation on the stock is JP Morgan, who continues to see downside risk to earnings despite the latest update. This reflects the fact as much as 50% of second half profit is generated in June and July during sale season, yet the sales this year are likely to be in a period when there continues to be significant economic uncertainty for consumers and this may not generate historical levels of foot traffic.

The other issue for JP Morgan is the key for earnings growth for Myer at present is sales growth, yet there continues to be an expectation of significant wage cost inflation over the medium-term. This will pressure margins and make earnings growth more difficult to achieve without a significant kick-up in sales growth. JP Morgan rates stocks within their respective sectors, not within the index.

BA-ML is similarly concerned about the outlook for coming months, as the environment suggests that even while Myer is cycling weak comparable numbers this may not make a significant difference to earnings performance shorter-term.

Citi doesn't see much short-term improvement either given the weakening macro environment, the broker suggesting weak sales growth could continue for at least another 12 months. This limits any scope for outperformance and leaves the broker with a Neutral rating.

RBS Australia also sees an uncertain outlook for Myer, especially given the potential for some "sticker shock" among consumers given pending cost of living increases as a result of the upcoming carbon tax. As well, Myer has little in the way of pricing power, which according to RBS will see margins continue to come under pressure.

The uncertainty of Myer's outlook should continue to weigh on the share price in RBS's view and to account for this the broker downgrades to a Hold rating from Buy previously.

But UBS continues to be more positive, retaining a Buy recommendation in part on a relative basis given Myer remains a preferred exposure in the consumer discretionary sector. In part this reflects the view management are doing a reasonable job despite the adverse operating environment, while UBS also sees longer-term value at current levels.

Post the update Myer shares have responded by falling in a relatively flat market and as at 11.00am the stock was down 2.5c at $1.975. This compares to a range over the past year of $1.92 to $2.94, the current share price implying upside of around 10% relative to the consensus price target in the FNArena database.


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article 3 months old

The Short Report

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By Chris Shaw

The week commencing May 9 saw a number of changes in short positions on both sides of the ledger and on stocks from a number of different industries.

The largest increase for the week was in CSR ((CSR)), where total positions rose to 6.78% from 4.87% prior to the company's full year profit result. While headline earnings for CSR were better than expected the result was helped by a low tax rate and post result broker opinions on the stock remain mixed.

Shorts in Mirabela Nickel ((MBN)) rose to 4.99% from 3.57% in the week, the increase coming ahead of the announcement of a $120 million capital raising that is hoped will address concerns over the company's liquidity levels as projects such as Santa Rita continue to be developed.

Primary Health Care ((PRY)) saw shorts essentially double in the week from May 9 to 2.8% from 1.44% previously, despite little in the way of news from the company. The most recent update has been the announcement an existing co-payment initiative will be reversed given it flattened growth rates and impacted on referrals.

APN News & Media ((APN)) is undertaking a review of its New Zealand assets but this has not prevented shorts in the stock rising to 3.96% from 2.84% previously, while shorts in Nufarm ((NUF)) increased to 2.06% from less than 1.0% previously as tough operating conditions in markets outside of Australia persist.

While there had been some concerns about slower growth in some of Boral's ((BLD)) Asian markets post site visits to the region, the major news is the current CEO has announced plans to step down. This comes after shorts in the stock rose to 5.61% in the week from May 9 from 4.54% previously.

Among the falls in short positions were Spark Infrastructure ((SKI)), where total positions declined sharply to 2.61% from 5.24% as brokers reiterated the stock is a Buy at current levels given an attractive valuation. The potential acquisition of the Sydney Desalination Plant remains a key issue for the company in the market's view.

Among retail plays both Myer ((MYR)) and David Jones ((DJS)) saw shorts fall in the week from May 9, for Myer to 9.76% from 11.65% previously and for David Jones to 9.5% from 10.32%. This followed a further cut in interest rates by the Reserve Bank of Australia.

Despite the falls in positions retail stocks continue to dominate the top 20 list of short positions, with Myer and Davis Jones joined on the list by the likes of JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Billabong ((BBG)) and The Reject Shop ((TRS)). The top 20 also contains stocks exposed to discretionary spending such as Carsales.com ((CRZ)) and Wotif.com ((WTF)), media plays Fairfax ((FXJ)) and Ten Network ((TEN)), resource stocks Lynas Corporation ((LYC)), Paladin ((PDN)) and Iluka ((ILU)) and others such as Cochlear ((COH)) and Gunns ((GNS)).

While fund flows remain lacklustre, Henderson Group ((HGG)) enjoyed a fall in short positions in the week from May 9, total shorts declining to 1.65 from 2.91% previously. Unlike the increase in CSR's shorts there was a decline in total positions for James Hardie ((JHX)) in the week, the fall to 2.98% from 3.54% previously.

In terms of monthly changes the largest increase has been in Paladin, where shorts for the month from April 16 rose to 8.6% from 5.1%. The view of brokers is cash flows and balance sheet issues will be the main driver of the stock in coming months given upcoming refinancing commitments.

Aside from Myer the largest monthly decline in shorts was in Atlas Iron ((AGO)), where the total fell to 0.5% from 1.59% previously. This change came ahead of an update on development plans for the Horizon 1 project, which suggested lower capex than the market had been expecting.

Elsewhere in the market, RBS Australia notes shorts in Echo Entertainment Group have been building since Crown ((CWN)) acquired a 10% stake in February, increasing by nearly two percentage points in that time.

In RBS's view Crown took the stake to extract required concessions for the Barangaroo development and is not a precursor to a takeover for Echo. As well, the broker expects the Star redevelopment will fall short of guidance in FY14, which implies some downside risk to Echo.

In general terms, RBS notes average short interest across the SAP/ASX200 index is presently at a record high of 2.25%. Shorts have been building in the resources, capital goods, gold and building materials sectors.

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 23598659 98850643 23.86
2 MYR 70790766 583384551 12.13
3 CRZ 27174114 233684223 11.63
4 COH 6599878 56929432 11.57
5 FXJ 270611364 2351955725 11.53
6 FLT 11294232 100031742 11.28
7 DJS 57621335 528655600 10.87
8 LYC 169785266 1714596913 9.93
9 HVN 95229443 1062316784 8.95
10 BBG 22629088 257888239 8.77
11 EGP 59945003 688019737 8.70
12 PDN 68555693 835645290 8.20
13 WTF 15483681 211736244 7.33
14 GNS 61511210 848401559 7.24
15 ILU 27769260 418700517 6.61
16 CSR 33219739 506000315 6.56
17 TRS 1561062 26071170 5.99
18 GWA 17288975 302005514 5.76
19 TEN 60037329 1045236720 5.75
20 SGT 8823031 158218641 5.58

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.

Technical limitations

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article 3 months old

The Short Report

By Chris Shaw

For the week from May 1, cuts in short positions outweighed increases in shorts by around double based on a one percentage point cut-off measure. The largest change for the week was in Whitehaven Coal ((WHC)), where shorts fell to 1.72% from 5.61% the week before.

The change came post a quarterly production report that resulted in some cuts to earnings estimates in the market but prior to the company announcing a $1.00 per share bid for Coalworks ((CWK)). Success in the acquisition would offer potential for synergies at the Vickery project.

APA ((APA)) saw short positions fall to 1.44% from 3.8% the week before, this as the market continues to factor in a potential acquisition of Hastings Diversified Utilities ((HDF)). While the ACCC has raised some concerns with respect to the proposed acquisition, APA has responded with some revised undertakings that Credit Suisse suggests increases the likelihood the proposal receives regulatory approval.

Shorts in SingTel ((SGT)) declined to 3.97% from 5.89% in the week from May 1 as the market adjusted positions leading into the full year result, which largely met broker expectations. Paladin Energy ((PDN)) also saw a decline in shorts of more than one percentage point to 7.12%, this post the announcement of a convertible bond issue that brokers viewed as reducing refinancing risks for the company.

Beach Energy ((BPT)) delivered a better than expected March quarter production report and early shale fraccing is showing some promise, the report being followed by shorts in the stock declining for the week to 2.16% from 3.22%.

In terms of increases in short positions for the week from May 1, the largest was in David Jones ((DJS)) where total shorts rose to 10.83% from 8.88%. The change came as the stock continues to underperform, down almost 40% over the past year. The increase in shorts came before the announcement of some head office changes that should deliver some cost savings going forward.

The lift in short positions for David Jones confirms the company's place among the top-20 short positions on the Australian market. This list continues to be dominated by consumer discretionary stocks as the top 20 includes the likes of JB Hi-Fi ((JBH)), Myer ((MYR)), Billabong ((BBG)), Carsales.com ((CRZ)), Flight Centre ((FLT)) and Harvey Norman ((HVN)).

Also in the top 20 are media plays Fairfax ((FXJ)) and Ten Network ((TEN)), resource stocks Paladin and Iluka ((ILU)) and industrials such as CSR ((CSR)) and Gunns ((GNS)).

In terms of monthly changes from April 5, the largest increase is in Spark Infrastructure ((SKI)), positions rising to 6.29% from 1.43% previously. The market remains unconvinced of the benefits of the proposed acquisition of the Sydney Water Desalination plant, as while the deal would be earnings accretive management have little experience in the business.

The other largest monthly increase was in Paladin, where shorts rose to 7.12% from 3.92%. The increase comes after the company completed a convertible note issue to alleviate some refinancing risks but doesn't address some operational issues the company is dealing with.

Largest declines in shorts for the month from April 5 were in Beach Energy and Carsales.com. While the move to acquire a stake in Torpedo7 in New Zealand raised some questions about strategy for Carsales.com, brokers continue to expect solid growth in online display ads.

Among other changes in short positions, RBS Australia notes shorts in Leighton Holdings ((LEI)) have risen to 3.1% from 2.3% prior to the company releasing revised earnings guidance. A major issue for the company in the view of RBS is the group's capital position as there remains risk with respect to the need for further cash requirements.

RBS suggests Leighton will continue to underperform both its peers and the market and the broker recommends reducing exposure to the group.

 

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 22332469 98850643 22.60
2 ISO 733044 5703165 12.85
3 MYR 67399279 583384551 11.56
4 FXJ 271035010 2351955725 11.55
5 DJS 56939484 524940325 10.83
6 COH 6118023 56929432 10.73
7 FLT 10009250 100031742 9.99
8 LYC 164111757 1714496913 9.58
9 CRZ 21143568 233684223 9.03
10 BBG 22990501 257888239 8.91
11 EGP 59491110 688019737 8.64
12 HVN 85880186 1062316784 8.07
13 ILU 32518188 418700517 7.75
14 GNS 61449507 848401559 7.23
15 PDN 59608465 835645290 7.12
16 CSR 33703822 506000315 6.64
17 SKI 83340340 1326734264 6.29
18 WTF 13114831 211736244 6.19
19 TEN 64363201 1045236720 6.16
20 TRS 1578168 26071170 6.07

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.

Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we apologise, but technical limitations are to blame.

Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.

article 3 months old

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

It has been much different in most weeks so far in 2012, but recommendation upgrades and downgrades in broker ratings were nearly equally balanced in the week past, the FNArena database showing recommendations were lifted in 13 cases against 11 cuts. Buy ratings now account for 49.43% of all recommendations. Also the fact that upgrades actually outnumbered downgrades has so far remained the mere exception in 2012.

Among those upgrades were Centro Retail ((CRF)), with both Macquarie and UBS moving to Buy recommendations from Neutral previously on news the company has settled a class action. While the settlement amount was larger than most in the market had forecast, the brokers suggest a more positive view is justified as uncertainty has now been removed.

Downer EDI ((DOW)) also scored a number of upgrades over the week, Macquarie, JP Morgan and Deutsche Bank all moving to Buy ratings from Hold previously and Credit Suisse to a Neutral recommendation from Sell.

The upgrades follow an update by the company at its annual investor day that saw full year earnings guidance reiterated and brokers take greater confidence in the idea a turnaround in operations remains on track. Improved value following recent share price weakness was another factor supporting some of the upgrades.

Also in mining services, Monadelphous ((MND)) enjoyed an upgrade to Outperform from Neutral by Macquarie, this given some increases to earnings estimates pushing up the broker's price target as well as a change in analyst covering the stock.

Despite announcing further write-downs on some problem contracts over the past week Leighton Holdings ((LEI)) has been upgraded to Neutral from Sell by Deutsche Bank. The call is largely valuation driven following recent share price weakness, Deutsche acknowledging there remains some downside risk to earnings relative to full year expectations.

An upgrade for Mount Gibson ((MGX)) to a Neutral from Sell by Macquarie is equally the result of recent share price weakness, which has the stock trading in line with the broker's price target. Similarly Macquarie has upgraded Qube Logistics (QUB)) to Neutral from Sell post recent share price falls.

A change in analyst has resulted in JP Morgan upgrading to a Neutral rating on Spark Infrastructure ((SKI)) from Sell previously, as changes to its model see the broker lift its price target for the stock. Shares price moves are behind BA-Merrill Lynch's upgrade on Tabcorp ((TAH)) to Neutral from Sell, while Macquarie has upgraded to a Buy rating on Wotif.com ((WTF)) following a share price fall of about 15% in recent weeks.

Among the downgrades were Aristocrat Leisure ((ALL)), RBS Australia moving to a Neutral rating from Buy as while the earnings outlook continues to improve, a gain in the share price of about 50% since last September means this is now priced into the stock, explains the stockbroker.

Shares price performance is also the driver for UBS's downgrade to a Sell rating from Neutral on Australian Pharmaceutical Industries ((API)), while Credit Suisse has for similar reason downgraded Dexus Property ((DXS)) to Neutral from Buy.

Citi notes Caltex ((CTX)) has endured a slow start to 2012 and has cut its earnings estimates and price target accordingly. An exit from refining operations would result in minimal value creation in Citi's view and given this and the changes to its model, the broker moves to a Sell rating from Hold previously.

Recent share price strength leaves Discovery Metals ((DML)) priced for perfection in Citi's view and as a result the broker downgrades to a Sell rating. Supporting the move is a reduction in earnings estimates and price target given changes to Citi's cost and capex assumptions.

RBS had been hoping for a better second half performance from Engenco ((EGN)) than is now considered likely and so while the group's turnaround continues the broker suggests some patience is required by investors. To reflect this, the rating is downgraded to Neutral from Buy while the price target has also been cut.

Higher expenditure expectations have resulted in UBS cutting earnings forecasts and price target for Ivanhoe Australia ((IVA)). Add in increased risk of project development delays and UBS sees limited short-term upside, downgrading to a Neutral rating from Buy as a result.

While News Corporation ((NWS)) delivered a better than expected 3Q result there was no lift in full year guidance, which implies a tougher final quarter of the year. RBS sees value at current levels but the UK phone hacking issue is expected to overhang the share price, so the broker has downgraded to a Neutral rating.

Recent share price performance has been enough for RBS to downgrade Seek ((SEK)) to Hold from Buy, a move supported by ongoing weak advertising conditions. Less attractive valuation relative to the sector is the view of JP Morgan following a change in analyst for SP Ausnet ((SPN)), the broker downgrading to an Underweight rating from Neutral previously as a result. UBS sees a fair valuation for Ten Network ((TEN)) at current levels, so the broker has moved to a Neutral rating from Buy previously.

With respect to changes in price targets over the past week the most significant increases were in Super Retail ((SUL)) and Breville ((BRG)), the former coming after a well received trading update. The largest cut in price target was for Discovery Metals, with UBS joining Citi in lowering its numbers for the company.

Earnings estimates rose the most for Centro Retail given the company's settlement of the class action against it, while earnings forecasts were cut the most for Qantas ((QAN)) given changed capacity growth assumptions, Whitehaven Coal ((WHC)) to reflect the proposed acquisition of Coalworks ((CWK)) and Horizon Oil ((HZN)) post the company's quarterly production report.


 

Total Recommendations
Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 CENTRO RETAIL AUSTRALIA Neutral Buy Macquarie
2 CENTRO RETAIL AUSTRALIA Neutral Buy UBS
3 DOWNER EDI LIMITED Neutral Buy Macquarie
4 DOWNER EDI LIMITED Neutral Buy JP Morgan
5 DOWNER EDI LIMITED Sell Neutral Credit Suisse
6 DOWNER EDI LIMITED Neutral Buy Deutsche Bank
7 LEIGHTON HOLDINGS LIMITED Sell Neutral Deutsche Bank
8 MONADELPHOUS GROUP LIMITED Neutral Buy Macquarie
9 Mount Gibson Iron Limited Sell Neutral Macquarie
10 QUBE LOGISTICS Sell Neutral Macquarie
11 SPARK INFRASTRUCTURE GROUP Sell Neutral JP Morgan
12 TABCORP HOLDINGS LIMITED Sell Neutral BA-Merrill Lynch
13 WOTIF.COM HOLDINGS LIMITED Neutral Buy Macquarie
Downgrade
14 ARISTOCRAT LEISURE LIMITED Buy Neutral RBS Australia
15 AUSTRALIAN PHARMACEUTICAL INDUSTRIES Neutral Sell UBS
16 CALTEX AUSTRALIA LIMITED Neutral Sell Citi
17 DEXUS PROPERTY GROUP Buy Neutral Credit Suisse
18 DISCOVERY METALS LIMITED Neutral Sell Citi
19 ENGENCO LIMITED Buy Neutral RBS Australia
20 IVANHOE AUSTRALIA LIMITED Buy Neutral UBS
21 NEWS CORPORATION Buy Neutral RBS Australia
22 SEEK LIMITED Buy Neutral RBS Australia
23 SP AUSNET Neutral Sell JP Morgan
24 TEN NETWORK HOLDINGS LIMITED Buy Neutral UBS
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 DOW 14.0% 71.0% 57.0% 7
2 WHC 67.0% 86.0% 19.0% 7
3 CRF 17.0% 33.0% 16.0% 6
4 CQO - 40.0% - 25.0% 15.0% 4
5 SKI 43.0% 57.0% 14.0% 7
6 IAG 25.0% 38.0% 13.0% 8
7 WTF 13.0% 25.0% 12.0% 8
8 TAH 38.0% 50.0% 12.0% 8
9 CPU 71.0% 75.0% 4.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 BRG 100.0% 67.0% - 33.0% 3
2 WBC 50.0% 25.0% - 25.0% 8
3 CMJ 50.0% 29.0% - 21.0% 7
4 API 40.0% 20.0% - 20.0% 5
5 DML 40.0% 20.0% - 20.0% 5
6 SEK 43.0% 29.0% - 14.0% 7
7 SUL 57.0% 43.0% - 14.0% 7
8 NWS 57.0% 43.0% - 14.0% 7
9 DXS 43.0% 29.0% - 14.0% 7
10 BXB 88.0% 75.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 SUL 7.449 7.877 5.75% 7
2 BRG 3.967 4.133 4.18% 3
3 WBC 22.833 23.441 2.66% 8
4 CMJ 2.990 3.061 2.37% 7
5 SKI 1.449 1.481 2.21% 7
6 TAH 3.295 3.355 1.82% 8
7 NWS 22.180 22.573 1.77% 7
8 EGP 4.523 4.570 1.04% 8
9 IAG 3.630 3.666 0.99% 8
10 SEK 7.163 7.191 0.39% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 DML 1.700 1.640 - 3.53% 5
2 AMP 4.771 4.675 - 2.01% 8
3 DXS 0.965 0.958 - 0.73% 7
4 CQO 3.502 3.478 - 0.69% 4
5 CRF 1.958 1.953 - 0.26% 6
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 CRF 8.850 10.367 17.14% 6
2 DOW 40.288 41.188 2.23% 7
3 SKI 12.775 13.013 1.86% 7
4 AAD 11.800 12.000 1.69% 6
5 WBC 202.313 205.338 1.50% 8
6 AQG 66.021 66.651 0.95% 7
7 CQO 24.667 24.860 0.78% 4
8 MIO 22.668 22.811 0.63% 4
9 SIP 4.686 4.714 0.60% 7
10 CPA 7.471 7.514 0.58% 7

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 QAN 11.925 9.663 - 18.97% 8
2 WHC 8.817 7.267 - 17.58% 7
3 HZN 1.120 0.946 - 15.54% 4
4 AIZ 3.317 3.011 - 9.23% 4
5 ILU 224.113 208.063 - 7.16% 8
6 BBG 25.700 24.488 - 4.72% 8
7 NCM 152.625 146.688 - 3.89% 8
8 ARP 54.260 52.760 - 2.76% 5
9 SWM 36.213 35.525 - 1.90% 8
10 VAH 2.786 2.743 - 1.54% 7
 

Technical limitations

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article 3 months old

The Short Report

By Chris Shaw

Changes in short positions for the week from April 24 were modest, only five companies seeing their total short positions change by more than 1.0 percentage point. Increases slightly outweighed decreases by three to two.

Among the increases was a 1.25 percentage point lift in Cochlear's ((COH)) shorts to 11.17% from 9.92% previously, which came ahead of a conference that led UBS to conclude the company's market share is likely to come under pressure in coming years as competitors introduce new products.

Shorts in Billabong ((BBG)) also rose for the week, climbing to 9.65% from 8.63% the week prior despite no new news from the company. Other discretionary retailers such as Harvey Norman ((HVN)) have struggled and delivered weak sales data in recent weeks, so the top short positions in the market continue to be dominated by stocks in this sector of the market.

As examples, the top 20 short positions include JB Hi-Fi ((JBH)), Myer ((MYR)), Flight Centre ((FLT)), David Jones ((DJS)) and Wotif.com ((WTF)). The media sector is also well represented with both Fairfax ((FXJ)) and Ten Network ((TEN)) in the top 20, while resource stocks are also included in the top 20 via the likes of Lynas Corporation ((LYC)), Iluka ((ILU)) and Paladin ((PDN)).

While not in the top 20, shorts rose in M2 Telecommunications Group ((MTU)) to 2.06% from 1.06% in the week from April 24 as the market adjusted to an entitlement offer from the company to help finance the acquisition of Primus Telecom Holdings.

Among the declines in short positions for the week the largest was in Carsales.com ((CRZ)), where total positions fell to 9.19% from 11.5%. This adjustment in positions came prior to a better than expected update on online advertising revenues, which was enough for Credit Suisse to lift earnings estimates modestly.

Shorts in Whitehaven Coal ((WHC)) declined to 5.61% from 6.87% previously, brokers such as Citi remaining positive on the company given Whitehaven is now a rare breed as an independent coal producer with exposure to seaborne prices, making it the go to stock in the sector in that regard in the broker's view.

Monthly changes in shorts were more significant, both Paladin ((PDN)) and Spark Infrastructure ((SKI)) seeing increases of more than 4.0 percentage points for the month from March 30. For Paladin the changes were likely a reaction to a convertible note issue that helps address some short-term funding concerns, while for Spark the market continues to have mixed views on the proposed move to acquire the Sydney desalination plant.

Among the top 20, Myer, David Jones and Carsales.com (((CRZ)) all saw shorts decline by 1.5-2.1 percentage points in the month, while Wesfarmers partly protected shares ((WESN)) have seen shorts decline from more than 2.5% the month before to 0.1% now.

Beach Energy ((BPT)) saw shorts fall to 3.22% from 5.43% from the month before, this prior to better than expected March quarter production. On the flip side, some in the market viewed Beach's exploration performance during the March quarter as disappointing.

As noted, Ten Network is among the top 20 short positions on the market and RBS Australia sees this as reflective of ongoing TV ad market weakness and poor ratings for the network. The broker recently lowered earnings estimates to reflect these issues, which reinforced a Sell rating on the stock.
 

 

Top 20 Largest Short Positions

?
ank Symbol Short Position Total Product %Short
1 JBH 21969268 98850643 22.21
2 ISO 725044 5703165 12.71
3 COH 6368476 56929432 11.17
4 MYR 64755077 583384551 11.10
5 FXJ 257611720 2351955725 10.96
6 FLT 10014423 100024697 10.00
7 BBG 24947895 257888239 9.65
8 LYC 159919500 1714496913 9.33
9 CRZ 21511549 233684223 9.19
10 DJS 46526079 524940325 8.88
11 EGP 57950189 688019737 8.41
12 PDN 69893003 835645290 8.36
13 GNS 61609897 848401559 7.25
14 HVN 76815948 1062316784 7.17
15 ILU 26640399 418700517 6.33
16 WTF 13180059 211736244 6.22
17 TEN 64330218 1045236720 6.13
18 CSR 30892376 506000315 6.09
19 TRS 1543849 26071170 5.93
20 SGT 9725769 165074137 5.89

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 simple 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.

Technical limitations

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Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" - Warning this story contains unashamedly positive feedback on the service provided.