Tag Archives: Consumer Discretionary

article 3 months old

The Short Report

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By Chris Shaw

Retail plays continue to lead the way in terms of largest short positions on the Australian market, with the likes of JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Myer ((MYR)), David Jones ((DJS)) and Billabong ((BBG)) having an average short interest of more than 10% at present.

Other stocks where short interest remains high include Flight Centre ((FLT)), which is also exposed to discretionary spending, while the Media and Basic Materials sectors in general also have elevated levels of short positions.

In terms of stocks experiencing larger changes in short positions in recent sessions, Whitehaven Coal ((WHC)) experienced the largest increase for the weak from January 16. Short positions in the stock rose 1.99% to 3.19% in total, this prior to a quarterly production report viewed as disappointing by a number of brokers covering the stock.

Output for the period fell well short of expectations, though this was largely explained by some one-off factors such as poor weather and some explosives supply issues. Whitehaven also saw the largest monthly increase in shorts from December 22, a rise of 3.0% from an initial position of just 0.19%.

Goodman Fielder ((GFF)) also saw a jump in shorts for the week to 4.54% from 2.7% previously, though the change in positions was not associated with any recent news from the company. As evidenced of the high level of shorts among media companies, total shorts in Fairfax ((FXJ)) rose by 1.28% for the week to 12.42%, again without there being any recent news.

Shorts in Iluka rose 1.07% to 4.36% during the week from January 16, this despite a solid quarterly production report released earlier in the month. One possible issue for Iluka is the Credit Suisse view the large increases in minerals sands prices experienced over the last several months now appear done, meaning the year ahead will now likely be more about Iluka returning money to shareholders.

The largest decline in shorts for the week from January 16 and only decline of more than 1.0% was in the iShares S&P High Dividend security ((IHD)), where positions declined 1.19% to 2.79% in total.

Among the more interesting changes in monthly short positions were the opposite moves for steel plays OneSteel ((OST)) and BlueScope ((BSL)). While OneSteel's shorts rose 1.59% to 4.69% in the month from December 22, BlueScope went the other way and saw total shorts decline 2.81% to just 0.88%. Of the two OneSteel remains more exposed to movements in iron ore prices.

Top 20 Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 22211566 98833643 22.48
2 ISO 931556 5403165 17.24
3 MYR 73945643 583384551 12.65
4 FXJ 292046944 2351955725 12.42
5 BBG 27763281 255102103 10.89
6 DJS 54588681 524940325 10.40
7 FLT 9530577 100005264 9.52
8 COH 4759822 56902433 8.30
9 LYC 132314551 1713846913 7.73
10 WTF 14208700 211736244 6.71
11 TRS 1655541 26071170 6.35
12 HVN 64406772 1062316784 6.07
13 PPT 2497587 41980678 5.96
14 CRZ 13400087 233264223 5.76
15 RIO 24923568 435758720 5.70
16 BOQ 11769782 229598329 5.11
17 SEK 17010606 337101307 5.02
18 GNS 42511104 848401559 4.99
19 TEN 51684919 1045236720 4.95
20 WSA 8698545 179735899 4.85

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

The Short Report

By Chris Shaw

Increases in short positions outweighed decreases in the week from December 7th, with three companies seeing shorts increase by more than 1.0% against just one fall by a similar amount.

The largest increase was in BlueScope Steel ((BSL)), shorts increasing by 2.1% to nearly 4.4% as the market continues to adjust to both tough trading conditions and the recently announced capital raising by the company.

Shorts also jumped higher for Whitehaven Coal ((WHC)) from a negligible level to 1.63%, this following the proposal for a merger of equals between Whitehaven and Aston Resources ((AZT)). Brokers in general are positive on the proposal, though the price being paid for the Boardwalk Resources assets has been identified as a possible point of concern.

Media market conditions remain tough and as a reflection of this shorts in Fairfax ((FXJ)) remain at an elevated level, rising a further 1.4% to nearly 13%. The other dominant sector in terms of high short positions is retail, where the likes of Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)) and JB Hi-Fi ((JBH)) continue to have short positions among the highest in the market.

Investors have been proven correct with respect to both Billabong and JB Hi-Fi given both have delivered profit warnings to the market in recent sessions.

The most significant fall in short positions for the week from December 7th was in Singtel ((SGT)), where a decline of 1.1% has total shorts now at 2.45%. There has been little from the company since a quarterly update early in November.

Monthly changes in short positions suggest concerns over companies exposed to the discretionary retail sector remain, as Flight Centre ((FLT)) and Myer both saw shorts rise by more than 1.3% for the period.

Shorts in Iluka ((ILU)) also rose over the past month by 1.6% to nearly 3.2%, this despite the company announcing strong price increases for titanium oxide that has seen brokers lift earnings estimates for the coming year.

Resource companies in general have been among the more prominent in terms of short position increases over the past month, this as the European debt crisis continues to weigh on the global growth outlook and on the prospects for commodity demand.

Alkane Exploration ((ALK)), Ramelius Resources ((RMS)), Arafura Resources ((ARU)) and Kingsgate Consolidated ((KCN)) all experienced increases in shorts of more than 1.0% over the past month. Wesfarmers ((WES)), which also has a discretionary retail exposure through the Coles group, was the closest of the industrials as its shorts rose by 0.9% during the period.

Falls in shorts for the month from November 14th were also dominated by resource stocks, with Santos ((STO)), Murchison Metals ((MMX)) and Paladin ((PDN)) all enjoying falls of more than 1.0%. Aristocrat Leisure ((ALL)) was the only industrial stock to enjoy a more than 1.0% fall in shorts for the month from November 14th.

Elsewhere, RBS notes Macquarie Group ((MQG)) has seen an increase in shorts of just over 0.5% in the past month. In the view of RBS this reflects ongoing tough conditions in capital markets given the Eurozone crisis continues to drag, something expected to weigh on earnings for Macquarie.

One stock where short position moves indicate the market is uncertain is Cochlear ((COH)), as RBS notes while shorts have risen by almost 1.0% over the past month they have fallen slightly in the last week. The changes have mirrored the news flow from the company, as ongoing concerns about issues with the Nucleus 5 implant may be tempered in coming sessions given the company has indicated it has found out why the device was failing.
 

Top Ten Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 21613182 98833643 21.87
2 ISO 935644 5401916 17.32
3 FXJ 306805187 2351955725 13.05
4 MYR 71813085 583384551 12.30
5 BBG 29113634 255102103 11.43
6 DJS 51019454 524940325 9.70
7 FLT 9514262 99997851 9.49
8 LYC 117271559 1713846913 6.83
9 WTF 13734586 211736244 6.48
10 PPT 2714307 41980678 6.45

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

Coca-Cola Amatil Trading Update Lacks Fizz

- Coca-Cola on Friday updated earnings guidance
- Guidance broadly disappointed (as predicted by some)
- Estimates trimmed across the market
- Credit Suisse downgrades to an Underperform rating

By Chris Shaw

On Friday Coca-Cola Amatil ((CCL)) offered a trading update to the market, management indicating net profit after tax growth for the second half of 2011 was likely to be in the order of 4.5%. This compares to previous indications of a result in excess of the 5.5% recorded in the first half of the year.

The update was no great surprise in the view of UBS, as consumer spending remains subdued thanks to a tough retail environment and given recent cold and wet weather continues to impact on demand for Coca-Cola's products.

The other factor impacting on earnings has been a dispute with Woolworths ((WOW)), Citi noting this has contributed to some margin pressure. A concern for the broker is this implies some questions with respect to the sustainability of consistent margin expansion that has been a feature for Coca-Cola Amatil in recent years.

The weather is no excuse in the view of JP Morgan, who had expected a better result given Coca-Cola is cycling a 4.7% decline in Australian volumes stemming from the wet conditions experienced at the end of last year.

This suggests to JP Morgan underlying performance was weak, as Project Zero had been expected to deliver around $10 million in earnings growth on its own and the guidance offered suggests pre-tax profit growth of around $18 million.

What could be a positive for Coca-Cola Amatil according to JP Morgan is evidence of some supply disruptions at competitor Schweppes, where operations are struggling somewhat given industrial action and carbon dioxide supply constraints.

To reflect the update from Coca-Cola Amatil, stockbrokers have been quick to adjust earnings estimates. JP Morgan has trimmed its numbers by 3.9% for 2011 and by 0.6% in 2012, while Citi's numbers have come down by around 1% in each year.

UBS has reacted more like JP Morgan in cutting its numbers for this year by 3%, while Credit Suisse makes no changes to its estimates. Consensus earnings per share (EPS) numbers for Coca-Cola according to the FNArena database now stand at 70.3c this year and 77.4c in 2012.

Looking forward, broker opinions on Coca-Cola Amatil remain mixed. Buy ratings continue to dominate with four out of eight, Deutsche Bank summing up the positive argument by seeing a premium for the stock as justified given solid management, an expected improvement in earnings growth in 2012, a strong balance sheet and defensive earnings.

Citi sees a Neutral rating as more appropriate given the potential for the Australian pricing dynamic, which is very important for earnings at Coca-Cola, to be threatened by the new grocery paradigm. While there is some scope for price increases next month to ease the pressure on margins, Citi continues to see earnings risk as to the downside.

Credit Suisse has gone a step further, downgrading to an Underperform rating on Coca-Cola from Outperform previously. This is a valuation call, as the broker sees scope for the stock to hold its historical average earnings multiple of 15.5 times despite moving into a period of slower growth. Credit Suisse currently has the only negative rating on Coca-Cola in the FNArena database.

Shares in Coca-Cola today are down in early trading and as at 11.10am the stock was 11c lower at $11.91. This compares to a trading range over the past year of $10.04 to $12.47. Relative to the consensus price target in the FNArena database of $12.92 the current share price implies upside of around 9%.

 

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

Christmas is edging ever so closer but the share market is not displaying its usual tendencies to put a positive twist onto the calendar year's finish, but that doesn't stop the major stockbrokerages in Australia to continue to downgrade more stocks than to issue upgrades. The week past saw the eight brokers in the FNArena database downgrading recommendations on 16 stocks while lifting only four. Total Buy ratings now stand at 56.6%, down from 57.1% last week.

Among the upgrades was ANZ Banking Group ((ANZ)), BA Merrill Lynch upgrading to a Buy rating from Neutral on both valuation grounds and expectations Asia will provide solid growth opportunities for the bank going forward. ANZ is now the broker's top pick in the sector.

A full review of Cochlear's ((COH)) prospects sees Macquarie upgrade to an Outperform rating from Neutral, this despite cuts to earnings estimates and price target to reflect manufacturing issues, supply constraints and product recalls. The upgrade is a valuation call, Macquarie seeing the stock as attractive at current levels given recent share price weakness.

Investa Office ((IOF)) was the only play to receive two upgrades, both JP Morgan and Deutsche Bank lifting ratings to Buy from Hold previously. For JP Morgan the call is valuation inspired after recent relative underperformance, while Deutsche sees reduced execution risk and some growth prospects following offshore asset sales and a share buyback. 

Deutsche has also adjusted its target for Investa slightly higher. The upgrades follow a similar move the previous week by UBS, who also identified improved value in the stock on the back of overseas asset sales.

On the downgrade side, Amcor ((AMC)) saw a cut to a Neutral rating by Citi given the current share price represents a premium on the broker's numbers. Earnings estimates were also adjusted slightly to reflect changes to forex assumptions.

Citi made a similar change with respect to Ansell ((ANN)), again on the basis the current share price is a stretch relative to valuation even allowing for the possibility current earnings guidance might turn out to be conservative. Target has been trimmed slightly.

APA ((APA)) has made an offer for Hastings Diversified ((HDF)) and this has prompted both Citi and BA-ML to downgrade ratings, the former to Neutral and the latter to Underperform. While the associated sale of AllGas is viewed positively, the possibility a higher offer may be needed and some valuation concerns post recent share price gains is enough to see both brokers adopt more conservative views. Citi has also trimmed its price target.

Commonwealth Property Office ((CPA)) has enjoyed some gains of late and this has created some valuation issues for both Credit Suisse and JP Morgan. The former has moved to an Underperform rating and the latter to a Neutral recommendation as both now see better value elsewhere in the sector.

A review by Deutsche Bank left the broker with the view competition is increasing in some of CSL's ((CSL)) markets, a concern that was enough for the broker to downgrade to a Hold rating. The downgrade also reflects recent share price outperformance, while the review generated an increase in price target.

JB Hi-Fi ((JBH)) surprised the market on Thursday by cutting earnings guidance for 1H12, citing ongoing price deflation and tough competition. Brokers have responded by cutting earnings estimates and price targets, with Citi, JP Morgan and UBS all downgrading ratings as well. JP Morgan moves to Underweight, the other two brokers to Neutral recommendations. 

Valuation has been the driver of Credit Suisse's downgrade on Mirvac ((MGR)) to a Neutral rating, the broker similarly cutting its rating on Stockland ((SGP)) to Underperform following recent share price movements.

As brokers continue to adjust numbers for Telecom New Zealand ((TEL)) to account for the recent de-merger, RBS has gone a step further and downgraded to a Sell rating, this reflecting recent relative outperformance post the de-merger. The broker's target comes down to account for the split in the business.

An asset tour saw UBS adjust numbers for Wesfarmers ((WES)), the trimming of forecasts enough for a minor cut in target. Such a reaction was also seen elsewhere in the market, though UBS was the only broker to also downgrade its rating, moving to Neutral on valuation grounds.

A similar review of prospects for Ten network ((TEN)) saw Deutsche downgrade to a Sell rating, the broker now factoring in increased overall risk and volatility for earnings in the shorter-term.

Elsewhere, BA-ML has reviewed prospects for the IT sector and the result is changes to earnings estimates and price target for Oakton ((OKN)), the move following similar cuts to expectations for SMS Management and Technology ((SMX)) made by Macquarie last week.

Changes to sales assumptions for Whitehaven ((WHC)) have seen RBS Australia lower expectations and price target for the coal play, while a capital raising by Qube Logistics ((QUB)) sees brokers adjust earnings per share expectations.

Changes to expectations for Echo Entertainment ((EGP)) resulted in BA-ML lifting earnings estimates and price target for the group, while Citi has lifted earnings forecasts for Australian Worldwide Exploration ((AWE)) post a review of the Sugarloaf project.

A change in analyst at JP Morgan has resulted in some changes to price target and earnings forecasts for Charter Hall ((CHC)), while AMP's ((AMP)) strategic distribution agreement with Mitsubishi UFJ in Japan has caused some estimate and target changes across the market. Citi has further lowered earnings estimates and its price target for Ridley ((RIC)) to reflect poor weather conditions and associated operating delays.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 AUSTRALIA & NEW ZEALAND BANKING GROUP Neutral Buy BA-Merrill Lynch
2 COCHLEAR LIMITED Neutral Buy Macquarie
3 INVESTA OFFICE FUND Neutral Buy JP Morgan
4 INVESTA OFFICE FUND Neutral Buy Deutsche Bank
Downgrade
5 AMCOR LIMITED Buy Neutral Citi
6 ANSELL LIMITED Buy Neutral Citi
7 AUSTRALIAN PIPELINE TRUST Buy Neutral RBS Australia
8 AUSTRALIAN PIPELINE TRUST Buy Neutral Citi
9 AUSTRALIAN PIPELINE TRUST Neutral Sell BA-Merrill Lynch
10 COMMONWEALTH PROPERTY OFFICE FUND Buy Neutral JP Morgan
11 COMMONWEALTH PROPERTY OFFICE FUND Neutral Sell Credit Suisse
12 CSL LIMITED Buy Neutral Deutsche Bank
13 JB HI-FI LIMITED Buy Neutral Citi
14 JB HI-FI LIMITED Neutral Sell JP Morgan
15 JB HI-FI LIMITED Buy Neutral UBS
16 MIRVAC GROUP Buy Neutral Credit Suisse
17 STOCKLAND Neutral Sell Credit Suisse
18 TELECOM CORPORATION OF NEW ZEALAND LIMITED Neutral Sell RBS Australia
19 TEN NETWORK HOLDINGS LIMITED Neutral Sell Deutsche Bank
20 WESFARMERS LIMITED Buy Neutral UBS
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 IOF 50.0% 67.0% 17.0% 6
2 COH - 38.0% - 25.0% 13.0% 8
3 ILU 75.0% 88.0% 13.0% 8
4 EGP 63.0% 75.0% 12.0% 8
5 ANZ 38.0% 50.0% 12.0% 8
6 SGT 57.0% 67.0% 10.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 JBH 75.0% 38.0% - 37.0% 8
2 OKN 60.0% 40.0% - 20.0% 5
3 MAH 67.0% 50.0% - 17.0% 4
4 WHC 100.0% 83.0% - 17.0% 6
5 SGP 71.0% 57.0% - 14.0% 7
6 MGR 71.0% 57.0% - 14.0% 7
7 TCL 100.0% 86.0% - 14.0% 7
8 CFX 71.0% 57.0% - 14.0% 7
9 ANN 43.0% 29.0% - 14.0% 7
10 CSL 63.0% 50.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 ILU 20.219 20.786 2.80% 8
2 CSL 33.600 33.891 0.87% 8
3 IOF 0.678 0.683 0.74% 6
4 EGP 4.440 4.468 0.63% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 OKN 1.970 1.770 - 10.15% 5
2 JBH 17.996 16.925 - 5.95% 8
3 MAH 0.713 0.685 - 3.93% 4
4 WHC 7.090 6.980 - 1.55% 6
5 COH 54.840 54.084 - 1.38% 8
6 QUB 1.593 1.580 - 0.82% 4
7 ANZ 22.869 22.688 - 0.79% 8
8 WES 32.941 32.716 - 0.68% 8
9 TEN 1.036 1.029 - 0.68% 8
10 ANN 14.391 14.357 - 0.24% 7
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 HST 3.237 20.300 527.12% 5
2 QUB 7.800 14.075 80.45% 4
3 BPT 4.140 4.920 18.84% 5
4 AWE 6.871 7.300 6.24% 7
5 QAN 12.988 13.688 5.39% 8
6 CHC 22.800 23.467 2.93% 6
7 AMP 32.103 32.678 1.79% 8
8 HGG 15.964 16.172 1.30% 6
9 STO 59.000 59.538 0.91% 8
10 OSH 14.833 14.959 0.85% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 AZT 17.980 - 3.600 - 120.02% 5
2 WHC 37.600 31.650 - 15.82% 6
3 TEL 14.691 12.553 - 14.55% 8
4 PAN 11.475 9.925 - 13.51% 4
5 RIC 10.033 9.333 - 6.98% 3
6 TAH 47.375 44.438 - 6.20% 8
7 JBH 138.325 130.500 - 5.66% 8
8 OKN 18.620 17.640 - 5.26% 5
9 COH 220.275 210.400 - 4.48% 8
10 SMX 48.420 46.460 - 4.05% 5
 

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

Changes in weekly short positions this week have seen only one case where total shorts have risen by more than 1.0%, while no reductions in short positions reached that level over the past seven days and only two fell by more than 0.5%.

On the increased short position side the biggest increase was seen by a derivative in Asciano ((AIODC)), where shorts rose nearly 1.5% from a negligible level previously. The next largest increase was seen in Alkane Resources ((ALK)), where shorts increased by 0.48% to just more than 3.0%.

On the other side of the ledger, shorts fell most significantly in Bank of Queensland ((BOQ)), a decline of 0.73% to around 4.5% coming despite JP Morgan seeing evidence of the bank still dealing with some margin pressures, but amidst market speculation BOQ's French shareholder Banque Populaire, which owns 12.1%, might be putting its stake up for sale.

Ansell ((ANN)) also enjoyed a decline in shorts of 0.57% to just over 1.5% in the past week, which comes after the company made a minor acquisition in the US that RBS Australia suggested offers some longer-term upside.

Monthly changes in short positions have shown some larger adjustments, with a number of stocks seeing total shorts change by more than 1.0%. On the increase side the largest was for Flight Centre ((FLT)) and Myer ((MYR)), shorts for both increasing by around the 2.0% mark. Despite two cuts in official interest rates signs still point to a difficult trading environment for Australian companies exposed to the consumer discretionary sector.

Another where shorts have risen well above previous levels for the month is Wesfarmers ((WES)), the stock recording an increase for the month of 1.3% to around 3.4% in total. Brokers recently trimmed earnings estimates for Wesfarmers post a site visit, this reflecting not only the impact of ongoing food deflation for Coles but also changes to expectations for the coal operations.

Monthly falls in shorts have been most pronounced for Fairfax ((FXJ)) and BlueScope Steel ((BSL)), both seeing positions decline by around 2.0%. The latter likely reflects ongoing position adjustments post the recently announced equity issue by the company.

Resource stocks have also seen short positions come in, with Western Areas ((WSA)) and Murchison Metals ((MMX)) both recording declines of close to 1.5%. Shorts remain elevated for Western Areas at around 5.7%, though the company is expected to deliver solid news flow between now and the end of the year given the recent commencement of underground mining at Spotted Quoll.

Short positions in Santos ((STO)) have also come down significantly, essentially halving over the past month to 1.3%. While costs at the PNG LNG project are likely to increase the market had been expecting this, so brokers continue to like Santos on relative valuation grounds.

Elsewhere, an increase in short positions for QR National ((QRN)) has been more modest in recent weeks, totalling only around 0.45% for the past month. Despite this, RBS Australia suggests the increase is of significance as a recent cut to coal haulage guidance for the coming year implies some downside risk to earnings in coming months.

While housing numbers in Australia continue to suggest a tough market, shorts have declined over the past month for both James Hardie ((JHX)) and Boral ((BLD)), both by close to 1.0%. For both stocks brokers have seen some signs of conditions improving, these including price increases by Boral and a gradually improving outlook in the US market for James Hardie.

 

Top Ten Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 21256085 98833643 21.51
2 ISO 910691 5401916 16.86
3 FXJ 306769252 2351955725 13.07
4 MYR 71330818 583384551 12.20
5 BBG 27827437 255102103 10.91
6 DJS 51341362 524940325 9.76
7 FLT 9018033 99997851 9.01
8 LYC 113981561 1713846913 6.62
9 PPT 2642927 41342420 6.38
10 WTF 13391127 211255444 6.31

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.

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

 By Chris Shaw

The past week has seen a number of relatively significant changes in short positions on the Australian Stock Exchange, with 10 companies seeing a change of more than 1% in their total short positions relative to the previous week.

Among those where shorts came down were Beach Energy ((BPT)), shorts here falling by 3.39% over the week to 0.60%. The change follows news the Tantanna to Gidgealpa pipeline is back online, something UBS noted would boost oil volumes for Beach.

Paladin ((PDN)), BlueScope Steel ((BSL)) and James Hardie ((JHX)) also experienced falls in short positions of more than 2% over the past week. For Paladin the change may reflect the Federal Government's proposal to end the ban on uranium sales to India, BA Merrill Lynch seeing this as increasing the pressure on those opposed to uranium mining.

BlueScope has announced a capital raising and the market has likely adjusted its views on the stock given the move will strengthen the balance sheet, while the second quarter report from James Hardie last month came in above most market expectations.

David Jones ((DJS)) has also seen shorts come down, the fall of 1.58% bringing total shorts down to 8.42%. The expected Reserve Bank of Australia rate cut announced yesterday is regarded as a potential positive for the retail sector.

Shorts in Aston Resources ((AZT)) also fell by 0.65% to 0.50% in the week from November 23, which may reflect preliminary merger discussions between Aston and Whitehaven Coal ((WHC)). UBS suggests such a merger would deliver some shared synergies.

In terms of increased short positions, the largest gain over the week from November 23 was in Campbell Brothers ((CPB)), this despite a strong interim profit result. Valuation seems a concern for Campbell Brothers, JP Morgan noting the stock is priced for a continuation of buoyant conditions in its core markets.

Shorts in White Energy ((WEC)) also rose by nearly 2% for the week to just over 3.0% in total, the market still adjusting to the announcement earlier in November of an apparent fall-out with joint venture partner and coal supplier PT Bayan.

Western Areas ((WSA) saw a jump in shorts of 1.26% to 6.7% despite the company announcing the start of underground mining at Spotted Quoll. The start of new operations is when mining companies tend to experience the most teething difficulties, so investors may be adopting a cautious approach while expecting operational hiccups.

Unlike the fall in shorts for David Jones, fellow retailer Myer ((MYR)) has seen shorts rise by 1.25% to more than 11.3% in the past week. This continues a trend of increased short positions in the stock over the past month. RBS Australia estimates Myer is currently trading at a discount to David Jones. This might explain the diverging trend between the two.

RBS also notes an increase in shorts in OM Holdings ((OMH)) over the past week, which may indicate traders continuing to position themselves ahead of an expected equity raising to help fund the Sarawak smelting project.

From a longer-term perspective of a few weeks, RBS Australia notes short positions in ASX ((ASX)) have been creeping up over the past month and now stand at around 1.36%. This is up from around 0.8% a month ago, the change possibly explained by the market accounting for softening volumes in both equities trading and new listings, as well as increasing competitive threats that are emerging.

Another major increase over the past month has been in Bank of Queensland ((BOQ)), shorts here rising from 2.88% late in October to more than 4.5% in late November. Poor credit quality in the core Queensland market has been a major market concern, though some stockbrokers feel this threat has been overplayed and so the stock is seen offering value.

Shorts in Flight Centre ((FLT)) have also risen over the past month, increasing by more than 2.0% to a total short interest of nearly 9.0%. This comes despite the most recent update from the company in early November indicating a strong outbound leisure travel market. This is causing earnings to track well above year ago levels.

Another significant increase over the past month has been to short positions in Wotif.com ((WTF)), which have risen by just over 2.5% to more than 6.2%. Over the last few weeks broker commentary on Wotif.com has reflected increasing concern over the group's growth profile as competition continues to increase.

Falls in short positions of 1-2% over the past month have been experienced by Carsales.com ((CRZ)) and Goodman Fielder ((GFF)), the latter coming at the same time as management indicated a strategic review was still being undertaken to find the best way forward for the company.

 

Top Ten Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 FIX 209662 407763 51.42
2 BBG 28297259 255102103 11.11
3 BOQ 11865233 225369547 5.26
4 ALL 25035750 543181024 4.62
5 APN 25522616 630211415 4.03
6 ARU 10658766 367980342 2.87
7 AUT 11710494 411655343 2.82
8 ALS 2494569 94193403 2.64
9 ALK 6992475 269028158 2.60
10 ANN 2792718 131197201 2.12

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

The past week has seen downgrades again outnumber upgrades, as the eight brokers in the FNArena database have cut ratings on 10 stocks while lifting recommendations on just three. Total Buy ratings remain at 57.4%, little changed from last week.

Among those upgraded were Metcash ((MTS)) post the group's interim profit result. While the result was slightly weaker than the market had expected the medium-term earnings outlook is improved by the fact the legal uncertainty of the proposed Franklins acquisition has now mostly passed. 

This was enough for JP Morgan to upgrade to a Neutral rating, while Credit Suisse went one better and upgraded Metcash to Outperform from Neutral to reflect both the Franklins purchase and improved valuation post recent share price weakness. Targets and earnings estimates were adjusted across the market.

Seven West Media ((SWM)) was the other upgrade for the week, Citi lifting its rating to Buy from Neutral. While ad market conditions remain difficult, the broker suggests lead indicators are turning a little more positive. 

The still tough conditions mean stock selection will be important in the sector and here Citi also sees reasons to like Seven West relative to peers. Citi's upgrade was accompanied by changes to earnings estimates and price target. On the same basis Citi has downgraded APN News and Media ((APN)) to Neutral from Buy, while also cutting its price target for the stock. 

An in-line interim result from Campbell Brothers ((CPB)) wasn't enough to stop Deutsche Bank downgrading the stock to Hold from Buy, though the change is a valuation call rather than one indicating any concerns over the growth outlook for the company. Forecasts and price targets for Campbell Brothers across the market rose on the back of the result.

Weak end markets continue to impact on earnings for GUD ((GUD)) and RBS Australia has lowered its estimates and price target accordingly. The changes have caused the broker to downgrade to a Hold rating on the stock.

Recent share price outperformance and the fact the company will be cycling tough comparable numbers in coming months has prompted RBS to downgrade Nufarm ((NUF)) to a Hold rating. There are only minor associated changes in forecasts and price target from brokers covering the stock post a trading update from management.

Primary Health Care ((PRY)) has offered fresh earnings guidance to the market in the past week but the issue for BA Merrill Lynch is the guidance doesn't appear to be conservative. This suggests limited scope for outperformance, which is enough for the broker to downgrade to a Neutral rating. The update from management has seen only minor changes to estimates and targets across the market.

A more disappointing trading update from management at Symex ((SYM)) has seen RBS take the axe to its numbers, the broker more than halving its price target. Given a debt/cost restructuring now looks more critical, the broker has downgraded to a Neutral rating.

RBS has also downgraded TPG Telecom ((TPM)) to a Hold rating, as while the company has lifted its stake in iiNet ((IIN)) the broker sees any deal between the two as difficult given cultural differences. The change in shareholding in iiNet also sees the broker adjust its price target and earnings assumptions.

Disappointing production guidance was enough for both BA-ML and UBS to downgrade ratings for Woodside, the former to Underperform and the latter to Neutral. Brokers across the market have cut earnings forecasts and price targets post the update, with a couple of mentions for Santos (STO)) as a preferred play in the sector at present.

Concerns over the growth profile for Wotif.com ((WTF)) have seen Citi downgrade to a Sell rating, this given concerns over too much leverage to domestic tourism. A cut in price target follows from changes to earnings estimates.

With UBS initiating coverage of Regis Resources ((RRL)) with a price target above others in the market there has been a lift in the consensus target for the stock, while the broker also sees some upside potential in Cardno ((CDD)) and has lifted its target there as well. The consensus target for Bathurst Resources ((BTU)) has also come down slightly on the back of Citi initiating coverage.

In terms of changes to earnings estimates, forecasts for Air New Zealand ((AIZ)) have come down to reflect high fuel costs, while weak guidance from management at Qantas ((QAN)) has also resulted in some cuts to expectations.

The potential for spending cuts in the IT sector have impacted on BA-ML's model for Technology One ((TNE)), while some adjustments to commodity price forecasts saw earnings estimates trimmed for Rio Tinto ((RIO)).

Higher costs have seen minor changes to models for Santos ((STO)), while the potential for Alacer Gold ((AQG)) to lose part of its stake in the Copler project proved enough for UBS to cut its numbers and price target.

On the positive revision side, higher than expected guidance from Miclyn Offshore ((MIO)) saw Macquarie lift its estimates and price target, while the broker also made some changes to its model for Macquarie Atlas ((MQA)).

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating

Order Company Old Rating New Rating Broker
Upgrade
1 Metcash Limited Sell Neutral JP Morgan
2 Metcash Limited Neutral Buy Credit Suisse
3 SEVEN WEST MEDIA LIMITED Neutral Buy Citi
Downgrade
4 APN NEWS & MEDIA LIMITED Buy Neutral Citi
5 Campbell Brothers Limited Buy Neutral Deutsche Bank
6 G.U.D. HOLDINGS LIMITED Buy Neutral RBS Australia
7 NUFARM LIMITED Buy Neutral RBS Australia
8 PRIMARY HEALTH CARE LIMITED Buy Neutral BA-Merrill Lynch
9 SYMEX HOLDINGS LIMITED Buy Neutral RBS Australia
10 TPG TELECOM LIMITED Buy Neutral RBS Australia
11 WOODSIDE PETROLEUM LIMITED Neutral Sell BA-Merrill Lynch
12 WOODSIDE PETROLEUM LIMITED Buy Neutral UBS
13 WOTIF.COM HOLDINGS LIMITED Neutral Sell Citi
 

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 MMX - 67.0% - 33.0% 34.0% 3
2 MTS - 13.0% 13.0% 26.0% 8
3 BTU 50.0% 67.0% 17.0% 3
4 GNC 50.0% 67.0% 17.0% 6
5 SUL 33.0% 50.0% 17.0% 6
6 RFG 50.0% 67.0% 17.0% 3
7 SWM 63.0% 75.0% 12.0% 8
8 AQG 40.0% 50.0% 10.0% 6
9 RRL 67.0% 75.0% 8.0% 4
10 CDD 67.0% 75.0% 8.0% 4

Negative Change Covered by > 2 Brokers

Order Symbol Previous Rating New Rating Change Recs
1 WPL 63.0% 38.0% - 25.0% 8
2 TPM 100.0% 75.0% - 25.0% 4
3 ORL 100.0% 80.0% - 20.0% 5
4 CHC 100.0% 83.0% - 17.0% 6
5 GUD 67.0% 50.0% - 17.0% 6
6 CPB 29.0% 14.0% - 15.0% 7
7 BSL 43.0% 29.0% - 14.0% 7
8 WTF 38.0% 25.0% - 13.0% 8
9 NUF 38.0% 25.0% - 13.0% 8
10 DJS - 25.0% - 38.0% - 13.0% 8
 

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 MMX 0.203 0.390 92.12% 3
2 RRL 3.257 3.618 11.08% 4
3 CPB 49.327 50.830 3.05% 7
4 SWM 4.045 4.151 2.62% 8
5 CDD 6.213 6.333 1.93% 4
6 CHC 2.482 2.500 0.73% 6
7 NUF 4.843 4.866 0.47% 8

Negative Change Covered by > 2 Brokers

Order Symbol Previous Target New Target Change Recs
1 BSL 0.851 0.627 - 26.32% 7
2 WPL 44.009 40.099 - 8.88% 8
3 RFG 3.085 2.913 - 5.58% 3
4 APN 1.140 1.081 - 5.18% 8
5 BTU 1.000 0.967 - 3.30% 3
6 WTF 4.348 4.216 - 3.04% 8
7 TPM 1.860 1.820 - 2.15% 4
8 DJS 2.796 2.745 - 1.82% 8
9 GUD 9.048 8.898 - 1.66% 6
10 GNC 8.675 8.533 - 1.64% 6
 

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 COF 8.733 9.733 11.45% 3
2 RRL 15.867 17.150 8.09% 4
3 RFG 26.150 28.033 7.20% 3
4 CPB 286.857 305.329 6.44% 7
5 CDD 55.220 57.570 4.26% 4
6 GNC 79.377 82.617 4.08% 6
7 MIO 21.365 21.934 2.66% 4
8 MQA 8.267 8.433 2.01% 6
9 SWM 41.313 42.075 1.84% 8
10 SUL 51.117 51.717 1.17% 6

Negative Change Covered by > 2 Brokers

Order Symbol Previous EF New EF Change Recs
1 AIZ 10.322 7.791 - 24.52% 4
2 QAN 14.863 12.988 - 12.62% 8
3 TNE 7.767 7.200 - 7.30% 3
4 RIO 836.708 787.603 - 5.87% 8
5 STO 62.413 59.000 - 5.47% 8
6 AQG 59.396 56.725 - 4.50% 6
7 MML 67.870 64.922 - 4.34% 3
8 SLM 31.033 29.700 - 4.30% 6
9 IFL 43.900 42.700 - 2.73% 7
10 TEL 15.065 14.695 - 2.46% 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

Is Retail Food Group Undervalued?

- UBS initiates with Buy rating on Retail Food Group
- Resilient category is attractive, online retail less of a threat
- Acquisitions should continue to assist growth

By Chris Shaw

Retail Food Group ((RFG)) is one of Australia's largest owners of food retail franchise systems in the Australian and New Zealand markets, its network covering more than 1,100 outlets. These include Donut King, Michel's Patisserie, Brumbies Bakery, Big Dad Pies, bb's Cafe and Esquires Coffee House brands.

To date the market has offered mixed views on Retail Food, the FNArena database showing RBS Australia rates the stock as a Hold while JP Morgan's recommendation is Overweight. The balance has now been tilted to the positive side, as UBS has initiated coverage with a Buy rating.

One major positive for UBS is Retail Food operates in a resilient category, as the group's franchises operate in the low basket size end of the market. This reflects the treat/impulse buy nature of the products on offer.

A further attraction in the view of UBS is given the nature of the businesses under the Retail Food umbrella, there is less competition from online retail offerings. As well, the franchisor system means a low fixed cost base, as Retail Food is not up for rents and store wages. This means low operating leverage risk.

The impact of such a structure on earnings is relatively significant. On UBS's numbers, a 1% change in network sales translates into a 1.7% change in earnings per share (EPS).

The core competency of Retail Food is optimising and expanding its franchise systems, examples being system improvement in terms of supplier consolidation, extending menus and increased automation in operations.

UBS expects this strategy will continue to be applied to future acquisitions, especially as the markets in which Retail Food operates remains highly fragmented and the business model is scaleable. A solid balance sheet should assist in this regard, UBS noting Retail Food has a debt to EBITDA (earnings before interest, tax, depreciation and amortisation) ratio of 1.5 times and generates strong cash flows.

Applying this strategy is expected to deliver solid earnings growth, UBS forecasting EPS growth of 7% in FY12 and 7.5% annually over the next three years. In terms of actual forecasts, UBS has EPS estimates for Retail Food of 27c for FY12 and 29c for FY13. These forecasts compare to consensus EPS expectations according to the FNArena database of 28c and 30.1c respectively.

Using these forecasts sees UBS calculate a valuation range for Retail Food of $2.85 to $3.15, with the broker setting its price target in the middle of this range at $3.00. This is broadly in line with the consensus price target according to the database of $2.91.

Post the full year result of Retail Food in August, RBS Australia cut its target to $2.65 from $3.09, the change reflecting a soft organic growth outlook given still tough retail conditions. While JP Morgan also lowered its target to $3.09 from $3.52 the broker retained a more positive view on the stock. This reflected the fact Retail Food could still grow earnings despite a poor operating environment, which supports the broker's view the market continues to undervalue the stock.

Over the past year the shares have traded in a range of $1.995 to $3.00, the current share price implying upside of around 16% to the consensus price target in the FNArena 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

By Chris Shaw

On face value the second week of the FNArena Short Report looks very similar to last week, as eight of the top 10 securities are the same and the top seven are in the same order as the week before. But as with last week, the significance comes in identifying changes to short positions rather than the actual percentage of a particular security that has been sold short.

The top 10 short positions over the past week on the ASX have been JB Hi Fi ((JBH)), ISO, the Small Ordinaries index tracker, Fairfax Media ((FXJ)), Billabong ((BBG)), Myer ((MYR)), David Jones ((DJS)), Flight Centre ((FLT)), Gunns ((GNS)), Perpetual Trustees ((PPT)) and Lynas Corporation ((LYC)).

Shorts in Gunns have increased significantly to nearly 8% from just over 5% the previous week, this adjustment occurring in the lead-in to the company's annual general meeting. In contrast, most of the rest of the top 10 have seen little change, the likes of Myer, JB Hi Fi, Fairfax and Flight Centre all recording only minor adjustments in total short positions in the past week.

Numbers have risen slightly for Billabong, which coincides with share price weakness last week some in the market attributed to investors selling given potential for the stock to be removed from the ASX100 index. Removal from such an index would cause some fund selling given the mandates fund mangers have in place in regards to what stocks they can hold in their portfolios.

Outside the top 10, short positions have increased for the likes of Resolute Mining ((RSG)) to more than 2.6% from less than 1.0% previously, this coming after the issue of more than 5.6 million new shares following the exercise of some listed and unlisted options.

Shorts have also increased in Cochlear ((COH)) to more than 6% from around 5% previously, the general uncertainty of the company's product recall being added to by a report from Credit Suisse of market share in bone conduction devices coming under pressure from competitor Med-E1.

Steel plays remain out of favour as short positions in both BlueScope ((BSL)) and OneSteel ((OST)) have risen over the past week, this on the back of BlueScope's move to raise equity to address balance sheet concerns.

Aston Resources ((AZT)) announced changes to its board earlier this month and the market has responded by an increase in short positions, while shorts in Goodman Fielder ((GFF)) also rose leading into the group's annual general meeting.

Bathurst Resources ((BTU)) also saw an increase in short positions leading into the announcement of first coal exports from the Buller project, while investors took the opportunity to increase shorts in Beach Energy ((BPT)) prior to that company's annual general meeting.

On the other side of the market, shorts fell in Energy Resources of Australia ((ERA)) as the company completed a bookbuild for the retail shortfall of a recent equity raising. There are no signs of any major shift in preferences in the uranium sector, as the level of shorts in Paladin are largely unchanged.

Santos ((STO)) has enjoyed a reduction in short selling positions since the last FNArena Short Report, which comes just prior to what was a disappointing update from rival Woodside ((WPL)) in terms of production guidance for the coming year.

While White Energy ((WEC)) has yet to fully resolve its feed coal supply issues, the market has reduced short positions in the stock from more than 2.8% to less than 1.4%, while the market also lowered total shorts in Western Areas ((WSA)) from about 6.3% to less than 5.5% leading into the company's annual general meeting. 

Top Ten Largest Short Positions

Rank Symbol Short Position Total Product %Short
1 JBH 20294875 98833643 20.53
2 ISO 885115 5401916 16.39
3 FXJ 289084551 2351955725 12.30
4 BBG 28575703 255102103 11.19
5 MYR 62657295 583384551 10.71
6 DJS 52701616 524940325 10.02
7 FLT 8507685 99990391 8.50
8 GNS 66008241 848401559 7.77
9 PPT 2890642 41342420 7.01
10 LYC 110615212 1713846913 6.41

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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article 3 months old

Citi Not Joining The Crowd On OrotonGroup

- Citi initiates on Oroton With Neutral rating
- Stockbroker sees stock as fair value at present
- Asia offers upside potential but some time away
- Only non-Buy recommendation in FNArena database

By Chris Shaw

Prior to today, luxury goods retailer OrotonGroup ((ORL)) was rated as a Buy by all four brokers in the FNArena database to cover the stock. All were attracted to a combination of a strong balance sheet, the potential for Asian expansion to boost group earnings and a solid on-line product offering that put the stock among the top of the retail offerings.

Citi has initiated coverage with a slightly less positive view, rating Oroton as Neutral with a price target of $8.30. This brings the consensus price target for Oroton according to the database to $8.91, down from $9.07 previously.

Citi's Neutral rating is despite a solid earnings growth outlook, the broker forecasting earnings per share (EPS) growth for Oroton of 11% in FY12 and 7% in FY13. Citi's EPS forecasts stand at 67.4c and 72.1c respectively, which compares to consensus EPS estimates of 66.5c for FY12 and 73.5c for FY13.

Longer-term, Citi expects Oroton can deliver 44% sales growth over the next five years. Almost half of this is expected to come from the introduction of more fashion products at higher price points. 

Citi has confidence in these expectations given competing products are even more expensive than those offered by Oroton. There is a potential risk to Citi's sales growth estimates from global luxury brands harmonising prices, as this would reduce the premium paid at present by Australian shoppers.

Another risk is to the margin outlook, as Citi expects the Asian expansion will put some pressure on current margins given increased promotional activity. Adverse exchange rate movements may also see margins come under pressure.

At present Oroton is the exclusive distributor of Polo Ralph Lauren in Australia and New Zealand, but Citi doesn't see this remaining the case indefinitely. As the broker notes, the licence is likely to be transitioned back into a wholly-owned operation sometime in the next 10 years.

Similar distributorships in the Asian and Pacific regions have already been acquired, making such a move more likely. Citi points out Oroton would receive a payout if such a change was made, but any sale would likely still be value dilutive.

With respect to Asia, Citi agrees the market offers a highly lucrative opportunity for Oroton but expects any success in the region will take some time to develop. On Citi's numbers Oroton is only likely to break-even in Asia in FY14 and will only have 30 stores by FY15. Citi estimates each 10 stores above this level adds $0.58 to its valuation for Oroton.

This view on Asia forms the basis for Citi's Neutral rating. Given no upside from the region is expected to materialise over the next 12 months, the stockbroker argues Oroton shares looks fully valued on a FY12 earnings multiple of 11.8 times. 

As a result, Citi expects the Oroton share price will range trade between its PE relative valuation of $7.33 and a sum-of-the-parts valuation of $8.49 over the coming year. This $8.49 sum-of-the-parts valuation of Citi is below all other price targets for Oroton, the lowest of which is Credit Suisse at $8.60. Targets range as high as BA-Merrill Lynch at $10.09.

The trading range over the past year for Oroton shares has been $5.95 to $9.50 and the current share price implies upside of a little over 10% to the consensus price target in the FNArena database.

 

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