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The Short Report

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By Chris Shaw

Increases in short positions outweighed decreases for the week from April 16, with shorts in both Spark Infrastructure ((SKI)) and Whitehaven ((WHC)) rising by more than 4.0 percentage points.

For Spark Infrastructure shorts now stand at 5.28% from 0.5% the week prior, this as the company announced the intention to bid for the Sydney desalination plant in a move to expand away from electricity assets.

While Whitehaven is now a go-to coal play given the lack of independent coal producers listed on the ASX, Citi is cautious on the group's ramp-up ambitions as these plans appear very optimistic. Shorts in Whitehaven have increased to 7.08% from 2.86% previously.

Despite a lack of news in recent weeks shorts in Mesoblast ((MSB)) rose in the week from April 16 to 5.43% from 2.72% previously, enough to push Mesoblast into the top 20 short positions list. At the same time shorts in Carsales.com ((CRZ)) increased to 11.68% from 9.12% the week before in a continuation of the recent trend of rising shorts in the stock.

The increase cements Carsales.com in the top 20 largest short positions on the Australian market, a list that continues to be dominated by companies exposed to the consumer discretionary sector. Others in the sector making the list include JB Hi-Fi ((JBH)), where those holding short positions would be happy given recently revised down earnings guidance, Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)) and Harvey Norman ((HVN)).

Other stocks in the top 20 list cover a range of sectors, with the likes of Cochlear ((COH)) in the healthcare sector, Ten Network ((TEN)) and Fairfax ((FXJ)) among media plays, Echo Entertainment ((EGP)) in the gaming sector and Iluka ((ILU)) and Lynas Corporation ((LYC)) among commodity plays.

The largest decline in short positions for the week from April 16 was in SingTel ((SGT)), where positions declined to 4.05% from 5.72% despite no major announcements from the company.

With respect to monthly changes the biggest increases have come in Whitehaven, Spark Infrastructure, Bathurst Resources ((BTU)), Carsales.com and Independence Group ((IGO)). The increase in shorts for Bathurst came ahead of a quarterly production report indicating a slower ramp-up in production, while for Independence Group the major upcoming catalyst is the first gold pour at Tropicana continues to get closer.

Among the falls in short positions over the month from March 23, Billabong has seen total positions decline to 9.37% from 11.3% the month prior, while shorts also declined by more than 1.5 basis points in (FMS)), Wesfarmers Partly Protected shares ((WESN)) and Western Areas ((WSA)). Of those only Western Areas has a significant level of short positions at 3.58%, which may not be impacted by this week's quarterly production report that was broadly in line with expectations.

Elsewhere, RBS Australia notes short positions in Westpac ((WBC)) have risen by 35 basis points over the past month to a level of around 2.0%. Leading into bank reporting season this month the increase makes sense in the broker's view, as Westpac has delivered below peer loan book growth over the past year and has the greatest reliance on wholesale funding markets of the major banks. This leaves Westpac most exposed to any increase in eurozone tensions, something RBS expects will occur in coming months.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	22928391	98850643	23.20
2	MYR	75404121	583384551	12.90
3	ISO	723617	5703165	12.69
4	CRZ	27277138	233684223	11.68
5	FXJ	273373404	2351955725	11.64
6	COH	6311333	56929432	11.10
7	FLT	10065499	100024697	10.06
8	DJS	52157507	524940325	9.96
9	LYC	161692161	1714496913	9.45
10	BBG	24223691	257888239	9.37
11	EGP	57361567	688019737	8.34
12	HVN	77576325	1062316784	7.26
13	GNS	61598376	848401559	7.25
14	WHC	35728428	502668417	7.08
15	WTF	13857249	211736244	6.53
16	ILU	26940403	418700517	6.42
17	TEN	62009646	1045236720	5.91
18	TRS	1528794	26071170	5.89
19	CSR	29662405	506000315	5.85
20	MSB	15445890	284478361	5.43

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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Big Things Ahead For Jumbo

- Jumbo Interactive a major player in Australian online lottery market
- Company enjoys solid margins in a growth sector
- Overseas growth is also possible
- Moelis initiates coverage on Jumbo with a Buy rating

By Chris Shaw

Jumbo Interactive ((JIN)) is an Australian online lottery business, the group reselling for state governments under long-term agreements. Jumbo operates in a market in which it is one of the two main players along with Tatts Group ((TTS)), the company enjoying a market share of around 40%.

As part of its initiation of coverage on Jumbo with a Buy rating, Moelis notes there are significant barriers to entry in the online lottery market, these stemming from regulatory, system and brand recognition issues.

This offers the company significant longer-term upside potential in the view of Moelis, as at present internet lottery penetration stands at only about 7% of what is a $3.6 billion market in terms of annual sales.

Analysis by Moelis suggests Jumbo generates a solid gross margin of about 19%, as each $1 lottery ticket is effectively purchased from the government at $0.91 and on-sold to customers at $1.10. Jumbo at present has more than one million domestic customers, though less than 10% are regular players with an average spend of around $20 per week.

Evidence of Jumbo's growth potential are apparent in the recent interim result, Moelis noting net profit before tax grew by 58% and EBITDA (earnings before interest, tax, depreciation and amortisation) by 56% on a 32% increase in revenue.

Further solid earnings growth is expected, as Moelis is forecasting earnings per share (EPS) of 14.3c this year and 18.3c in FY13, which compares to the 10.7% achieved in FY11. With a market capitalisation of only around $63 million at present there is no coverage of Jumbo by brokers in the FNArena database.

In terms of additional growth opportunities, Moelis notes management at Jumbo sees potential in the US market given late last year the US Department of Justice approved internet lottery sales for the first time.

The lottery industry in the US is a more than US$50 billion market, notes to Moelis, and 43 of 50 states currently conducting lotteries. About six of these states are expected to introduce internet lottery sales within the next 12 months.

Given the upside potential on offer for Jumbo, Moelis sees scope for an earnings multiple re-rating in coming months from what is currently an undemanding multiple of less than 10 times for FY12. Aside from the growth potential, Moelis suggests the current multiple is too low given Jumbo's strong market position in what is a structurally driven online segment of the market.

In a slightly stronger market shares in Jumbo today are down 1c at $1.39 as at 12.00pm, which compares to a range of $0.225 to $1.75 over the past 12 months. Moelis has a price target on the stock of $1.75.

Investors in Jumbo would also receive a modest boost to total returns from dividends. The forecasts of Moelis suggest a fully franked yield on Jumbo if 1.4% this year, rising to 2.2% in FY13.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has been a busy period for changes in broker ratings as the eight brokers in the FNArena database have upgraded recommendations on 12 stocks while downgrading a further 14. This means the trend of more downgrades than upgrades continues. Total Buy ratings now stand at 50.59%.

The only stock receiving multiple upgrades was Energy Resources of Australia ((ERA)), where both BA Merrill Lynch and UBS have moved to Buy ratings from Sell previously. The rating upgrades reflect a more positive view post an update by the company on the progress of operations at Ranger.

BA-ML has also upgraded Alacer Gold ((AQG)) to Buy from Sell, reflecting the broker's view the market is at present too concerned about the group's Australian assets, to the point value is emerging at current levels.

Interim earnings from Australian Pharmaceutical ((API)) were good enough for Macquarie to lift earnings estimates and its price target, the latter change enough to justify an upgrade to a Buy rating from Neutral previously. Across the market earnings estimates and price targets were adjusted post the result.

Following a strategy update by the bank UBS has upgraded Commonwealth Bank ((CBA)) to Buy from Neutral, as the broker sees strategy execution delivering relative outperformance. UBS has also lifted its price target post the update.

UBS similarly upgraded CSL ((CSL)) to Buy from Neutral on news Baxter faces delays with its HyQ product that should provide something of an earnings boost to CSL. Other brokers covering the stock have revised earnings expectations and price targets on the news.

News Fleetwood ((FWD)) will build an accommodation village in Gladstone was enough for RBS to upgrade to a Buy rating from Hold previously, as the expectation is this will deliver an earnings boost from FY14.

Credit Suisse sees value in Perseus ((PRU)) post a solid quarterly production report where output was solid and costs fell, while increases to earnings estimates for Tatt's ((TTS)) from higher win rates on fixed odd bets are enough for the broker to move to a Neutral rating from Sell previously.

While not changing its earnings forecasts Macquarie has upgraded UGL ((UGL)) to Buy from Neutral, the broker suggesting ongoing contract wins and the continued integration of DTZ will act as catalysts for the stock in coming months.

On the downgrades side, UBS has cut its rating on AMP ((AMP)) to Neutral from Buy on valuation grounds post a review of its model, while JP Morgan has similarly downgraded Aristocrat Leisure ((ALL)) on the back of recent share price strength.

For the same reason RBS has downgraded Automotive Holdings ((AHE)) to Hold from Buy, while Credit Suisse has similarly downgraded Caltex ((CTX)) to Neutral from Buy given recent share price strength.

Centro Retail ((CRF)) has been downgraded to Neutral from Overweight by JP Morgan on news the company is to sell some of its assets, as while the group's balance sheet will be strengthened overall asset quality will be reduced, in the view of JP Morgan.

BA-ML suggests it is getting tougher for Newcrest ((NCM)) to achieve production guidance this year and this implies consensus earnings estimates are too high. For the broker this is enough reason to downgrade to Neutral from Buy. Newcrest will release its March quarter production report in the week ahead.

While domestic market conditions are supportive, conditions for Nufarm ((NUF)) in other markets are more difficult and this has prompted Citi to downgrade its rating to Sell from Neutral, while Spark Infrastructure's ((SKI)) proposed expansion away from electricity via (an attempt to) taking a stake in the Sydney desalination plant is not a great move in the view of Macquarie. The broker downgrades to Neutral from Buy.

The most downgrades were applied to Westfield Group (WDC)) as UBS, Credit Suisse and Deutsche Bank have all lowered ratings to Neutral from Buy. Westfield has announced plans to sell non-core assets and this news has been well received, but valuation has been the key driver behind the cuts in ratings.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	ALACER GOLD CORP	Sell	Buy	BA-Merrill Lynch
2	AUSTRALIAN PHARMACEUTICAL INDUSTRIES	Neutral	Buy	Macquarie
3	COMMONWEALTH BANK OF AUSTRALIA	Neutral	Buy	UBS
4	CSL LIMITED	Neutral	Buy	UBS
5	ENERGY RESOURCES OF AUSTRALIA	Sell	Buy	BA-Merrill Lynch
6	ENERGY RESOURCES OF AUSTRALIA	Sell	Buy	UBS
7	FLEETWOOD CORPORATION LIMITED	Neutral	Buy	RBS Australia
8	PERSEUS MINING LIMITED	Neutral	Buy	Credit Suisse
9	ST BARBARA LIMITED	Sell	Neutral	Macquarie
10	TATTS GROUP LIMITED	Sell	Neutral	Credit Suisse
11	UGL LIMITED	Neutral	Buy	Macquarie
12	WOODSIDE PETROLEUM LIMITED	Neutral	Buy	Credit Suisse
Downgrade
13	AMP LIMITED	Buy	Neutral	UBS
14	ARISTOCRAT LEISURE LIMITED	Buy	Neutral	JP Morgan
15	AUTOMOTIVE HOLDINGS GROUP LIMITED	Buy	Neutral	RBS Australia
16	BANK OF QUEENSLAND LIMITED	Sell	Sell	Macquarie
17	CALTEX AUSTRALIA LIMITED	Buy	Neutral	Credit Suisse
18	CENTRO RETAIL AUSTRALIA	Neutral	Neutral	JP Morgan
19	COMMONWEALTH BANK OF AUSTRALIA	Sell	Sell	Macquarie
20	NEWCREST MINING LIMITED	Buy	Neutral	BA-Merrill Lynch
21	NUFARM LIMITED	Neutral	Sell	Citi
22	PALADIN ENERGY LTD	Sell	Sell	Macquarie
23	SPARK INFRASTRUCTURE GROUP	Buy	Neutral	Macquarie
24	WESTFIELD GROUP	Buy	Neutral	UBS
25	WESTFIELD GROUP	Buy	Neutral	Credit Suisse
26	WESTFIELD GROUP	Buy	Neutral	Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	ERA	- 63.0%	- 13.0%	50.0%	8
2	SBM	- 67.0%	- 33.0%	34.0%	3
3	AQG	57.0%	86.0%	29.0%	7
4	PRU	20.0%	40.0%	20.0%	5
5	FWD	20.0%	40.0%	20.0%	5
6	WPL	25.0%	38.0%	13.0%	8
7	DJS	- 63.0%	- 50.0%	13.0%	8
8	CBA	- 25.0%	- 13.0%	12.0%	8
9	PNA	63.0%	75.0%	12.0%	8
10	CSL	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	SVW	75.0%	50.0%	- 25.0%	4
2	AHE	75.0%	50.0%	- 25.0%	4
3	CTX	33.0%	17.0%	- 16.0%	6
4	EGP	63.0%	50.0%	- 13.0%	8
5	AMP	63.0%	50.0%	- 13.0%	8
6	NCM	75.0%	63.0%	- 12.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	ERA	1.394	1.580	13.34%	8
2	CSL	36.273	37.758	4.09%	8
3	SBM	2.197	2.267	3.19%	3
4	SVW	10.925	11.235	2.84%	4
5	AQG	10.219	10.504	2.79%	7
6	AHE	2.655	2.710	2.07%	4
7	VAH	0.473	0.476	0.63%	7
8	EGP	4.498	4.523	0.56%	8
9	CBA	51.030	51.301	0.53%	8
10	FWD	13.512	13.546	0.25%	5

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	PRU	3.414	3.304	- 3.22%	5
2	NCM	40.003	38.753	- 3.12%	8
3	PNA	4.095	3.980	- 2.81%	8
4	AMP	4.834	4.771	- 1.30%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	MCR	1.100	2.967	169.73%	3
2	TCL	13.443	14.386	7.01%	7
3	WPL	225.310	238.645	5.92%	8
4	STO	67.488	71.288	5.63%	8
5	IAG	24.075	25.100	4.26%	8
6	TAP	3.100	3.200	3.23%	4
7	API	4.114	4.214	2.43%	5
8	PNA	34.769	35.316	1.57%	8
9	CGF	46.329	47.014	1.48%	7
10	SBM	35.800	36.300	1.40%	3

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GBG	0.800	- 0.943	- 217.88%	6
2	BOQ	28.938	15.663	- 45.87%	8
3	BCI	48.767	41.100	- 15.72%	3
4	CRF	10.383	8.850	- 14.76%	6
5	WHC	14.383	12.467	- 13.32%	6
6	GRR	10.900	9.467	- 13.15%	6
7	SVW	87.780	79.960	- 8.91%	4
8	PRU	15.940	14.533	- 8.83%	5
9	ILU	241.900	224.113	- 7.35%	8
10	VAH	3.033	2.857	- 5.80%	7

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Weekly Broker Wrap: Earnings Confessions Season Is Near

- Risk-off for markets
- Value sectors in the Australian market
- Confession season for corporate earnings
- Small Cap preferences updated
- Citi reviews its metals and mining expectations

By Chris Shaw

BA Merrill Lynch has developed a Global Financial Stress Index (GFSI), which represents a measure of stress in financial markets. By using the index BA-ML has developed a Critical Stress Signal to detect when markets move into risk-off mode.

In the broker's view the GFSI CSS signalled markets had entered risk-off mode on April 11. In terms of what this means for the Australian market, BA-ML's research shows the domestic market traditionally outperforms the US when the GFSI CSS is triggered. In part this reflects the shock-absorbing nature of the Australian dollar, which tends to depreciate during periods of stress.

Under such periods of risk-off BA-ML notes banks underperform resource stocks, while defensives outperform and small miners underperform. The latter is due somewhat to small miners being takeover targets in better times but losing this premium when times turn tougher, as well as the fact the ability of such stocks to raise capital becomes tougher as financial markets come under pressure.

Citi suggests many of the most sold down stocks of last year have recovered somewhat this year as equities improved. With valuations now closer to normal ranges this increases the risk some of these stocks are increasingly at risk of fading and potentially rolling over again. This is because further gains are likely to require signs of respectable earnings growth, predict the analysts.

Looking at where the market currently offers greater earnings growth potential, Citi suggests looking beyond the banks and resource sector so those sectors where growth is picking up and where share price are not yet overvalued.

For Citi this means the general insurance, engineering and construction and healthcare sectors. This leaves Citi's sector preferences in order as financials ex banks/REITs, industrials, resources, banks, REITs, consumer sectors and defensive sectors.

Citi's review means some changes to its recommended portfolio, with Suncorp ((SUN)), Insurance Australia ((IAG)), Boart Longyear ((BLY)) and CSL ((CSL)) being added, while Dexus ((DXS)), Myer ((MYR)), Seven West Media ((SWM)) and Lend Lease ((LLC)) have been removed from the portfolio.

Goldman Sachs has in turn focused on the so-called confession season for earnings, noting around 25% of annual profit warnings since 2000 have come during the months of May and June. From current forecasts of 6% earnings per share growth for industrials in FY12 the expectation is this number continues to trend lower, this reflecting still tight domestic financial conditions.

A review sees Goldman Sachs list its stocks in the ASX100 with both the largest downside earnings risk and the greatest upside risk heading into May and June. The former includes Atlas Iron ((AGO)), Asciano ((AIO)), ASX ((ASX)), Alumina Ltd ((AWC)), BHP Billiton ((BHP)), Boral ((BLD)), CSR ((CSR)), Caltex ((CTX)), Fortescue ((FMG)), Fairfax ((FXJ)), Harvey Norman ((HVN)), Incitec Pivot ((IPL)), JB Hi-Fi ((JBH)), Lend Lease, Myer, National Australia Bank ((NAB)), Qantas ((QAN)), QR National ((QRN)), Sims ((SGM)), Seven West, Sydney Airport ((SYD)) and Transurban ((TCL)).

Stocks with the greatest upside earnings risk in the view of Goldman Sachs include CFS Retail ((CFX)), Campbell Brothers ((CPB)), CSL, Crown ((CWN)), Downer EDI ((DOW)), Dexus, Graincorp ((GNC)), Iluka ((ILU)), Monadelphous ((MND)), Macquarie Group ((MQG)), Orica ((ORI)), Oil Search ((OSH)), PanAust ((PNA)), Spark Infrastructure ((SKI)), Santos ((STO)) and Woodside ((WPL)).

Following a review of its quantitative analysis model, Credit Suisse suggests investors at present should be long quality stocks, long value plays and neutral on momentum plays. Quality plays should do well given there are material hard landing risks, while value should do well given de-leveraging pressures are not yet out of hand.

On the other hand, momentum factors have so far failed to pick up the recent inflection point in the global growth cycle and will probably miss the next major inflection point as well.

With respect to sector allocation Credit Suisse prefers high yielding defensives to cyclicals given expectations of slower growth ahead, while rate-sensitive cyclicals are preferred to mining stocks given better relative value.

Under such a screening process Credit Suisse notes high yielding defensives such as Telstra ((TLS)), Stockland ((SGP)), Challenger ((CGF)), Tabcorp ((TAH)) and Metcash ((MTS)), banks such as Bendigo and Adelaide ((BEN)), National Australia Bank, Westpac ((WBC)), ANZ Banking Group ((ANZ)) and Commonwealth Bank ((CBA)), and consumer discretionary stocks such as JB Hi-Fi, Myer, Seven West Media and Fairfax dominate the long-end.

In the short basket are metals mining and energy stocks such as Alumina Ltd, BlueScope ((BSL)), Oil Search, Santos, Atlas Iron, Newcrest ((NCM)), OZ Minerals ((OZL)) and Sims as well as selected US dollar exposures such as James Hardie ((JHX)), News Corporation ((NWS)) and ResMed ((RMD)).

According to Citi, the equity market rally in March means value is now harder to identify in the small industrials end of the market, as current earnings multiples appear to paint a true picture of value. In relative terms the current multiple for the sector is below average levels of the past 10 years, which suggests further relative outperformance is possible.

Factoring in recent price movements, Citi has removed Forge ((FGE)), Henderson Group ((HGG)), Super Retail ((SUL)) and Sandfire Resources ((SFR)) from its top picks list, while Mirabella ((MBN)) has also been removed given less conviction on the part of the broker. Ratings for Forge, Henderson Group and Sandfire have all been lowered in recent weeks to Neutral from Buy previously, while GWA Group ((GWA)) has also been downgraded by Citi; to Sell from Neutral.

To replace these stocks Citi has added Flight Centre ((FLT)) and Adelaide Brighton ((ABC)) to the list of key small cap calls, the rest of the list being Miclyn Express Offshore ((MIO)), McMillan Shakespeare ((MMS)), NIB Holdings ((NHF)), NRW Holdings ((NWH)) and Southern Cross Media ((SXL)) among the industrials and Medusa Mining ((MML)), Resource Generation ((RES)) and Regis Resources ((RRL)) among resource plays.

A Buy for Credit Suisse among small cap plays is Webjet ((WEB)), which has recently guided to FY12 earnings growth of at least 18%, up from at least 10% previously. On the back of this guidance Credit Suisse lifted its earnings forecasts and reiterated an Outperform rating on the stock, expecting further gains as growth continues to come through over the next 12 months.

Despite its positive view, Credit Suisse doesn't list Webjet among its top five small caps, which are made up of Alliance Aviation Services ((AQZ)), Mermaid Marine ((MRM)), Carsales.com ((CRZ)), SAI Global ((SAI)) and Flexigroup ((FXL)).

Deutsche's review of emerging companies has focused on stocks where there may be a 2H12 earnings skew and or a cyclical recovery is factored in FY13 forecasts. This gives a list of stocks offering earnings risk in coming periods and a list of companies offering potential earnings upside.

Among companies in the former category, Deutsche suggests Salmat ((SLM)) has the most risk to consensus forecasts and guidance given still tough operating conditions. Emeco Holdings ((EHL)) also offers some risk from the potential wet weather impact on operations in Queensland and northern New South Wales, while Bradken's ((BKN)) risks relate to the timing and execution of any increases in output.. The latter was confirmed by a profit warning from company management last week.

If retail conditions don't improve there are risks around earnings expectations for Pacific Brands ((PBG)) given around 80% of Deutsche's forecast earnings growth in FY13 is tied to a cyclical recovery, while it is a similar story for Spotless ((SPT)) in that a large portion of expected earnings improvement is related to an improvement in market conditions. For Navitas ((NVT)) the risk is any delay to a recovery in any of the group's divisions.

Deutsche has Hold ratings on all of these companies with the exception of Bradken, which is rated as a Buy.

With respect to companies offering upside earnings potential Deutsche includes Flight Centre given continued strong international travel numbers and easier comparable numbers in the second half of FY12.

Also included is Skilled Group ((SKE)) given scope for further improvement in key labour markets, while digital media is seen as a driver of stronger earnings for STW Communications ((SGN)). All three stocks are rated as Buy by Deutsche Bank.

Post its review of the emerging companies Deutsche has revised its top picks. Among the emerging company cyclicals the broker now prefers Ardent Leisure ((AAD)), Flight Centre, Programmed Maintenance ((PRG)), Prime Media ((PRT)), Skilled and Transpacific Industries ((TPI)). Both Adelaide Brighton ((ABC)) and GWA ((GWA)) have been removed from the broker's top picks among the cyclicals.

In the mining services sector Deutsche likes Ausenco ((AAX)), Ausdrill ((ASL)) and NRW Holdings, while also among the broker's top picks are SAI Global and IOOF Holdings ((IFL)).

In the view of Goldman Sachs the likelihood of a depreciating Australian dollar relative to the US dollar has risen. Given this, the broker has reviewed stocks to ascertain those companies with the most significant earnings sensitivity to a movement in the currency.

Among industrial stocks, Goldman Sachs suggests those with the highest positive earnings per share (EPS) impact in a depreciating AUD/USD scenario as measured by largest to smallest impact are OneSteel ((OST)), Select Harvests ((SHV)), Incitec Pivot, CSR, Aristocrat Leisure ((ALL)), Sims, Matrix Composites ((MCE)), Bradken, Macquarie Group, Campbell Brothers, Treasury Wine Estates ((TWE)), Orica and BlueScope.

Among resource stocks the largest EPS impacts on the same basis according to Goldman Sachs would be felt by Independence Group ((IGO)), Kagara ((KZL)), Whitehaven Coal ((WHC)), OZ Minerals, AWE Ltd ((AWE)), Western Areas ((WSA)), Energy Resources of Australia ((ERA)), Aditya Birla ((ABY)), Mount Gibson Iron ((MGX)), Sandfire and Evolution Mining ((EVN)).

Of those companies reporting in US dollars, Goldman Sachs sees the largest impacts of a depreciating AUD/USD as being felt by Brambles ((BXB)), News Corporation, Ansell ((ANN)), James Hardie, ResMed, Computershare ((CPU)), QBE Insurance ((QBE)) and Boart Longyear.

Goldman Sachs has also assessed those stocks with the highest negative correlation of total excess returns to AUD/USD changes, this list comprising Woolworths ((WOW)), CSL, ResMed, CFS Retail ((CFX)), Westfield Group ((WDC)), SP Ausnet ((SPN)), Coca-Cola Amatil ((CCL)), SingTel ((SGT)), Telstra, Spark, Tatt's Group ((TTS)), Amcor ((AMC)) and BWP Trust ((BWP)).

Citi has also reviewed expectations for the metals and mining sectors, its analysis showing low cost producers and those that deploy capital efficiently remain the preferred exposures. Citi expects industrial commodity prices in general will be somewhat range bound over the medium-term, while precious and base metals are preferred to the bulk commodities.

Within the commodities spectrum, Citi's key picks are in palladium, nickel and gold on the bullish side, while the broker remains bearish on both copper and silver.

Changes to Citi's commodity price assumptions mean adjustments to earnings estimates for resource stocks under coverage, though there have been no changes in ratings. Key picks listed in Australia remain BHP and Rio Tinto.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Over the last week ratings downgrades by brokers in the FNArena database have again dominated upgrades to the tune of 11 to six, leaving total Buy ratings at 50.38%.

Among the upgrades was Amcor ((AMC)), where Citi moved to Buy from Hold to account for the expectation of increased M&A activity from the company going forward. Changes to its model to reflect this also saw Citi lift its price target for the stock.

Austar ((AUN)) was also upgraded to Neutral from Underweight by JP Morgan to reflect the ACCC has approved the proposed merger with Foxtel. The lift in rating reflects the removal of previous concerns with respect to the deal being allowed to proceed. At the same time UBS downgraded its rating on Austar to Hold from Buy, this on valuation grounds as the ACCC approval drove the share price to the broker's target price.

While David Jones ((DJS)) was hit with a couple of downgrades post its interim result last month, BA Merrill Lynch now sees enough value to upgrade to a Neutral rating from Sell. The call is strictly a value play, the broker noting the David Jones share price has underperformed the market by almost 40% over the past year.

Another valuation based upgrade has seen UBS lift its rating on Fleetwood ((FWD)) to Buy from Hold, this given a weak share price since the group's interim result earlier this year. A shortage of resource sector accommodation should keep the company in focus in UBS's view, while the attractive dividend is also expected to support the share price.

Strong leverage to iron ore prices and the fact the Karara project is on track to meet expectations has seen JP Morgan move to an Overweight rating on Gindalbie ((GBG)) from Neutral previously, the upgrade supported by the current 20% discount to net present value.

Another upgrade in the mining sector involved PanAust ((PNA)), where Credit Suisse has moved to Outperform from Neutral post a solid quarterly report. Both the Phu Kham expansion and the development of Ban Houayxai project are on track, while higher grades meant lower costs in the March quarter. Valuation has also improved given recent share price weakness.

ASX ((ASX)) was among the downgrades this week as Credit Suisse moved to an Underperform rating from Neutral previously. The downgrade reflects current weak trading conditions, a trend the broker suggests has little chance of any significant turnaround shorter-term.

Credit Suisse also downgraded Coca-Cola Amatil ((CCL)) to Underperform from Neutral, this a simple valuation call given recent solid share price performance. The broker has made no changes to earnings forecasts or price target.

RBS Australia has moved to a Sell rating on Echo Entertainment ((EGP)) from Hold previously, this given the potential for some negative consequences from the Star redevelopment to emerge in coming years. The broker is also uncertain as to the benefit of Crown's ((CWN)) interest in the company.

A review of its model has prompted Macquarie to downgrade Gloucester Coal ((GCL)) to Sell from Neutral previously, while Deutsche Bank has downgraded Investa Office ((IOF)) to Hold from Buy as FY13 earnings are now considered priced in.

BA-ML has downgraded Lend Lease ((LLC)) to Sell from Hold, the broker arguing the market has become too carried away with the stock of late to the extent of overlooking a poor acquisition track record and little news on potential buyers of the Barangaroo project. Cuts to forecasts leave the broker well below consensus with its estimates.

PMI Gold ((PVM)) was downgraded by JP Morgan to Neutral from Outperform. While resource estimates have been increased, grades have been lowered. This is seen as having a potential ongoing impact on production levels.

JP Morgan also lowered its rating on Seven Group Holdings ((SVW)) on valuation grounds, as while the Bucyrus deal is expected to be earnings accretive, the stock appears fully priced at current levels. Others in the market have adjusted earnings forecasts and price targets to account for the acquisition.

Sandfire Resources ((SFR)) delivered a solid quarterly report but given subdued expectations for copper prices UBS has downgraded to a Hold rating, while Citi downgraded Super Retail ((SUL)) to Hold from Buy following share price gains of around 40% so far this year.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	AMCOR LIMITED	Neutral	Buy	Citi
2	AUSTAR UNITED COMMUNICATIONS LIMITED	Sell	Neutral	JP Morgan
3	DAVID JONES LIMITED	Sell	Neutral	BA-Merrill Lynch
4	FLEETWOOD CORPORATION LIMITED	Neutral	Buy	UBS
5	GINDALBIE METALS LTD	Neutral	Buy	JP Morgan
6	PANAUST LIMITED	Buy	Buy	Credit Suisse
Downgrade
7	ASX LIMITED	Neutral	Sell	Credit Suisse
8	AUSTAR UNITED COMMUNICATIONS LIMITED	Buy	Neutral	UBS
9	COCA-COLA AMATIL LIMITED	Neutral	Sell	Credit Suisse
10	ECHO ENTERTAINMENT GROUP LIMITED	Neutral	Sell	RBS Australia
11	GLOUCESTER COAL LTD	Neutral	Sell	Macquarie
12	INVESTA OFFICE FUND	Buy	Neutral	Deutsche Bank
13	LEND LEASE CORPORATION LIMITED	Neutral	Sell	BA-Merrill Lynch
14	PMI GOLD CORPORATION	Buy	Neutral	JP Morgan
15	SANDFIRE RESOURCES NL	Buy	Neutral	UBS
16	SEVEN GROUP HOLDINGS LIMITED	Buy	Neutral	JP Morgan
17	SUPER RETAIL GROUP LIMITED	Buy	Neutral	Citi

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	GBG	83.0%	100.0%	17.0%	6
2	DJS	- 63.0%	- 50.0%	13.0%	8
3	AMC	50.0%	63.0%	13.0%	8
4	VAH	40.0%	50.0%	10.0%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	SVW	75.0%	50.0%	- 25.0%	4
2	LLC	86.0%	71.0%	- 15.0%	7
3	SUL	71.0%	57.0%	- 14.0%	7
4	ASX	43.0%	29.0%	- 14.0%	7
5	IOF	71.0%	57.0%	- 14.0%	7
6	EGP	63.0%	50.0%	- 13.0%	8
7	CCL	50.0%	38.0%	- 12.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	AMC	7.734	7.949	2.78%	8
2	GBG	0.957	0.977	2.09%	6
3	EGP	4.498	4.523	0.56%	8
4	SVW	10.925	10.943	0.16%	4
5	IOF	0.690	0.691	0.14%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	LLC	9.404	9.227	- 1.88%	7
2	VAH	0.478	0.473	- 1.05%	6
3	ASX	33.014	32.943	- 0.22%	7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	VAH	2.940	3.033	3.16%	6
2	OSH	11.840	12.191	2.96%	8
3	QBE	137.164	139.356	1.60%	8
4	EGP	20.675	20.875	0.97%	8
5	WPL	223.185	225.328	0.96%	8
6	AWE	3.371	3.400	0.86%	7
7	CWN	55.513	55.850	0.61%	8
8	PNA	34.762	34.942	0.52%	8
9	ROC	4.577	4.598	0.46%	5
10	PRG	30.386	30.514	0.42%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GBG	1.343	0.800	- 40.43%	6
2	SVW	87.780	80.040	- 8.82%	4
3	HZN	1.193	1.119	- 6.20%	4
4	ILU	241.900	227.063	- 6.13%	8
5	TAP	3.300	3.100	- 6.06%	4
6	CTX	128.333	121.000	- 5.71%	6
7	GWA	16.083	15.200	- 5.49%	6
8	AIO	26.175	25.663	- 1.96%	8
9	BCI	49.567	48.767	- 1.61%	3
10	BLD	21.813	21.488	- 1.49%	8

Technical limitations

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The Short Report

By Chris Shaw

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

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

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

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

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

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

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

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

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

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

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

Top 20 Largest Short Positions

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

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

IMPORTANT INFORMATION ABOUT THIS REPORT

Technical limitations

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Weekly Broker Wrap: Getting Better, With Ongoing Headwinds

By Chris Shaw

Global equity markets have risen by nearly 20% over the past four months, UBS attributing the gains to a combination of positive developments to the economic backdrop and some relief the European debt crisis has not worsened.

While the improvements are encouraging UBS continues to see headwinds to growth and returns, enough to warrant the continuation of a balanced investment approach. As cyclical earnings growth slows, and UBS expects earnings growth in the low single digit range this year, yield and valuation will become more meaningful as drivers of total returns.

In defining quality, UBS looks for strong returns on capital, the appropriate use of leverage, strength and sustainability of a company's earnings, strong dividend policies and valuation.

Among Australian stocks under coverage by UBS, only CSL ((CSL)) and BHP Billiton ((BHP)) make the broker's global equity strategy high quality stock list. UBS rates BHP as a Buy and CSL as Neutral, having downgraded from a Buy this week on valuation grounds.

Having assessed the outlook for Australian equities relative to bonds, Goldman Sachs argues equity prices are currently discounting unrealistically low growth rates into the future, valuations remain attractive across equities as determined by a number of valuation metrics and annualised four-year returns are currently cycling the worst period for equities since the early to mid 1970s.

This follows an extended period of outperformance by Australian bonds, a trend that has been consistent with other markets around the world. This has meant the bond yield to equities earnings yield has moved to an extreme level.

This leads Goldman Sachs to suggest the prospects for future returns in equities relative to bonds are as good as they have been for many years (echoing similar sentiment as expressed by colleagues in Europe). Favoured stocks are those with low earnings volatility given strong operational strategies. Goldman Sachs also recommends investors increase their US dollar exposure across portfolios.

Key picks in terms of solid earnings profiles are Wesfarmers ((WES)), Brambles ((BXB)), News Corporation ((NWS)) and CSL. Among mining stocks preferred exposure is companies exposed to increases in volumes and those with low risk LNG expansion opportunities. For Goldman Sachs these include Orica ((ORI)), Asciano ((AIO)), Oil Search ((OSH)), Woodside ((WPL)) and WorleyParsons ((WOR)).

Among the deep-value plays Goldman Sachs suggest cyclical stocks offer the greatest upside leverage to improving markets. In this category the broker's key picks are Qantas ((QAN)), Lend Lease ((LLC)), Suncorp ((SUN)) and OneSteel ((OST)).

Goldman Sachs continues to favour banks over resources at present, this reflecting the increasing risk profile for resource stocks as earnings growth drivers move from price to volumes. Preferred major bank exposures for Goldman Sachs are National Australia Bank ((NAB)) and ANZ Banking Group ((ANZ).

In the view of JP Morgan, the US GDP story is starting to wane in terms of being a positive story for equity markets as the good news is now well known and fiscal policy continues to limit the potential for upside surprises.

At the same time, JP Morgan's view is investors should not assume US corporate returns offer further upside, especially given corporate margins are already quite high. This implies US exposure in an Australian portfolio should be more selective going forward, especially given the still strong Australian dollar (even despite last week's sell-off).

JP Morgan suggests investors focus on companies that stand to gain in profit terms from an improvement in US activity and where this is not priced into the stock at present. Examples of this scenario include Sims Metal ((SGM)), Aristocrat Leisure ((ALL) and Computershare ((CPU)).

At the other end of the spectrum, JP Morgan suggests a cautious view on James Hardie ((JHX)), as despite the recovery potential of the US housing market the broker sees risks from cost and capital intensity increases and higher levels of competition going forward.

JP Morgan has Overweight ratings on Sims, Aristocrat and Computershare and rates James Hardie as Underweight, these ratings are equivalents respectively of "Buy" and "Sell".

As part of an update on the Small Cap end of the market, Credit Suisse listed its top five picks as rated by expected total shareholder return. The top five are Alliance Aviation ((AQZ)), Mermaid Marine ((MRM)), SAI Global ((SAI)), Carsales.com ((CRZ)) and Flexigroup ((FXL)).

Oroton ((ORL)) has been rated a Buy but Credit Suisse recently downgraded to a Neutral rating on the back of share price outperformance. While a strong brand and management should deliver superior earnings and returns, the stock now appears fair value in the broker's view. The analysts do advise investors should look to buy into dips as the good news story is likely to continue.

Citi notes Australian LNG exports are expected to increase from around 20 million tonnes per year last year to more than 80 million tonnes annually by 2018 as measured by approved projects only. This will make Australia one of the world's major LNG exporters.

Citi estimates the direct contribution of approved LNG capex to GDP growth in the first four years of this decade at around two percentage points or 0.5% per year, but could add as much as 3.5 percentage points in 2015-2019. This equates to around 20% of economic growth over these five years.

Capex and exports associated with LNG projects will put a floor under Australia's economic outlook according to Citi, increasing the likelihood the 20-year expansion of the economy can continue through the end of the decade.

PNG projects shifting from the capex phase to the export phase should be reflected in faster productivity growth in the mining and energy sectors, which should benefit the economy overall. As Citi suggests, if other sectors can also lift their productivity in coming years, the impact of any prospective loss of national income as commodity prices and the terms of trade normalise can be moderated.

Assessing the market overall, Deutsche Bank notes the ASX200 index is 10% lower than its level both one year and two years ago. Fortunately for investors looking to re-enter, further gains are expected this year. Deutsche is forecasting a year end level for the index of 4,700.

This is despite earnings still being under pressure, which is not a major issues in Deutsche's view. The reason is a lack of earnings momentum hasn't impacted on equity markets globally, as gains over the past six months have come entirely from PE re-ratings as forward earnings have fallen.

As well, Deutsche notes equity market rallies driven by PE re-ratings have been the historical norm for Australia, as in 1993, 2003 and 2009 a rising earnings multiple has delivered 75% of the market gains in the first six months of the rally. In the resource sector this impact is even more pronounced as a rising multiple has delivered around 95% of the gains over the first six months.

The underperformance in Australia of late can likely be explained by a lack of conviction earnings will recover anytime soon in Deutsche's view. This negative view is likely overstating the case, as Deutsche notes industrial earnings have been impacted by factors such as natural disasters and falling financial markets, which are not permanent factors.

As well, Deutsche notes a range of indicators suggest Chinese and global economies should accelerate in coming months, which should see commodity prices edge higher. This would be a further boost for Australian equities.

With earnings multiples across the market being compressed, Deutsche suggests the market overall is on the cheap side, which means it won't require the cheapest sectors to do all the work in terms of lifting the index.

Given an optimistic view of the market outlook and applying this to its model portfolio, Deutsche Bank is most overweight the Energy, Mining and Contractors sectors, while underweight positions are largest in the Telcos, property and food retailing sectors.

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The Short Report

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By Chris Shaw

The Australian market saw some significant shifts in short positions in the week from March 20, the moves reflecting both increases and decreases in total positions.

Among the increases for the week, the largest was in Carsales.com ((CRZ)), where total positions increased to 10.29% from 6.43%. The increase came after Carsales.com acquired a stake in Torpedo7 in New Zealand, a business outside the traditional focus on classifieds businesses. The other issue for Carsales.com is emerging competition from the News Limited supported Carsguide joint venture.

The next largest increase in shorts for the week was in Bathurst Resources ((BTU)), where positions increased to 4.15% from 1.51% the week before. The increase came post a profit result that disappointed some in the market and included news of some project delays.

Shorts in Iluka ((ILU)) rose to 6.99% from 4.58% in the week as the market remains concerned about the outlook for the Chinese property market. If the market was to weaken significantly the fear is zircon demand would also fall, potentially impacting on earnings for Iluka.

Among the falls in short positions for the week from March 20 the largest was in Beach Energy ((BPT)), where positions declined to 0.74% from 5.09% previously. The company has been cum a capital raising for some time and this has now come to fruition, as Beach has moved to raise $335 million to fund capex at the Cooper Basin in coming years.

The next largest fall in shorts was in Billabong ((BBG), where positions declined to 8.8% from 11.13% previously. While an approach from TPG was rejected last month private equity continues to see value in the stock around current levels.

The fall in shorts for Billabong was not the only significant change in positions for consumer discretionary stocks, as shorts also declined for the week in The Reject Shop ((TRS)). Short positions here now stand at 5.89% against 7.49% previously, though the fall doesn't change the fact consumer discretionary stocks continue to dominate the top short positions on the Australian market.

Among the top 20 short positions are a number of companies exposed to consumer spending, including JB Hi-Fi ((JBH)) at more than 22%, Myer ((MYR)) at more than 13%, David Jones ((DJS)) at more than 11% and Flight Centre ((FLT)) at more than 9%.

With respect to monthly changes from February 27, Echo Entertainment ((EGP)) posted the highest increase as positions rose to 7.39% from 0.95% previously, while the trend of adjusting positions in Wesfarmers ((WESN)) partly protected shares has also continued, shorts rising over the month to 2.67% from 0.07% previously.

Shorts in Rialto Energy ((RIA)) declined over the month to 0.37% from 4.96%, while OneSteel's ((OST)) shorts fell to 2.53% from 5.84% following an update that highlighted some growth potential in the group's iron ore business. (Since management has indicated it is keen on developing the non-steel divisions the stock's nickname in the market has been changed to "NoneSteel").

For Goodman Fielder ((GFF)) the move by Wilmar to take a stake has caused investors to adjust positions, the result being shorts have fallen over the month to 1.86% from 4.82%, while shorts in both Linc Energy ((LNC)) and Alkane Exploration ((ALK)) also declined over the month by better than two percentage points.

Elsewhere, RBS Australia notes short positions in Macquarie Bank ((MQG)) have risen over the past few weeks and now stand at 2.3%. Last week RBS downgraded Macquarie to a Hold rating on valuation grounds, supported by downside risks to current earnings projections from difficult market conditions.

Today, in what may prove yet another case of perfect timing (at least from FNArena's point of view), RBS analysts released yet another research report suggesting shorts data can be successfully used to predict underperformance for equities on a twelve month horizon. Investors take note?

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21960959	98850643	22.22
2	MYR	76041030	583384551	13.02
3	ISO	719559	5703165	12.62
4	DJS	60984596	524940325	11.60
5	FXJ	255585182	2351955725	10.88
6	COH	5864093	56929432	10.30
7	CRZ	24099701	233674223	10.29
8	LYC	166380039	1714496913	9.72
9	FLT	9426545	100017679	9.43
10	BBG	22529271	255102103	8.80
11	EGP	50942948	688019737	7.39
12	HVN	76344159	1062316784	7.18
13	ILU	29281544	418700517	6.99
14	WTF	14481817	211736244	6.82
15	GNS	55046810	848401559	6.48
16	TRS	1533455	26071170	5.89
17	RIO	25145004	435758720	5.74
18	TEN	59808683	1045236720	5.71
19	PPT	2291863	41980678	5.47
20	CSR	26905803	506000315	5.29

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

IMPORTANT INFORMATION ABOUT THIS REPORT

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.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

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

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

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

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

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

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

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

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

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

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

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

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

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

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

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

Recommendation

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Target Price

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Earning Forecast

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Technical limitations

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The Short Report

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By Chris Shaw

When David Jones ((DJS)) reported interim earnings last week and the result included weak guidance for the full year the market was prepared, as short positions in the stock in the week from March 13 had risen to 11.67% from 10.07% previously.

The market's caution with respect to retail stocks didn't stop there, as in the same week shorts in Myer ((MYR)) rose to 12.25% from 10.02%, in The Reject Shop ((TRS)) to 7.49% from 6.04% and in Billabong ((BBG)) to 11.13% from 10.29% the week before.

Retail plays and stocks exposed to consumer spending continue to dominate in terms of the largest short positions on the ASX. Along with those companies recording significant increases for the week from March 13, the top 20 largest short positions include JB Hi-FI ((JBH)) at more than 20%, Flight Centre ((FLT)), Harvey Norman ((HVN)) and Wofit.com ((WTF)).

Also in the top 20 was Beach Energy ((BPT)), where shorts increased to 5.09% from less than 1% in a significant daily change. The increase came despite Beach the week before indicating production at a project in Egypt would commence earlier than the market had expected.

A significant increase in short positions for the week from March 13 was also seen in Southern Cross Media ((SXL)). Shorts here rose to 1.95% from less than 0.4% previously, this despite no major news from the company since what had been a generally well received interim earnings result in February.

With regards to declining short positions, the most significant in the week from March 13 was in Rialto Energy ((RIA)). Short positions for the company declined to just 0.16% from 4.5% the week before, this occurring prior to the company updating both on exploration drilling and the receipt of US$20 million in funds via a private placement to a group headed by International Finance Corporation.

The only other falls in short positions of more than one percentage point were in SingTel ((SGT)) and the partly protected shares of Wesfarmers ((WESN)). Shorts in Singtel have fallen to 5.81%, while for WESN short positions now stand at 1.59%. This is still well up from total short positions of around 0.05% in late January.

Among the monthly changes from February 20, shorts in Echo Entertainment Group ((EGP)) rose the most, increasing to 7.51% from 0.89% the month prior. This likely reflects some doubts in the market in relation to the stock being a corporate target for Crown ((CWN)) in particular.

Aside from Rialto Energy ((RIA)) the most substantial fall in monthly short positions from February 20 was in OneSteel ((OST)), where positioned declined to 2.53% from nearly 6% the month before. An equity raising by the company remains a possibility but a recent briefing left brokers with the view there is some upside from the group's iron ore operations.

Elsewhere, RBS Australia notes short positions have continued to increase in both Metcash ((MTS)) and Alumina Ltd ((AWC)), to 4.8% and 2.6% respectively. With respect to Metcash, RBS notes poor recent trading from the Franklins business is impacting on valuation, while the weak alumina market and a strong Australian dollar continue to pressure margins for Alumina.

Unlike a number of internet business peers, Seek ((SEK)) has seen short positions trend lower in recent weeks, declining to 4.51% from 6.66% in the month from February 20. Such a decline makes sense in the view of RBS, as Seek enjoys a dominant market position that should allow further yield growth and the stock is offering better value than its online classified peers at current levels.

Traders and investors should note past analysis suggests that increasing and decreasing short positions can be associated with underperformance and outperformance in the following weeks, all else being equal.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	20632949	98850643	20.86
2	MYR	71503784	583384551	12.25
3	DJS	61361240	524940325	11.67
4	BBG	28482505	255102103	11.13
5	ISO	634909	5703165	11.13
6	FXJ	257854099	2351955725	11.00
7	FLT	9150409	100017679	9.14
8	LYC	152970216	1714496913	8.94
9	COH	5026954	56929432	8.81
10	EGP	51722091	688019737	7.51
11	TRS	1947770	26071170	7.49
12	GNS	63258152	848401559	7.44
13	HVN	78149190	1062316784	7.36
14	WTF	14751981	211736244	6.96
15	CRZ	15039186	233674223	6.43
16	TEN	62463217	1045236720	5.97
17	SGT	10331967	176974336	5.81
18	PPT	2413030	41980678	5.77
19	CSR	26711472	506000315	5.28
20	BPT	56421021	1113497051	5.09

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

IMPORTANT INFORMATION ABOUT THIS REPORT

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.