Tag Archives: Health Care and Biotech

The Short Report

By Chris Shaw

The largest changes in short positions for the week from July 10 involved companies both in and out of the top 20 largest short positions, with a fairly even spread between significant increases and decreases in total positions.

Among the increases the two largest were in Henderson Group ((HGG) and Yancoal new shares ((YALN)). Shorts for Henderson rose to 3.61% from 0.83% the week prior, which followed at least one cut to earnings forecasts in the market as lower performance fees are being factored into the outlook for the company.

In Yancoal, short positions in the new shares increased to 3.62% from 0.85%, this as the market positions itself in the newly-listed coal play that was created by the merger of Yancoal of China and Australia's Gloucester Coal. While growth options appear reasonable, the major issue for the market appears to be high debt levels and a small free float of shares.

While the ramp-up of the Boseto project continues, earnings forecasts for Discovery Metals ((DML)) were cut modestly after the group's June quarter production report. For the week from July 10 short positions in the stock rose to 5.25% from 3.63%, likely reflecting some concerns with respect to the ramp-up process.

With respect to falls in short positions, the largest was in Mesoblast ((MSB)) where total positions declined to 3.65% from 6.46%. The latest news of note was some positives from a competitor's stem cell tests for heart attack victims, which is thought to be a positive for Mesoblast's own cardiac therapy.

In Iluka ((ILU)), which is one of the top 20 short positions in the market, the week from July 10 saw total shorts fall to 7.96% from 9.94%. The change in positions came after the company's quarterly production report, which was seen as broadly in line with expectations given it came just a few days after sales guidance for the year had been lowered.

Companies making up the top 20 short positions continue to be centred on certain sectors, with consumer discretionary plays leading the way. Among the largest positions are JB Hi-Fi ((JBH)), Harvey Norman ((HVN)), Flight Centre ((FLT)), Billabong ((BBG)), Carsales.com ((CRZ)) and Myer ((MYR)).

Building materials and associated stocks are also well represented given CSR ((CSR)), Boral ((BLD)) and GWA ((GWA)) all make the top 20, while resource stocks in the list include Paladin ((PDN)), Iluka and Alumina Ltd ((AWC)).

Shorts in St Barbara ((SBM)) fell to 2.51% from 3.75% leading into the company's quarterly production report, which was helped by better volumes and gold grades. Operational improvements at the Allied Gold assets remain an key variable for investors in St Barbara.

Dexus ((DXS)) enjoyed a fall in shorts to 0.27% from 1.27% the week before, this leading into next month's profit result where any strategic review announcements are likely to be of interest to the market.

In terms of monthly changes in positions for the period from June 15, it was Henderson Group and Discovery Metals that again led the way with increases of just over three percentage points and two percentage points respectively.

The next largest increases were in Alumina Ltd, where positions rose to 6.31% from 4.49% in the month and in Flight Centre, where positions have increased to 13.68% from 11.93% in the same period.

The discretionary retailers are among those where short positions have fallen the most for the month from June 15, with Myer's positions declining by more than four percentage points, David Jones ((DJS)) seeing a better than three percentage point decline and JB Hi-Fi's positions declining by just over 2.5 percentage points.

Shorts in Mesoblast and in Echo Entertainment ((EGP)) also declined by more than 2.5 percentage points over the month.

One increase in short positions over the past month of interest to RBS Australia has been in Nufarm ((NUF)), where positions have increased from less than 2.2% to more than 2.5%. In the view of RBS the stock needs earnings upgrades to deliver further share price gains, something considered unlikely given a tough operational environment at present. RBS Australia rates Nufarm a Hold at present, while the FNArena database shows one Buy rating, three Hold recommendations and three Sell ratings.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	20487424	98850643	20.73
2	FLT	13684263	100047288	13.68
3	FXJ	296687617	2351955725	12.61
4	CRZ	26390913	233689223	11.29
5	LYC	183100463	1715029131	10.68
6	COH	5693525	56929432	10.00
7	BBG	39755323	410969573	9.67
8	HVN	100515552	1062316784	9.46
9	GNS	75429555	848401559	8.89
10	CSR	44148544	506000315	8.73
11	PDN	71314995	835645290	8.53
12	ILU	33334008	418700517	7.96
13	MYR	46393558	583384551	7.95
14	LNC	39399260	504487631	7.81
15	WTF	15613320	211736244	7.37
16	TRS	1876854	26071170	7.20
17	DJS	36703400	528655600	6.94
18	AWC	153868681	2440196187	6.31
19	BLD	45219326	758572140	5.96
20	GWA	17781381	302005514	5.89

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

IMPORTANT INFORMATION ABOUT THIS REPORT

The above information is sourced from daily reports published by the Australian Investment & Securities Commission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to make it very clear that immediate assumptions cannot be drawn from the numbers alone.

It is wrong to assume that short percentages published by ASIC simply imply negative market positions held by fund managers or others looking to profit from a fall in respective share prices. While all or part of certain short percentages may indeed imply such, there are also a myriad of other reasons why a short position might be held which does not render that position “naked” given offsetting positions held elsewhere. Whatever balance of percentages truly is a “short” position would suggest there are negative views on a stock held by some in the market and also would suggest that were the news flow on that stock to turn suddenly positive, “short covering” may spark a short, sharp rally in that share price. However short positions held as an offset against another position may prove merely benign.

Often large short positions can be attributable to a listed hybrid security on the same stock where traders look to “strip out” the option value of the hybrid with offsetting listed option and stock positions. Short positions may form part of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade which seeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Short positions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwriting services or other similar services. Short positions will occasionally need to be adopted by market makers in listed equity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position may be held in a stock but can be considered benign in share price direction terms due to offsets.

Market makers in stock and stock index options will also hedge their portfolios using short positions where necessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, or perhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentages can be misleading, an options market maker may hold a short position below the implied delta hedge level and that actually implies a “long” position in that stock.

Another popular trading strategy is that of “pairs trading” in which one stock is held short against a long position in another stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “net neutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw 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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Weekly Broker Wrap: Oz Equities And Scarce Global Grain

By Andrew Nelson

Last week a few more Australian analysts switched their focus to the intensifying drought situation in the US and its impact on global grain crop supplies. Global mining capex was also examined as well as domestic pharmaceutical distributors, with a few strategic ideas for an investor's portfolio.

The continuation of extreme drought conditions in America’s grain belt is beginning to devastate US agricultural production prospects, with crops now withering in the field. In response, global grain prices have soared by more than 50% since June as global supplies contract.

The situation has now seen the Commonwealth Bank sharply raise its global grain price forecasts, with the bank noting higher prices are needed in order to ration demand. CBA Agri Commodities analyst Luke Mathews notes US corn prices have spiked 60% since June, posting record highs along with US oilseed prices late last week.

CBA notes production estimates for this year’s US corn crop have already been cut to 12.97bn bushels by the USDA, below the previous record low estimate of a 14.8bn bushel crop. Matthews believes yield estimates will be cut even further given the ongoing drought and expects US corn output of 12.22bn bushels, which is 6% below current USDA estimates.

Thus, the US corn crop has become a global issue, as the nation contributes 38% to world output, with the US also responsible for nearly half of global corn exports. As evidence, Matthews cites NSW wheat futures on the ASX, which have jumped $70/t to $310/t over the past month, with Matthews noting that soaring grain prices have begun to stir up some serious concerns about global food price inflation. Simply put, a US corn shortage means a global grain shortage.

Making matters worse are production issues in other parts of the world. CBA notes South American corn and soybean crop production has been cut due to poor conditions early this year , while global wheat production for 2012/13 has fallen by 37 million tonnes year-on-year, mostly because of adverse growing conditions.

Because of the crop shortages, CBA reckons another 6.4 million tonnes of US corn is going to have to be rationed in the US livestock, ethanol and export markets. Matthews points out this is on top of the 26.6 million tonnes of rationing that the USDA has already forecast in its July report. Yet even with significant demand rationing, CBA expects US grain supplies will fall to record low levels in 2012/13. The run in corn prices has in turn pushed US wheat prices 50% higher over the same period.

As a result of all of this, CBA has raised its global grain price forecasts. ASX NSW wheat futures are now forecast to average $290/t in H1 2012 and $270/t in H2 2013, before falling below $250/t by December 2013 on an expected improvement in global grain supplies in H2 2013.

Analysts at UBS have taken a look at the US drought from another perspective, the impact it is having and will likely continue to have on crop insurers. The broker notes that things are about as bad now as they were in 1988, when 50% of US corn was classified as poor. Right now, only 38% of corn is classified in poor or very poor condition, but this is expected to get worse.

While UBS sees a pretty good chance for some very big crop losses in the US, given the structure of the US crop insurance program, which includes government reinsurance, it doesn’t expects to see the losses stemming from the drought as being significant for US crop insurers, of which Australia's QBE ((QBE)) is the third largest.

Under the broker’s worst case scenario, the ongoing US drought would reduce QBE’s FY12 EPS by up to 5% on a stand-alone basis. However, the broker believes the company possesses adequate headroom within its current large loss allowances to absorb this. Thus at this point, there is no impact on UBS’s forecasts.

That’s all on the US drought, for now.

Deutsche Bank sees some signs of a possible rebound rally for Australian equities building towards the end of 2012. The broker notes a few factors to support its view:

It believes economic surprise indices are close to a trough, meaning the possibility of less drag on risk assets; leading indicators for China and the US are turning more positive, which could support faster growth towards year end.

However, the broker also sees a few things that could stymie this late year upswing like the fact equities have held up fairly well so far given the circumstances mean they are vulnerable to negative data flow. European issues could also remain a drag, depressing markets that otherwise may have begun to reverse.

As far as industrial stocks go, the broker thinks EPS growth forecasts are probably still too high, although it still sees scope for modest earnings growth as the rate of writedowns slows. Deutsche notes cyclical stocks are around 14% cheaper than defensives, but with reporting season likely to disappoint and to see FY13 numbers trimmed, the broker predicts cyclicals may stay cheap a little while longer.

Falling commodity prices have kept a lid on the share prices of miners for the most part, but with China’s two most-forward looking lead indicators pointing to a solid pick-up in growth by year-end, the broker sees an improving chance of a substantial rally in resource stocks. This is especially so given domestic investors are very overweight banks right now, which could see a run to cheaper resource stocks later in 2012.

The local equities outlook from Citi is similarly positive, with the current spate of policy easing underway in China likely to assist FY13 earnings growth in Australia, providing at least the potential for the ASX/200 to move up to Citi’s revised forecast of 4450 by end year. Citi’s previous forecast was at 4750, but the broker expects troubles in Europe to flare up again this year, so market volatility will probably continue.

Here’s the rub. If China doesn’t soon change course and the landing is much harder than expected, Citi thinks there’s a chance that we’ll see a major recession in Australia. The broker envisions a dominos scenario, where a falling China asks questions about some vulnerable areas like housing, the banking sector, etc.

Another issue facing Australian markets is that it is seen by many as being ex growth, given healthy employments levels and the benefits from high commodity prices. And while the broker agrees to some extent, it sees good chance for at least some moderate levels of growth.

Citi has also conducted a survey among global mining and construction firms and this has raised some red flags. The broker notes that around 25% of participants are considering lowering future capex budgets. Citi is now forecasting a 10% decline in mining capex in 2013, with construction capex to remain flat for the next 12 months.

Our last topic concerns Australian pharmaceutical distributors. In Goldman Sach’s view they could be in for a bit of trouble given the Pharmaceutical Benefits Scheme for statin drugs could be cut by up to 25% from December 2012. If it were to occur, the broker estimates PBS outlays could decline by about 2.5%, with the price cuts likely to reduce pharmacist profits.

For Australian Pharmaceutical Industries ((AP)) and Sigma Pharmaceuticals ((SIP)) a reduction in the value of Crestor and the generic alternatives to Lipitor would be negative, although cuts to Lipitor would have no impact given Pfizer distributes it directly to pharmacists. Small EPS cuts ensure for both stocks.

Deutsche also weighed in on the topic, agreeing a cut to Lipitor pricing will have limited impact on the wholesalers, while Crestor was already expected to face generic competition later in the year, thus a cut in some ways was already figured into the broker’s expectations. Yet while the broker sees limited direct impact on Sigma and API, it does note the pressure on other parts of the value chain will eventually feed through to more pressure on wholesalers.

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The Short Report

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By Chris Shaw

Increases in short positions for Australian stocks were far more pronounced than decreases in the week from July 3, as while only two companies saw positions decline by more than one percentage point there were 10 increases in excess of 1.5 percentage points.

The largest increase in shorts was in Gunns ((GNS)), where positions rose to 8.9% from 3.6%. The increase came prior to news the company was disputing an amended tax assessment and before the sale of the Portland Woodchip Export facility.

Shorts in CSR ((CSR)) also rose for the week to 9.08% from 6.19%, the changes coming before the group's AGM, where earnings guidance was revised lower. The company is seeing reduced volumes in building products and aluminium earnings are also under pressure, while at least one broker has expressed concerns about balance sheet pressures for CSR given current tough market conditions.

Aluminium market issues have extended to Alumina ((AWC)), where brokers have been cutting earnings forecasts and price targets to reflect market weakness. The market has picked up on this, as shorts in Alumina increased in the week from July 3 to 7.1% from 4.59% previously.

Short positions in Alesco ((ALS)) have also risen, increasing to 2.39% from 0.13% the week before as the market continues to adopt a wait an see approach to the bid for the company from DuluxGroup ((DLX)).

Primary Health Care ((PRY)) experienced a jump in shorts from 0.87% to 3.08% for the week, the news during the period being the company increasing its stake in Vision Eye Institute in an attempt to capture additional opthalmic revenues that the company can't otherwise capture.

While there has been little in the way of announcements from Mortgage Choice ((MOC)) of late short positions in the company rose for the week to 1.86% from 0.01%, which may be tied into signs of further softening in the residential housing market.

Shorts in Dart Energy ((DTE)) rose to just over 4.6% from 2.77% previously in the week as the company updated on Dart International, where a public offering in Singapore had previously been deferred to later this year.

Both Downer EDI ((DOW)) and Nufarm ((NUF)) experienced an increase in short positions of 1.56 percentage points for the week. For Downer EDI the change in positions came after news the group would be re-locating its locomotive manufacturing facilities, while for Nufarm the change came despite no specific announcements from the company.

The largest fall in short positions in the week from July 3 was in Metcash ((MTS)), where total positions declined to 4.51% from 6.00%. The change came on the back of a full year earnings result that largely met expectations, while positions were also adjusted to reflect a capital raising announced with the profit result.

Cabcharge ((CAB)) enjoyed a fall in shorts to 1.2% from 2.38% previously, this coming despite recent news the Reserve Bank of Australia is considering looking at reforming the current surcharging system for card transactions.

With most of the significant changes in short positions occurring outside the top 20 positions this list remains largely unchanged, with discretionary retail exposures continuing to dominate. JB Hi-Fi ((JBH)), Carsales.com ((CRZ)), Harvey Norman ((HVN)) and Flight Centre ((FLT)) remain among the largest positions, along with the likes of Fairfax ((FXJ)), Cochlear ((COH)), Iluka ((ILU)), Paladin ((PDN)) and CSR.

Among monthly changes to positions for the period from June 8 the largest increase for a stock was experienced by Alumina, while the retailers including Myer, JB Hi-Fi and David Jones all saw short positions fall by more than three percentage points for the month.

Elsewhere, RBS Australia points out in recent weeks short positions in OZ Minerals ((OZL)) have risen by around 0.5 percentage points to just over 2.0%. Short mine life and acquisition risk continue to impact on the company in the broker's view and are likely to continue to overhang the share price as management looks for a significant transaction to deliver some growth.

RBS also notes an on-market share buyback has been completed, which removes some support for the stock shorter-term. Adding in ongoing cost pressures at the Carrapateena project leaves RBS with the view a re-rating for OZ Minerals is unlikely in coming weeks.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	20604482	98850643	20.84
2	FLT	13422790	100047288	13.42
3	FXJ	296270915	2351955725	12.60
4	CRZ	27003148	233689223	11.56
5	COH	6079087	56929432	10.68
6	LYC	181816905	1715029131	10.60
7	ISO	537351	5103165	10.53
8	ILU	41630980	418700517	9.94
9	HVN	99164903	1062316784	9.33
10	BBG	37888973	410969573	9.22
11	PDN	76443859	835645290	9.15
12	CSR	45952376	506000315	9.08
13	GNS	75476962	848401559	8.90
14	LNC	39758171	504487631	7.88
15	MYR	45595742	583384551	7.82
16	DJS	39663604	528655600	7.50
17	WTF	15133949	211736244	7.15
18	AWC	173253968	2440196187	7.10
19	TRS	1842956	26071170	7.07
20	MSB	18369445	284478361	6.46

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

IMPORTANT INFORMATION ABOUT THIS REPORT

Technical limitations

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has been balanced in terms of changes to ratings by brokers in the FNArena database. Total Buy ratings now stand at 50.12% following 13 ratings upgrades and 14 downgrades.

Citi upgraded both ANZ Banking Group ((ANZ)) and Commonwealth Bank ((CBA)) to Buy ratings from Neutral previously, in both cases attracted to the yields. Price targets have been increased for both stocks.

Beach Energy ((BPT)) enjoyed an upgrade to Buy from Sell by BA Merrill Lynch, as the broker took the view recent share price weakness has been excessive and the market is in fact overly pessimistic about the group's Cooper shale assets. BA-ML also upgraded Brambles ((BXB)) to Buy from Hold as part of a resumption of coverage given the combination of a defensive exposure, balance sheet flexibility and valuation support.

UBS continues to have a bias to leverage over safety with respect to Australian building material stocks and given this the broker has upgraded to a Buy rating on CSR ((CSR)) from Neutral previously. The change follows cuts to forecasts and price target to reflect soft housing numbers and a weak aluminium price.

Credit Suisse doesn't agree leverage is the key attribute for the sector and has downgraded CSR to Sell from Hold post the market update by the company. For Credit Suisse a positive rating simply does not seem justified given there remains downside earnings risk in the current environment.

Changes to commodity price forecasts have prompted Credit Suisse to upgrade Evolution Mining ((EVN)) to Buy from Hold. The upgrade is accompanied by adjustments to earnings estimates but the price target has remained unchanged.

It is a similar story for Western Areas ((WSA)), with Credit Suisse upgrading to a Buy recommendation from Hold previously following changes to commodity price and forex assumptions. Earnings estimates have also been revised, the result being a cut in price target.

As well, Credit Suisse has upgraded Incitec Pivot ((IPL)) to Buy from Hold given potential upside from the broker's view increased ammonium nitrate capacity should be absorbed by the market in coming years.

In contrast, Citi takes the view the earnings downgrade cycle for Incitec Pivot will continue as higher gas prices are increasing costs at the same time as ammonium nitrate volumes are falling. This is enough for Citi to cut its rating to Hold from Buy.

With Lend Lease ((LLC)) securing $2 billion in equity for the Barangaroo project, BA-ML sees far less risk with the project now than had been the case. Some changes to its model have resulted in an increase in price target and BA-ML has upgraded to Neutral from Sell on the stock.

Some contract wins by Matrix Composites and Engineering ((MCE)) have seen JP Morgan lift earnings forecasts and price target for the stock. With the shares now trading around the broker's estimate of fair value, the rating has been upgraded to Hold from Sell.

Factoring in acquisitions has seen UBS adjust its model for Stockland ((SGP)), as the deals should boost growth even without an improvement in market conditions. To reflect this, the rating has been upgraded to Buy from Neutral.

Tough operating conditions have caused RBS Australia to factor in lower growth assumptions for Ansell ((ANN)), which pushes down earnings assumptions and price target. The changes drive a change in rating to Hold from Buy.

RBS has similarly downgraded its rating on Ramsay Health Care ((RHC)) to Sell from Hold, this due to current earnings multiples being seen as unattractive and the stock trading above five-year averages. Changes to forecasts for Iluka ((ILU)) given lower sales forecasts and a deteriorating operating outlook have also prompted RBS to downgrade the stock to Neutral from Buy. Price target has been lowered on cuts to earnings estimates.

Credit Suisse has been active in downgrading ratings as well, cutting BHP Billiton ((BHP)) to Hold from Buy as changes to commodity price expectations have impacted on earnings assumptions. The price target for the stock went south as well. For a similar reason the broker has downgraded its rating on Caltex ((CTX)) to Hold from Buy, while moving to Sell from Hold on Sandfire ((SFR)) and to Hold from Buy on Santos ((STO)).

Domino's Pizza ((DMP)) continues to perform solidly and to reflect this Macquarie has lifted its earnings estimates and price target. At current levels valuation multiples are less attractive, leading the broker to cut its rating to Neutral from Outperform.

Ongoing weakness in European markets in particular and potential cuts to pathology fees may weigh on earnings for Sonic Healthcare ((SHL)) going forward in the view of RBS, which is enough for the broker to downgrade to a Hold rating from Buy.

An increasingly competitive environment is enough for Deutsche Bank to cut its rating on Telecom New Zealand ((TEL)) to Hold from Buy. The change comes after the TelstraClear acquisition by Vodafone, which is seen as evidence of more aggressive action in the market.

Macquarie has cut earnings forecasts and price target for UGL ((UGL)), this reflecting a slowing domestic economy and an associated lag in resource related project work. The changes are enough for the broker to cut its rating to Neutral from Buy.

Changes to price targets have been relatively modest over the week, with the largest increase for Domino's Pizza at just over 4% and the largest cuts around 5% for both Western Areas and BHP.

Transurban ((TCL)) has enjoyed the largest increase in earnings estimates at a little more than 20% on the back of June quarter traffic numbers. Resource companies dominated the cuts to earnings forecasts, with the likes of Iluka, Panoramic ((PAN)), Paladin ((PDN)) and Mount Gibson ((MGX)) seeing forecasts fall by 10-40%.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Suisse,Deutsche<br>Bank,JP<br>Morgan,Macquarie,RBS<br>Australia,UBS&b0=119,106,121,100,82,140,149,132&h0=77,104,81,123,94,89,143,107&s0=40,21,29,4,35,34,10,16" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	AUSTRALIA & NEW ZEALAND BANKING GROUP	Neutral	Buy	Citi
2	BEACH ENERGY LIMITED	Sell	Buy	BA-Merrill Lynch
3	BRAMBLES LIMITED	Neutral	Buy	BA-Merrill Lynch
4	COMMONWEALTH BANK OF AUSTRALIA	Neutral	Buy	Citi
5	CSR LIMITED	Neutral	Buy	UBS
6	EVOLUTION MINING LIMITED	Neutral	Buy	Credit Suisse
7	ILUKA RESOURCES LIMITED	Neutral	Buy	UBS
8	INCITEC PIVOT LIMITED	Neutral	Buy	Credit Suisse
9	LEND LEASE CORPORATION LIMITED	Sell	Neutral	BA-Merrill Lynch
10	MATRIX COMPOSITES & ENGINEERING LIMITED	Sell	Neutral	JP Morgan
11	NEWCREST MINING LIMITED	Neutral	Buy	JP Morgan
12	STOCKLAND	Neutral	Buy	UBS
13	WESTERN AREAS NL	Neutral	Buy	Credit Suisse
Downgrade
14	ANSELL LIMITED	Buy	Neutral	RBS Australia
15	BHP BILLITON LIMITED	Buy	Neutral	Credit Suisse
16	CALTEX AUSTRALIA LIMITED	Buy	Neutral	Credit Suisse
17	COMMONWEALTH BANK OF AUSTRALIA	Buy	Neutral	JP Morgan
18	CSR LIMITED	Neutral	Sell	Credit Suisse
19	Domino's Pizza Enterprises Limited	Buy	Neutral	Macquarie
20	ILUKA RESOURCES LIMITED	Buy	Neutral	RBS Australia
21	INCITEC PIVOT LIMITED	Buy	Neutral	Citi
22	RAMSAY HEALTH CARE LIMITED	Neutral	Sell	RBS Australia
23	SANDFIRE RESOURCES NL	Neutral	Sell	Credit Suisse
24	SANTOS LIMITED	Buy	Neutral	Credit Suisse
25	SONIC HEALTHCARE LIMITED	Buy	Neutral	RBS Australia
26	TELECOM CORPORATION OF NEW ZEALAND LIMITED	Neutral	Neutral	Deutsche Bank
27	UGL LIMITED	Buy	Neutral	Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	BPT	- 20.0%	20.0%	40.0%	5
2	AUT	- 20.0%	17.0%	37.0%	6
3	EVN	67.0%	100.0%	33.0%	3
4	AUB	50.0%	75.0%	25.0%	4
5	WSA	67.0%	83.0%	16.0%	6
6	BXB	71.0%	86.0%	15.0%	7
7	SGP	43.0%	57.0%	14.0%	7
8	NCM	75.0%	88.0%	13.0%	8
9	ANZ	25.0%	38.0%	13.0%	8
10	LLC	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	CRF	67.0%	43.0%	- 24.0%	7
2	DMP	50.0%	33.0%	- 17.0%	6
3	ANN	29.0%	14.0%	- 15.0%	7
4	UGL	86.0%	71.0%	- 15.0%	7
5	SHL	63.0%	50.0%	- 13.0%	8
6	STO	100.0%	88.0%	- 12.0%	8
7	BHP	75.0%	63.0%	- 12.0%	8
8	CQO	- 25.0%	- 33.0%	- 8.0%	3
9	VBA	75.0%	67.0%	- 8.0%	3
10	SFR	17.0%	14.0%	- 3.0%	7

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	DMP	8.332	8.675	4.12%	6
2	AUB	7.148	7.373	3.15%	4
3	VBA	0.440	0.447	1.59%	3
4	SGP	3.479	3.507	0.80%	7
5	LLC	8.926	8.986	0.67%	8
6	ANZ	24.256	24.319	0.26%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	WSA	5.792	5.483	- 5.33%	6
2	BHP	43.865	41.824	- 4.65%	8
3	AUT	3.828	3.738	- 2.35%	6
4	ANN	14.977	14.639	- 2.26%	7
5	NCM	33.200	32.575	- 1.88%	8
6	CQO	3.478	3.420	- 1.67%	3
7	UGL	14.209	14.031	- 1.25%	7
8	BPT	1.376	1.362	- 1.02%	5
9	BXB	7.450	7.386	- 0.86%	7
10	CRF	2.070	2.060	- 0.48%	7

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	TCL	15.271	18.600	21.80%	7
2	BTT	15.500	16.180	4.39%	4
3	LLC	88.938	91.675	3.08%	8
4	WHG	10.400	10.650	2.40%	3
5	EVN	21.400	21.867	2.18%	3
6	FLT	211.713	216.000	2.02%	8
7	TEL	14.937	15.134	1.32%	8
8	CLO	8.100	8.167	0.83%	3
9	DMP	42.767	43.100	0.78%	6
10	NVT	23.714	23.857	0.60%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	ILU	190.488	109.600	- 42.46%	8
2	PAN	9.275	5.350	- 42.32%	3
3	CSR	14.188	10.113	- 28.72%	8
4	PDN	2.260	1.847	- 18.27%	7
5	MGX	35.038	31.575	- 9.88%	8
6	IGO	18.720	16.940	- 9.51%	5
7	RIO	668.322	620.975	- 7.08%	8
8	WSA	31.683	29.550	- 6.73%	6
9	AUT	27.011	25.442	- 5.81%	6
10	OZL	67.338	63.438	- 5.79%	8

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Weekly Broker Wrap: Retail, China And A US Drought

By Andrew Nelson

It is again time for us to take our pick of a few important topics that local broker’s covered last week, but with a slight departure this time. Along with a skim of domestic sectors and economic trends, this week we also look at what could be an increasingly important topic, the onset of drought in the US.

Canadian industry newsletter Agriweek reports the proportion of the US experiencing what are deemed exceptional drought conditions by the US Drought Monitor system have reached the highest level in the history of the program. The report notes that almost 20% of the entire land area of the lower 48 states has now been classified as being under extreme or exceptional drought. What’s worse is that 12% is in the exceptional category.

Given the backdrop, last week’s monthly supply-demand report from the US Department of Agriculture was highly anticipated, especially given the deterioration in corn and soybean conditions in the high-production states that were previously holding their own. The report showed that American crops are now far into crop failure territory, with markets sitting on top of a new price plateau.

Corn yield and crop forecasts were cut by more than 10%, although cuts to demand and use forecasts means there will still be a crop carry-over in a season of a major crop disaster. 2012-13 price estimates were also lifted to a level that is hoped will adequately ration demand. Agriweek notes the projected 2012-13 prices add up to corn futures prices pushing past US$7 a bushel.

All up, the latest reports point to increasing supply tightness to near-shortage conditions for 2012-13. Agriweek points out that there is a strong tendency for successive USDA monthly yield estimates to continue to decline for the remainder of the growing season when an early trend to lower figures is established. Thus, prices will have to stay high or rise even higher to bring about the type of demand rationing that now seems required, especially given the chance of even worse conditions.

Back to closer shores, analysts at Morgan Stanley have lowered their outlook for Australian retailers on the back of signs of accelerating deflation last quarter. The broker expects both Woolworths ((WOW)) and Coles ((WES)) to report weaker 4Q like for like sales growth.

Woolworths boasted prices that were around 11% higher than Coles in the previous period. However, Morgan Stanley notes Woolworths prices were actually 5% lower than Coles across the 4Q11, so higher price deflation for Woolworths is expected to be seen in 4Q12.

The good news is the broker expects deflation to ease over the course of this year, with supermarkets to begin cycling over more normalised fresh food prices from next quarter onwards.

Citi also sees some issues for retailers' floor space issues. The broker notes that while retail share prices have in many cases halved, retailers are as yet to begin rationalising floor space. Citi expects a shakeout is likely over the next three years as cost growth continues to outpace sales growth.

What’s worse, the broker doesn’t expect to see stronger retail demand as being likely to fuel margin recovery any time soon, leaving Citi to think price deflation and online sales will continue to limit bricks and mortar growth. On the broker numbers, non-food retailers will need to cut floor space by 10% or more before margins can begin to recover. The broker thinks such a move would take 3-5 years to play out given lease terms. However, a backdrop of store rationalisation and margin pressure will continue to weigh on share prices amongst retailers.

Citi believes the stocks that are most vulnerable are Harvey Norman ((HVN)) and JB Hi-Fi ((JBH)) and thus downgraded them both to Sell last week. Few retailers escape the negative prognosis, although the broker points out that some value plays like Billabong ((BBG)) and Specialty Fashion ((SFH)) are already reflecting store rationalisation in their share price.

Macquarie notes the Chinese government has started to take action to head off weakening conditions, but it wonders will it be enough to reinvigorate commodities demand?

The short answer is yes. The broker does think the demand for commodities from infrastructure will be stronger in the second half. Although, Macquarie cautions a broader based recovery will take time given confidence levels are low.

Thus Macquarie sees current issues as being about confidence as much as they are about GDP levels. In fact, the broker thinks forecasted GDP growth of 7.5% for this year will be easily achieved, even without a substantial improvement in economic activity. The broker notes that GDP growth is not an end in itself and that while some data are admittedly weak, there are others that have remained stable.

According to Macquarie, data on employment levels and wage growth actually indicate an economy in good health. Thus, stimulus from Beijing isn’t as urgent as many of us have begun to believe. The broker thinks policy will to continue to be aimed at addressing slowing growth rather than trying to bring about some sort of rapid turnaround in economic activity.

In such an environment, the broker likes copper better than iron ore over the next few months given copper is more leveraged to an increase in infrastructure spending, while there is also a distinct lack of copper scrap. That’s not to say Macquarie is turning bearish on iron ore, it simply sees few near term catalysts that could lead to a price breakout. At least not until confidence returns and a broader based recovery takes off.

Last week saw UBS reaffirm its preference a little towards risk in the materials sector given yield is emerging as a sector share price driver.

CSR ((CSR)) estimates were cut last week on soft aluminium spot price and weak Australian housing numbers, yet current estimates for Boral ((BLD)) and Fletcher Building ((FBU)) assume an unlikely improvement in end markets with a positive impact from cost cutting over the next two years.

Given an Australian housing recovery over the next two years is far from a given and the prospect of both US and NZ recoveries are at best debatable, the broker believes there is less earnings risk in the latter two stocks than in CSR. In fact, even allowing for a decline in the CSR dividend the broker expects a yield of 7.3%.

Otherwise, only Adelaide Brighton ((ABC)), Fletcher Building and James Hardie ((JHX)) are expected to boast FY14 yields of better than 5%. Boral is below, seeing the broker apply a 20% valuation discount, although keeping it at Buy. CSR and Fletcher are also at Buy, while James Hardie and Adelaide Brighton are at Hold. As you can see, this is far from a negative stance on the sector.

All in all, UBS’s notes its recommendations have tended to run opposite to share price performance over the past few years and reflect a bias towards leverage over safety. The sector stance remains risky, however, with Australian and US housing starts needing to improve.

RBS took a look at major healthcare stocks last week noting that while global uncertainties and FX tailwinds have underpinned outperformance in the sector and will likely continue to lend support going forward, the broker expects to see moderating growth rates, increasing earnings pressure and underwhelming valuations sector wide.

The broker last week downgraded Sonic Healthcare ((SHL)) and Ansell ((ANN)) to Hold, given the above along with the risks associated with austerity measures in Europe and lacklustre valuations. However, Ramsay Healthcare ((RHC)) was upgraded to Hold given the belief current trading levels are discounting earnings risk from private health insurance means-testing by far too much.

RBS sees the most upside in Primary Healthcare ((PRY)) evidence of improving operational metrics and GP productivity, which it notes should help to allay concerns about GP acquisition costs and churn rates. Otherwise, given the risks of unstable global economic conditions, volatile FX and ongoing worldwide regulatory changes, the broker thinks it might be a good idea to opportunistically take profits on any sign of market stabilisation in stocks that have outperformed of late. Ramsay, Resmed ((RMD)) and CSL ((CSL)) are the first stocks that come to the broker’s mind.

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The Short Report

By Chris Shaw

For the week from June 26 reductions in short positions far outweighed increases, with only three cases of short positions rising by more than one percentage points against 10 falls in positions of more than 1.5 percentage points.

Among the increases was St Barbara ((SBM)), where positions increased to 3.94% from 1.94% as the company moved to acquire Allied Gold ((ALD)). While the merger will increase shares on issue the deal would also add to the producing assets of the group, so alleviating some growth concerns in the view of brokers.

Shorts in the iShares High Dividend derivative also rose to 2.69% from 1.36% previously, while the iShares Small Ordinaries derivative saw shorts increases to 8.59% from 7.35%.

On the other side of the ledger, Gunns ((GNS)) experienced the largest decline in shorts for the week from June 26 as total positions fell to 3.6% from 8.89% previously. The change came as the company updated the market on its ongoing asset sale program and a proposed capital raising. Gunns now drops out of the top 20 short positions on the Australian market.

Others in the top 20 list where short positions fell by at least 1.5 percentage points include David Jones ((DJS)), Myer ((MYR)) and The Reject Shop ((TRS)). Myer shorts declined to 8.73% from 11.67%, for David Jones positions fell to 7.71% from 10.38% and for The Reject Shop shorts now stand at 6.03% against 8.18% previously.

While the changes for David Jones may have reflected the unsolicited approach from a mystery UK company, for The Reject Shop at least there was evidence of increased investor interest following the recent emergence of a new substantial shareholder on the register.

The declines in positions weren't enough to drop any of the discretionary retailers out of the top 20 list, this category continuing to dominate the short positions on the Australian market with JB Hi-Fi ((JBH)) leading the way with total shorts of 20.73%. This is also down modestly from the previous week and continues the trend of recent weeks of a decline in total short positions.

One stock to drop out of the top 20 was Echo Entertainment ((EGP)), as shorts fell in the week from June 26 to 4.18% from 6.09%. Investors in Echo continue to adjust short positions following the group's recent capital raising.

With DuluxGroup ((DLX)) extending its takeover offer for Alesco ((ALS)) by a few weeks short positions in the target have declined to 0.13% from 2.03% previously, while shorts in Primary Health Care ((PRY)) have also declined to 0.87% from 2.74% following some recent increases to earnings estimates for the company in the market.

Shorts in Mortgage Choice ((MOC)) have fallen to 0.01% from 1.86% as there are signs the company is winning some market share in the mortgage broker space, while Cochlear ((COH)) also saw shorts decline to 9.26% from 11.08% as there continues to be signs the failure rate for the CI512 implants is trending down.

Fairfax ((FXJ)) shorts fell to 12.95% from 14.62% in the week from June 26 as the company continues to deal with Gina Reinhart's recent interest in the company and as the market continues to assess recently announced restructuring initiatives.

Fairfax remains in the top 20 short positions list along with the likes of Billabong ((BBG)), Harvey Norman ((HVN)), Carsales.com ((CRZ)), Flight Centre ((FLT)), Lynas Corporation ((LYC)) and Paladin Energy ((PDN)). Stocks in the top 20 also dominated the list of top monthly changes in shorts for the period from June 1.

While not in the top 20 short positions, RBS Australia notes shorts in Boral ((BLD)) have continued to climb since the recent earnings downgrade from management. Total shorts have risen by 90 percentage points over the past month to 6.1%, the broker attributing this to increased investor concern about the potential for a capital raising given deteriorating debt metrics for the group.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	20488590	98850643	20.73
2	FXJ	304549013	2351955725	12.95
3	FLT	12596992	100039833	12.59
4	CRZ	27211082	233689223	11.64
5	LYC	176845148	1715029131	10.31
6	COH	5272228	56929432	9.26
7	PDN	74760296	835645290	8.95
8	MYR	50930646	583384551	8.73
9	HVN	91823401	1062316784	8.64
10	ILU	36070349	418700517	8.61
11	ISO	490032	5703165	8.59
12	BBG	34903322	410969573	8.49
13	DJS	40767847	528655600	7.71
14	LNC	37992740	504487631	7.53
15	WTF	14999615	211736244	7.08
16	CSR	31311564	506000315	6.19
17	TRS	1573254	26071170	6.03
18	MTS	46300352	771345864	6.00
19	MSB	16882426	284478361	5.93
20	GWA	17313253	302005514	5.73

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

IMPORTANT INFORMATION ABOUT THIS REPORT

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Changes in ratings among the eight brokers in the FNArena database were almost evenly split over the pat week, with 11 recommendation upgrades compared to nine downgrades. One stock, Aristocrat Leisure ((ALL)), was responsible for the difference. Total Buy ratings now stand at 49.76%.

Aristocrat Leisure received three of the upgrades for the week, as Citi, Macquarie and Deutsche Bank have all lifted recommendations on the stock, Macquarie and Deutsche to Neutral from Sell and Citi to Buy from Hold.

The changes come on the back of updated earnings guidance from company management, which has flowed through to changes in earnings forecasts and price targets. Valuation also improved. The Aristocrat share price has fallen 24% since April.

UBS has upgraded Ansell ((ANN)) to Neutral from Sell on valuation grounds given recent share price weakness. At the same time the broker adjusted its model to reflect underlying latex, cotton and chemical prices, which resulted in a slight cut in price target. Macquarie went the other way on Ansell and downgraded to Neutral from Outperform, which is largely a valuation call given current market conditions suggest some medium-term earnings challenges.

A marking-to-market of assumptions for Australian wealth management plays has resulted in Credit Suisse upgrading BT Investment Management ((BTT)) to Buy from Hold. Relative valuation has improved recently in the broker's view, enough to offset a minor cut in price target on the back of changes to earnings estimates.

The changes made to models by Credit Suisse worked against IOOF Holdings ((IFL)), as the broker downgraded its rating to Hold from Buy on relative valuation grounds. Despite minor changes to its model, Credit Suisse left its price target for IOOF unchanged.

Deutsche Bank upgraded David Jones ((DJS)) to Neutral from Sell as the share price reacted to supposed interest from a mystery UK bidder, at the same time lifting its price target. According to general market opinion, the corporate interest highlighted the fact there is some value in David Jones thanks largely to its property holdings.

Valuation was the main driver of JP Morgan's upgrade to an Overweight rating from Neutral previously on Mount Gibson ((MGX)). The change follows the broker's review of the mid-tier Australian iron ore plays under coverage and was accompanied by a downgrade for Gindalbie ((GBG)) to Neutral from Outperform.

While the UK assets of National Australia Bank ((NAB)) have concerned brokers for some time, Macquarie suggests these negatives could turn around in coming months. To reflect this and some re-pricing the broker has adjusted earnings estimates and price target, while moving to a Buy rating from Hold previously.

Lower thermal coal prices and delays to greenfields projects have contributed to cuts to forecasts and price target for New Hope Corporation ((NHC)) by RBS Australia. At the same time, the broker has upgraded to a Buy rating from Hold given its revised forecasts suggest a share price trading at a 40% discount to valuation.

Operational issues have impacted on Newcrest ((NCM)) in recent months but BA Merrill Lynch suggests the market has overreacted as the problems are largely shorter-term in nature. This overreaction implies an improved valuation and sees BA-ML upgrade to Buy from Neutral.

Deutsche Bank has revised commodity price and currency forecasts and the changes have impacted on Sandfire Resources ((SFR)), as the broker has upgraded to a Buy rating from Hold. The increase in rating comes alongside a minor cut in price target.

The changes to Deutsche's forecasts have also impacted on OZ Minerals ((OZL)) and Paladin ((PDN)), as in both cases the broker has downgraded to a Neutral rating. Earnings estimates and price targets have also been adjusted.

Australian Infrastructure Fund ((AIX)) has indicated plans to internalise management and while Macquarie sees this as something of a positive, the investment banker has downgraded to a Neutral rating from Outperform. This is largely a valuation call as the share price is broadly in line with the price target.

The Macquarie Group ((MQG)) share price has been solid of late but this is not the best news for shareholders in the view of JP Morgan as it means the share buyback has been halted. With global market conditions still uncertain there is downside risk in the broker's view, enough for a ratings cut to Sell from Neutral.

Deutsche Bank has downgraded Monadelphous ((MND)) to Hold from Buy as changes to currency forecasts across the engineering and contractors sector has driven changes to earnings estimates and price target. The downgrade in rating also reflects the fact Monadelphous is trading close to Deutsche's revised target.

Tatts Group ((TTS)) has also been downgraded to a Hold from Buy by Deutsche, which is equally a valuation call given recent share price outperformance. Along with the downgrade are minor changes to earnings and price target given recent solid performance from the core operations.

Increases to price targets for the week were modest at best but cuts to targets were more significant for Santos ((STO)) and QRxPharma ((QRX)), the latter reflecting the decision by the US FDA to not approve the MoxDuo-IR compound as expected.

With respect to increases to earnings forecasts, the most significant included Independence Group ((IGO)), Sims Metal ((SGM)), Specialty Fashion ((SFH)) and and Regis Resources ((RRL)), which stem from changes to commodity and forex assumptions across the market.

The largest cuts to earnings forecasts were for Tabcorp ((TAH)), CSG Limited ((CSV)), Whitehaven ((WHC)) and Evolution Mining ((EVN)).

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	ANSELL LIMITED	Sell	Neutral	UBS
2	ARISTOCRAT LEISURE LIMITED	Sell	Neutral	Macquarie
3	ARISTOCRAT LEISURE LIMITED	Buy	Buy	Citi
4	ARISTOCRAT LEISURE LIMITED	Sell	Neutral	Deutsche Bank
5	BT INVESTMENT MANAGEMENT LIMITED	Neutral	Buy	Credit Suisse
6	DAVID JONES LIMITED	Sell	Neutral	Deutsche Bank
7	Mount Gibson Iron Limited	Neutral	Buy	JP Morgan
8	NATIONAL AUSTRALIA BANK LIMITED	Neutral	Buy	Macquarie
9	NEW HOPE CORPORATION LIMITED	Neutral	Buy	RBS Australia
10	NEWCREST MINING LIMITED	Neutral	Buy	BA-Merrill Lynch
11	SANDFIRE RESOURCES NL	Neutral	Buy	Deutsche Bank
Downgrade
12	ANSELL LIMITED	Buy	Neutral	Macquarie
13	AUSTRALIAN INFRASTRUCTURE FUND	Buy	Neutral	Macquarie
14	GINDALBIE METALS LTD	Buy	Neutral	JP Morgan
15	IOOF HOLDINGS LIMITED	Buy	Neutral	Credit Suisse
16	MACQUARIE GROUP LIMITED	Neutral	Sell	JP Morgan
17	MONADELPHOUS GROUP LIMITED	Buy	Neutral	Deutsche Bank
18	OZ MINERALS LIMITED	Buy	Neutral	Deutsche Bank
19	PALADIN ENERGY LTD	Neutral	Neutral	Deutsche Bank
20	TATTS GROUP LIMITED	Buy	Neutral	Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	SFR	- 17.0%	17.0%	34.0%	6
2	ALL	- 13.0%	13.0%	26.0%	8
3	SPN	- 40.0%	- 20.0%	20.0%	5
4	ANN	14.0%	29.0%	15.0%	7
5	NCM	63.0%	75.0%	12.0%	8
6	NAB	13.0%	25.0%	12.0%	8
7	DJS	- 50.0%	- 38.0%	12.0%	8
8	QBE	63.0%	75.0%	12.0%	8
9	MGX	38.0%	50.0%	12.0%	8
10	STO	88.0%	100.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	QRX	100.0%	67.0%	- 33.0%	3
2	GBG	100.0%	80.0%	- 20.0%	5
3	EHL	80.0%	60.0%	- 20.0%	5
4	IFL	50.0%	33.0%	- 17.0%	6
5	MND	50.0%	33.0%	- 17.0%	6
6	AIX	67.0%	50.0%	- 17.0%	6
7	MQG	29.0%	14.0%	- 15.0%	7
8	OZL	38.0%	25.0%	- 13.0%	8
9	CSL	63.0%	50.0%	- 13.0%	8
10	SVW	50.0%	40.0%	- 10.0%	5

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	GBG	0.972	1.006	3.50%	5
2	DJS	2.188	2.263	3.43%	8
3	AIX	2.412	2.482	2.90%	6
4	VBA	0.440	0.447	1.59%	3
5	CSL	39.048	39.419	0.95%	8
6	IFL	6.253	6.303	0.80%	6
7	NAB	25.951	26.101	0.58%	8
8	SPN	1.068	1.070	0.19%	5
9	MND	23.110	23.150	0.17%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	QRX	1.943	1.210	- 37.73%	3
2	STO	17.253	15.944	- 7.59%	8
3	QAN	1.638	1.529	- 6.65%	7
4	SVW	10.588	10.070	- 4.89%	5
5	ALL	2.964	2.846	- 3.98%	8
6	OZL	10.844	10.481	- 3.35%	8
7	MGX	1.414	1.389	- 1.77%	8
8	ANN	15.236	14.977	- 1.70%	7
9	CQO	3.478	3.420	- 1.67%	3
10	SFR	7.917	7.800	- 1.48%	6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	IGO	2.240	18.720	735.71%	5
2	SGM	12.629	97.414	671.35%	7
3	SFH	1.180	4.980	322.03%	5
4	RRL	15.620	65.820	321.38%	5
5	HZN	0.928	3.168	241.38%	4
6	AIZ	3.059	9.311	204.38%	4
7	QAN	5.485	15.396	180.69%	7
8	AGO	11.800	25.488	116.00%	8
9	PAN	4.325	9.275	114.45%	3
10	PRU	14.486	28.267	95.13%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	TAH	48.238	22.400	- 53.56%	8
2	CSV	9.950	8.000	- 19.60%	3
3	WHC	10.971	8.986	- 18.09%	7
4	EVN	24.267	21.400	- 11.81%	3
5	SWM	34.213	30.913	- 9.65%	8
6	ALL	17.513	15.988	- 8.71%	8
7	CQO	24.860	23.440	- 5.71%	3
8	AIX	16.533	15.650	- 5.34%	6
9	ILU	193.613	185.363	- 4.26%	8
10	STO	68.288	65.650	- 3.86%	8

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The Short Report

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By Chris Shaw

Weekly changes in short positions for the period from June 19 saw increases of more than one percentage point easily outnumber decreases to the tune of seven to two.

The largest increase was in David Jones ((DJS)), where positions rose to 10.38% from 8.36% previously. The increase came prior to the rumoured takeover proposal for the company and followed what had been disappointing 3Q sales for the retailer.

David Jones was not the only retailer for which shorts increased in the week from June 19, as positions in The Reject Shop ((TRS)) also rose to 8.18% from 6.39% previously. The changes don't appear to have been driven by any announcements from the company but reflect changes to in substantial shareholdings during the period.

Myer ((MYR)) was another retailer for which short positions increased during the period, rising to 11.67 from 10.24% the week before. Again there were few announcements from the company other than news of a new store in Darwin, while there were a few announced changes in major shareholdings.

Myer, David Jones and The Reject Shop remain among the top 20 short positions on the Australian market, along with other retailer-based plays including Billabong ((BBG)), Harvey Norman ((HVN)), Flight Centre ((FLT)) and Carsales.com ((CRZ)).

Others in the top 20 largest short positions list include Paladin ((PDN)) and Iluka ((ILU)) among the resource plays, Cochlear ((COH)) and Mesoblast ((MSB)) among healthcare and biotech companies and Echo Entertainment ((EGP)) and Fairfax ((FXJ)) among the industrial plays.

JB Hi-Fi ((JBH)) continues to be the company with the largest short position on the Australian market but as RBS Australia notes, total shorts in the stock have fallen over the past two weeks by 2.6 percentage points to 21.7%.

According to RBS the negative momentum in the TV category has eased somewhat in recent months, which gives increased confidence JB Hi-Fi can meet full year earnings guidance. Given a currently attractive earnings multiple, JB Hi-Fi is RBS's preferred exposure in the discretionary retail sector.

Senex Energy ((SXY)) also saw short positions jump to 2.11% from less than 0.5% previously, this despite the company spudding the Shocking 1 well that subsequently delivered oil shows worth testing further.

Shorts in Murchison Metals ((MMX)) increased to 2.19% from 0.95% for the week, this prior to the company announcing its intention to seek approval for a capital return to shareholders.

An increase in shorts in Cabcharge ((CAB)) to 2.01% from 0.51% previously follows news the Reserve Bank of Australia is assessing surcharge fees applied to credit card transactions. While management has indicated there is unlikely to be a direct impact on Cabcharge it adds to uncertainty in the view of Macquarie.

The largest fall in short positions was in the IShares S&P/ASX High Dividend derivative, where total positions declined to 1.33% from 3.44% in the week from June 19. In terms of specific stocks the largest fall was in Echo Entertainment ((EGP)), where positions moved to 6.09% from 7.49% prior to the group re-negotiating some debt terms but after a capital raising had been factored in by the market.

With respect to monthly changes the major increases have been in Fairfax and The Reject Shop, while Seven West ((SWM)) shorts also rose by more than two percentage points, which came prior to the company reiterating earnings guidance for this year but indicating there remains pressure on FY13 earnings.

SingTel ((SGT)) and Linc Energy ((LNC)) also experienced increases in shorts for the month from May 25, both seeing increases of more than two percentage points despite little in the way of announcements to impact on investor views on the stocks.

Bradken ((BKN)) enjoyed the largest fall in shorts for the month, positions declining to 1.33% from 3.5%, this following a report by Macquarie indicating perceived balance sheet stress for the group was a non-issue given a currently robust sales environment.

Despite a disappointing profit result late last month shorts in Elders ((ELD)) have fallen in the month from May 25 to 3.61% from 5.62%. The result suggested debt remains too high and consensus market forecasts appear too optimistic, but at the same time showed management is making some progress in turning around the business.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21457044	98850643	21.71
2	FXJ	343794850	2351955725	14.62
3	FLT	12354227	100039833	12.35
4	CRZ	28615710	233689223	12.25
5	MYR	68102760	583384551	11.67
6	COH	6309219	56929432	11.08
7	LYC	178962250	1714846913	10.44
8	DJS	54856855	528655600	10.38
9	BBG	25419588	257888239	9.86
10	HVN	101809015	1062316784	9.58
11	ILU	39372102	418700517	9.40
12	PDN	78185555	835645290	9.36
13	GNS	75429556	848401559	8.89
14	TRS	2132461	26071170	8.18
15	LNC	38953547	504487631	7.72
16	CSR	38107642	506000315	7.53
17	ISO	419055	5703165	7.35
18	WTF	15206681	211736244	7.18
19	MSB	18189889	284478361	6.39
20	EGP	41894654	688019737	6.09

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

IMPORTANT INFORMATION ABOUT THIS REPORT

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The number of changes in broker ratings picked up over the past week, with the eight brokers in the FNArena database upgrading 12 recommendations and downgrading seven. This leaves total Buy ratings at 49.85%.

On the upgrade side is Ansell ((ANN)), where Citi has moved to a Buy rating from Neutral given improved value following recent share price weakness. The broker also made modest changes to earnings estimates and price target to reflect updated forex assumptions.

Aurora Oil and Gas ((AUT)) similarly enjoyed an upgrade to a Buy rating from Hold previously, this courtesy of UBS. While an increased stake in the Sugarloaf project is a positive for earnings the production growth profile remains a major attraction for the broker. As with Ansell, Aurora's rating upgrade also reflects improved valuation following recent share price falls.

Better than expected interim earnings guidance from Caltex ((CTX)) helped prompt Credit Suisse to upgrade to a Buy rating on the stock from Neutral previously. A decision to close the refineries operations offers long-term upside in the view of Credit Suisse and supports the upgrade in rating. Across the market brokers revised earnings forecasts and price targets to reflect the new guidance from management.

Credit Suisse went further on Energy Resources of Australia ((ERA)) and upgraded to a Buy rating from Sell previously. The change follows a site visit and some positive signals from traditional landowners, which leaves the broker more positive the company can extract full value from the Ranger 3 Deeps resource.

For Orica ((ORI)), RBS Australia is attracted to the long-term dynamics of the explosives business to upgrade to a Buy rating from Hold. The company is a quality business and in the broker's view now is a good time for longer-term investors to be looking at buying into the stock.

Citi has revised its model for QBE Insurance ((QBE)) to reflect a marking to market of investments and changes to forex assumptions and the end result is an upgrade to a Buy from Neutral previously. The call is largely a valuation one as Citi is now seeing some upside to its price target.

Changed production expectations for Sandfire ((SFR)) have prompted some adjustments to UBS's model, the result being a trimming of price target. At the same time the broker has upgraded to Buy from Neutral on the stock to reflect both recent share price falls and the attraction of high grade copper exposure.

Santos ((STO)) announced some increased capex for its GLNG plant this week but the news has not deterred Credit Suisse, the broker moving to a Buy rating from Hold as the share price fall in reaction to the news was viewed as an overreaction. Credit Suisse and others have adjusted earnings estimates and price targets for Santos to reflect the increase in capex.

Macquarie has moved to an Outperform rating from Neutral on SP Ausnet ((SPN)) as part of a reinstatement of coverage. The attraction is a better yield and asset base than peers and stronger expected investment returns.

Post a tour of Toll's ((TOL)) Asian assets Credit Suisse has upgraded to a Buy rating on the stock from Neutral, reflecting the view the company is well placed for when the cycle eventually turns more favourable. At the same time Credit Suisse trimmed earnings estimates and price target for the stock.

UBS expects operational improvements and cost cutting measures implemented by Transpacific Industries ((TPI)) will start to feed through to earnings, while the sale of some non-core assets is also a positive.

This has TPI well placed for a re-rating once the market better understands the outlook for the company in UBS's view and sees the broker upgrade its rating to Buy from Neutral.

UBS also upgraded Western Areas ((WSA)) to a Buy from Neutral post the company announcing an increase in reserves at the Spotted Quoll project. Adding weight to the upgrade is improved valuation following recent share price weakness.

On the downgrade side of the market the only stock to receive multiple rating changes was Billabong ((BBG)), where both Citi and UBS downgraded ratings. Citi cut its rating to Sell from Hold, while UBS went further and downgraded to a Sell from Buy previously.

Both changes were in response to the equity raising announced by the company as it attempts to address balance sheet issues. In both cases, the brokers question whether there is value at current levels given future strategy has not been fully outlined and earnings issues are yet to be addressed. Others in the market also adjusted targets and earnings estimates to account for the raising and revised earnings guidance from management.

A cut to earnings guidance from management at Boral ((BLD)) was enough for Macquarie to downgrade to a Sell rating from Neutral as earnings estimates were cut to reflect bad weather, weak trading and project delays. Macquarie and others cut price targets for Boral post the update.

Macquarie also downgraded Cochlear ((COH)) to Hold from Buy but for valuation reasons given recent share price strength. Minor changes to its model for the stock saw the broker revised earnings estimates at the same time.

For exactly the same reason of recent share price strength, Citi cut its rating on CSL ((CSL)) to Hold from Buy, while also making minor changes to earnings estimates to account for changes to foreign exchange assumptions.

BA Merrill Lynch downgraded NIB Holdings ((NHF)) post a strategy day as the broker now sees organic growth for the company as becoming tougher to achieve. At the same time a capital management program appears to have largely run its course, which reduces one investment attraction in the broker's view.

RBS has downgraded QRXPharma ((QRX)) on news the US FDA has not granted approval for MoxDuo IR as had been expected. This implies delays and has forced the broker to factor this into its model, which also impacts on earnings estimates and price target.

While not seeing any changes in broker ratings, Consolidated Media ((CMJ)) enjoyed a increase in consensus price target over the week of just over 6%, while outside of QRX Pharma the largest cuts in targets were experienced by Aquarius ((AQP)) and Evolution Mining ((EVN)).

Other reasonable increases to earnings estimates were enjoyed by BC Iron ((BCI)) and Bank of Queensland ((BOQ)), while cuts to forecasts were most significant for Transpacific, Ten Network ((TEN)), Transurban and Horizon Oil ((HZN)).

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Suisse,Deutsche<br>Bank,JP<br>Morgan,Macquarie,RBS<br>Australia,UBS&b0=115,104,117,101,81,143,150,128&h0=79,104,84,119,94,84,141,109&s0=42,21,26,6,35,35,9,17" style="border-bottom: #000000 1px solid; border-left: #000000 1px solid; border-top: #000000 1px solid; border-right: #000000 1px solid" />

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	ANSELL LIMITED	Neutral	Buy	Citi
2	AURORA OIL AND GAS LIMITED	Neutral	Buy	UBS
3	CALTEX AUSTRALIA LIMITED	Neutral	Buy	Credit Suisse
4	ENERGY RESOURCES OF AUSTRALIA	Sell	Buy	Credit Suisse
5	ORICA LIMITED	Neutral	Buy	RBS Australia
6	QBE INSURANCE GROUP LIMITED	Neutral	Buy	Citi
7	SANDFIRE RESOURCES NL	Neutral	Buy	UBS
8	SANTOS LIMITED	Neutral	Buy	Credit Suisse
9	SP AUSNET	Neutral	Buy	Macquarie
10	TOLL HOLDINGS LIMITED	Neutral	Buy	Credit Suisse
11	Transpacific Industries Group Ltd	Neutral	Buy	UBS
12	WESTERN AREAS NL	Neutral	Buy	UBS
Downgrade
13	BILLABONG INTERNATIONAL LIMITED	Neutral	Sell	Citi
14	BILLABONG INTERNATIONAL LIMITED	Buy	Sell	UBS
15	BORAL LIMITED	Neutral	Sell	Macquarie
16	COCHLEAR LIMITED	Buy	Neutral	Macquarie
17	CSL LIMITED	Buy	Neutral	Citi
18	NIB HOLDINGS LIMITED	Buy	Neutral	BA-Merrill Lynch
19	QRXPHARMA LTD	Buy	Neutral	RBS Australia

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	ERA	- 13.0%	13.0%	26.0%	8
2	AUT	- 40.0%	- 20.0%	20.0%	5
3	WSA	50.0%	67.0%	17.0%	6
4	GRR	83.0%	100.0%	17.0%	6
5	TPI	50.0%	67.0%	17.0%	6
6	ANN	14.0%	29.0%	15.0%	7
7	TOL	14.0%	29.0%	15.0%	7
8	MGX	25.0%	38.0%	13.0%	8
9	ILU	50.0%	63.0%	13.0%	8
10	QBE	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	EVN	100.0%	67.0%	- 33.0%	3
2	QRX	100.0%	67.0%	- 33.0%	3
3	NHF	100.0%	75.0%	- 25.0%	4
4	AQP	60.0%	40.0%	- 20.0%	5
5	CMJ	29.0%	14.0%	- 15.0%	7
6	CSL	63.0%	50.0%	- 13.0%	8
7	COH	- 38.0%	- 50.0%	- 12.0%	8
8	OZL	50.0%	38.0%	- 12.0%	8
9	PRU	60.0%	50.0%	- 10.0%	6
10	VBA	83.0%	75.0%	- 8.0%	4

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	CMJ	3.154	3.358	6.47%	7
2	ERA	1.643	1.674	1.89%	8
3	GRR	0.838	0.845	0.84%	6
4	NHF	1.695	1.698	0.18%	4
5	WSA	5.908	5.917	0.15%	6
6	GMG	3.001	3.005	0.13%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	QRX	2.773	1.210	- 56.36%	3
2	AQP	2.800	2.538	- 9.36%	5
3	EVN	2.175	1.983	- 8.83%	3
4	QAN	1.638	1.529	- 6.65%	7
5	OZL	11.540	10.844	- 6.03%	8
6	PRU	3.280	3.158	- 3.72%	6
7	TPI	0.923	0.895	- 3.03%	6
8	MGX	1.429	1.414	- 1.05%	8
9	TOL	5.074	5.031	- 0.85%	7
10	AUT	3.874	3.844	- 0.77%	5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	BCI	41.100	44.033	7.14%	3
2	BOQ	15.600	16.563	6.17%	8
3	SVW	77.680	82.260	5.90%	4
4	AMP	32.100	33.263	3.62%	8
5	NHF	12.950	13.325	2.90%	4
6	EVN	23.650	24.267	2.61%	3
7	CWN	57.675	58.363	1.19%	7
8	QBE	136.112	137.261	0.84%	8
9	AIO	25.413	25.550	0.54%	7
10	IAG	25.538	25.663	0.49%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	TPI	5.767	4.683	- 18.80%	6
2	TEN	2.328	1.953	- 16.11%	8
3	TCL	13.686	12.271	- 10.34%	7
4	HZN	0.951	0.855	- 10.09%	4
5	SGM	13.729	12.629	- 8.01%	7
6	ROC	4.794	4.525	- 5.61%	5
7	OZL	71.388	68.213	- 4.45%	8
8	AQG	64.336	61.807	- 3.93%	7
9	AUT	28.202	27.159	- 3.70%	5
10	STO	70.075	67.900	- 3.10%	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.

The Short Report

By Chris Shaw

There were some significant changes in short positions for the week from June 12. A total of three stocks saw increases of more than one percentage point, while the same number of companies enjoyed decreases of a similar magnitude.

The largest increase in shorts was for Fairfax ((FXJ)), where positions jumped to 14.29% from 10.97% previously. The change in positions came before a trading update from the company, which indicated additional cost savings would be sought as part of a restructuring as management continues to deal with difficult trading conditions on top of having to deal with ambitious shareholder Gina Rinehart whose media buying spree continues to divide general opinion throughout Australia.

The increase in shorts in Fairfax has pushed the stock to the second largest short position, behind only JB Hi-Fi ((JBH)). Consumer discretionary stocks such as retailers continue to dominate the large short position table, with the likes of Myer ((MYR)), David Jones ((DJS)) and Harvey Norman ((HVN)) among the top 20.

Also in the top 20 is Billabong ((BBG)), where the shorts have been vindicated as the share price tanked following the announcement of a capital raising in combination with some restructuring initiatives. Others in the top 20 short positions include Gunns ((GNS)), Echo Entertainment ((EGP)), Mesoblast ((MSB)), CSR ((CSR)), Iluka ((ILU)) and Paladin ((PDN)).

Behind Fairfax, the next largest increase in short positions was for Northern Star Resources ((NST)), where total shorts rose during the week to 1.88% from 0.08% previously. The increase came despite the company announcing good deep drilling results that have extended the known limits of the Paulsens Gold Mine orebody.

Echo Entertainment saw the next largest increase in shorts as positions climbed to 7.49% from 6.36% the week prior. This came as the company announced plans to raise more than $450 million to repay debt while indicating earnings for the current half would be down relative to the previous corresponding period.

While the discretionary retail sector dominates the top 20 short positions, three plays in the sector saw significant falls in shorts in the week from June 12. The three – JB Hi-Fi, David Jones and Myer, all saw declines in total positions of more than two percentage points. Positions remain significant at more than 21%, more than 8% and more than 10% of all outstanding capital respectively.

Monthly changes in shorts for the period from May 18 have also delivered some significant moves, with shorts in Iluka rising to 9.75% from 6.42% as brokers have updated commodity price assumptions that in recent weeks have generated lower earnings estimates and price targets for the company.

The weekly change in Fairfax continued a trend of the past month of an increase in shorts in the company. The number rose to 14.29% from 11.09% in the month. Another media play experiencing a similar trend was Seven West Media ((SWM)), where shorts increased to 4.4% from 1.98%. The change in positions comes as forecasts for Seven West have been trimmed in recent weeks as brokers factor in lower earnings given ongoing deterioration in the TV advertising market.

Among the largest falls in short positions for the month from May 18 was Bradken ((BKN)), where total shorts declined to 1.36% from 4.49% the month before. RBS Australia also picked up on this, attributing the decline in shorts to significant short covering in the stock.

In RBS's view Bradken offers strong earnings growth potential over the next three years given it is one of the better placed mining service companies in the market, especially thanks to an exposure that offers more predictable production volumes and cost and revenue benefits from offshoring plans.

Another stock where shorts fell during the past month was Mirabela Nickel ((MBN)). Positions declined to 2.46% from 4.51% the month prior, this as the company completed a capital raising that addressed the market's balance sheet concerns.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21367258	98850643	21.62
2	FXJ	336725347	2351955725	14.29
3	CRZ	28553286	233689223	12.21
4	FLT	12101459	100039833	12.08
5	COH	6296488	56929432	11.02
6	MYR	59821089	583384551	10.24
7	LYC	175433094	1714846913	10.22
8	BBG	25300490	257888239	9.79
9	ILU	40924332	418700517	9.75
10	HVN	96109837	1062316784	9.04
11	PDN	75681421	835645290	9.04
12	GNS	74495950	848401559	8.77
13	DJS	44150046	528655600	8.36
14	ISO	434568	5703165	7.62
15	EGP	51549744	688019737	7.49
16	CSR	37433829	506000315	7.40
17	WTF	15464628	211736244	7.30
18	LNC	36268295	504487631	7.19
19	MSB	18172893	284478361	6.39
20	TRS	1668103	26071170	6.39

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.