Tag Archives: Health Care and Biotech

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

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

Recommendation

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Target Price

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Earning Forecast

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

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Mixed Reactions To Primary Health Result

- Primary Health interim falls short of expectations
- Full year earnings guidance retained, seen as achievable
- Both upgrades and downgrades to broker ratings post the result

By Chris Shaw

Interim earnings for Primary Health Care ((PRY)) fell a little short of market expectations, due in part to higher corporate costs and no insurance proceeds from the Queensland floods yet being received. Net profit came in at around $50 million and was achieved on sales of $686 million, a 4.7% increase relative to the previous corresponding period.

The result was below some estimates of net profit of around $60 million for the half year, Macquarie attributing most of the miss to lower margins in the period. Radiology was the standout performer in the period, while medical centres disappointed in the view of Macquarie.

One positive was full year earnings guidance for a net profit of $120-$125 million has been retained, though this implies an earnings skew of 47.5:52.5 for 1H:2H. UBS sees this as achievable as it would be consistent with FY11 and 2H trading to date is tracking in line with such a split.

With no change in full year guidance, adjustments to earnings estimates across the market have been relatively modest. Deutsche Bank has trimmed its full year earnings per share (EPS) number by 5% and Citi has lowered its number by a similar amount and these are the most significant changes to forecasts. Consensus EPS estimates for Primary Health Care according to the FNArena database now stand at 24.5c this year and 28.3c in FY13.

Changes to earnings estimates contributed to changes in price targets, with the consensus target for Primary Health Care according to the database falling to $3.31 from $3.46 prior to the result. Targets range from Macquarie at $2.80 to Citi at $3.72.

Given a stronger second half is expected, Citi suggests Primary Health Care is setting up for very strong earnings growth in FY13. This reflects an annualising of the improvements expected in the next few months and continued organic market share growth of 5-6%. Helping drive earnings growth should also be lower interest costs, declining capex requirements and improvement in cash flows.

Assuming profits recover as expected next year Citi sees the dividend payout ratio of Primary Health Care also increasing, up to a level of 65% in FY13. This would equate to a dividend next year of 20.5c on the broker's forecasts, which equates to a yield of better than 7.0% at current share price levels.

The combination of such a yield and strong earnings growth should drive a re-rating in the view of Citi, so the broker continues to rate Primary Health Care as a Buy. Credit Suisse agrees, having upgraded to an Outperform rating from Neutral post the interim result.

The upgrade from Credit Suisse reflects a valuation call as much as anything else, as the broker points out despite guidance for the full year being maintained Primary Health Care has underperformed by 17% over the past three months.

RBS agrees the stock offers value and has also upgraded to a Buy rating from Hold previously. The fact full year guidance was reiterated should offer some comfort in the broker's view, while the attractive yield should help limit any downside risks.

Others in the market are not as convinced, BA-ML suggesting while the current valuation for Primary Health Care looks appealing it always does and the current discount to the market and peer group Sonic Healthcare ((SHL)) is justified.

For BA-ML the value in Primary Health Care is simply not attractive enough at current levels, particularly given the need for improved earnings visibility and some greater stability in group earnings.

Macquarie has gone one step further and downgraded Primary Health Care to Underperform from Neutral. Ongoing questions about cash generation as 1H12 was the third successive quarter of overspending and poor return on investment relative to sizable medical centre spending are enough for the broker to see limited upside potential at current levels.

This mixed view of brokers is reflected in the FNArena database, which shows Primary Health Care is rated as Buy five times, Hold twice and Underperform once. The Primary share price today is stronger and as at 11.35am was up 13c or 4.6% at $2.96.

This compares to a trading range over the past year of $2.56 to $3.67 and implies upside of around 12% relative to the consensus price target in the FNArena database.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

As reporting season gets underway brokers have continued to fine tune their models, with ratings downgrades still the dominant change. Among brokers in the FNArena database there were 16 downgrades over the past week compared to just four upgrades, leaving total Buy ratings standing at 54.8%.

Among the upgrades was Computershare ((CPU)), Deutsche Bank lifting its rating to Buy from Hold given the view the tide is starting to turn for the stock. According to Deutsche, cyclical revenues appear to be bottoming out, while acquisitions and or capital management also offer some potential upside.

Retail stocks continue to find the going tough but this hasn't stopped Deutsche upgrading Harvey Norman ((HVN)) to Buy from Hold. Expectations for the stock should be tempered somewhat though as the move follows a change in analyst, who is more positive on the potential for the group's property portfolio to underpin value.

RBS Australia upgraded Nexus Energy ((NXS)) to Buy from Hold on the back of the company's announcement the Crux assets would be developed into an integrated gas and liquids project. As RBS notes, the deal clears up funding issues for Nexus, while also offering greater clarity with respect to long-term growth plans.

Stockland ((SGP)) was also upgraded but only to Neutral from Underperform, this following a review of its model by Credit Suisse. Changes to assumptions meant an increase in price target, enough for the broker to lift its rating in line with its total return system.

On the downgrade side of the ledger, Alumina Ltd ((AWC)) was lowered to Sell from Neutral by BA Merrill Lynch, the broker arguing lower global production is a negative for alumina prices and so Alumina's earnings.

BA-ML also downgraded Ansell ((ANN)) to Neutral from Buy, as while interim earnings were broadly as expected the broker sees few shorter-term catalysts to drive share price outperformance. BA-ML wasn't alone in downgrading Ansell, as JP Morgan made a similar move to reflect ongoing Australian dollar headwinds and the postponement of a share buyback, which must have disappointed the stockbroker.

JP Morgan also downgraded Ardent Leisure ((AAD)) to Neutral from Buy to reflect lower theme park numbers stemming from wet weather in Queensland, while Bunnings Warehouse Property ((BWP)) copped downgrades to Neutral ratings from both JP Morgan and BA-ML as while both see the yield as attractive, there is limited value in the stock relative to the sector.

Also in the property sector, Centro Retail ((CRF)) was downgraded by UBS to Neutral from Buy, largely on valuation grounds given a recent run-up in the share price. Valuation was also the reason for RBS Australia downgrading Cochlear ((COH)) to a Hold from Buy previously.

It was a similar story for Telstra as Citi moved to a Neutral rating from a Buy recommendation, while recent share price appreciation has been enough for RBS to downgrade both Webjet ((WEB)) and Toll Holdings ((TOL)) to Hold from previous Buys. For Webjet the downgrade came despite a solid interim result that saw forecasts and targets lifted across the market.

Tough conditions in the IT market have caused Data#3 ((DTL)) and Reckon ((RKN)) to find the going more difficult of late and both have paid the price, RBS downgrading the former to Hold from Buy and Macquarie making a similar change on the latter.

The finance sector is not finding things much easier as evidenced by a profit warning from Macquarie Group ((MQG)) and a disappointing quarterly report from National Australia Bank ((NAB)). This prompted downgrades in both cases, Citi moving to a Neutral rating on Macquarie and Deutsche doing the same with NAB.

Among the resource plays, Mount Gibson ((MGX)) was cut by JP Morgan to Neutral from Overweight The change followed what the broker viewed as shocker of a result, with realised prices lower and costs higher than expected. As well, board room issues remain, which is adding to the uncertainty surrounding the stock.

With respect to changes to earnings estimates, Cochlear was among the more significant of the increases thanks to an interim result that suggested little market share loss stemming from its product recall. On the cuts to forecasts side Sims Group ((SGM)) saw estimates lowered on the back of revised earnings guidance, while forecasts for Gunns ((GNS)) were also cut as brokers adjust their models for a proposed capital raising.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	COMPUTERSHARE LIMITED	Neutral	Buy	Deutsche Bank
2	HARVEY NORMAN HOLDINGS LIMITED	Neutral	Buy	Deutsche Bank
3	NEXUS ENERGY LIMITED	Neutral	Buy	RBS Australia
4	STOCKLAND	Sell	Neutral	Credit Suisse
Downgrade
5	ALUMINA LIMITED	Neutral	Sell	BA-Merrill Lynch
6	ANSELL LIMITED	Buy	Neutral	BA-Merrill Lynch
7	ANSELL LIMITED	Buy	Neutral	JP Morgan
8	ARDENT LEISURE GROUP	Buy	Neutral	JP Morgan
9	BUNNINGS WAREHOUSE PROPERTY TRUST	Buy	Neutral	BA-Merrill Lynch
10	BUNNINGS WAREHOUSE PROPERTY TRUST	Buy	Neutral	UBS
11	CENTRO RETAIL AUSTRALIA	Buy	Neutral	UBS
12	COCHLEAR LIMITED	Buy	Neutral	RBS Australia
13	Data#3 Limited	Buy	Neutral	RBS Australia
14	MACQUARIE GROUP LIMITED	Buy	Neutral	Citi
15	Mount Gibson Iron Limited	Buy	Neutral	JP Morgan
16	NATIONAL AUSTRALIA BANK LIMITED	Buy	Neutral	Deutsche Bank
17	RECKON LIMITED	Buy	Neutral	Macquarie
18	TELSTRA CORPORATION LIMITED	Buy	Neutral	Citi
19	TOLL HOLDINGS LIMITED	Buy	Neutral	RBS Australia
20	Webjet Limited	Buy	Neutral	RBS Australia

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	DXS	14.0%	43.0%	29.0%	7
2	CPU	57.0%	71.0%	14.0%	7
3	SGP	57.0%	71.0%	14.0%	7
4	HVN	25.0%	38.0%	13.0%	8
5	FBU	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	WEB	50.0%	25.0%	- 25.0%	4
2	RKN	50.0%	25.0%	- 25.0%	4
3	NAB	75.0%	50.0%	- 25.0%	8
4	CRF	60.0%	40.0%	- 20.0%	5
5	AAD	67.0%	50.0%	- 17.0%	6
6	ANN	29.0%	14.0%	- 15.0%	7
7	MQG	57.0%	43.0%	- 14.0%	7
8	QAN	88.0%	75.0%	- 13.0%	8
9	AWC	63.0%	50.0%	- 13.0%	8
10	COH	- 25.0%	- 38.0%	- 13.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	WEB	2.413	2.780	15.21%	4
2	ANN	14.471	15.254	5.41%	7
3	COH	56.504	58.681	3.85%	8
4	HVN	2.289	2.364	3.28%	8
5	TLS	3.341	3.385	1.32%	8
6	DXS	0.937	0.949	1.28%	7
7	SGP	3.611	3.641	0.83%	7
8	CPU	9.174	9.246	0.78%	7
9	RKN	2.530	2.533	0.12%	4

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	HGG	2.216	2.090	- 5.69%	5
2	AWC	1.871	1.784	- 4.65%	8
3	MQG	30.406	29.437	- 3.19%	7
4	NAB	27.015	26.388	- 2.32%	8
5	QAN	2.074	2.030	- 2.12%	8
6	AAD	1.380	1.370	- 0.72%	6
7	WBC	23.040	22.903	- 0.59%	8
8	SUL	6.647	6.626	- 0.32%	7
9	CBA	50.494	50.431	- 0.12%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	TCL	8.529	13.443	57.62%	7
2	COH	234.263	282.238	20.48%	8
3	TAH	44.438	47.713	7.37%	8
4	CDI	4.775	5.100	6.81%	4
5	WEB	17.125	17.825	4.09%	4
6	WTF	26.413	26.738	1.23%	8
7	OST	13.086	13.229	1.09%	7
8	SGP	31.643	31.914	0.86%	7
9	ASL	33.240	33.440	0.60%	5
10	CPB	307.043	308.729	0.55%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GNS	1.275	- 0.725	- 156.86%	3
2	SGM	111.971	2.114	- 98.11%	7
3	PAN	6.800	4.700	- 30.88%	4
4	AQP	9.226	7.126	- 22.76%	5
5	MQG	248.243	211.229	- 14.91%	7
6	AWC	1.586	1.417	- 10.66%	8
7	PRU	19.083	17.200	- 9.87%	6
8	TEN	7.104	6.466	- 8.98%	8
9	AIX	23.017	21.650	- 5.94%	6
10	QAN	14.138	13.388	- 5.30%	8

Technical limitations

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The Short Report

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By Chris Shaw

Short positions on the Australian market recorded some significant moves in the week from January 24, the most significant being in Rialto Energy ((RIA)). Shorts in Rialto jumped from less than 0.2% to 6.7% for the week, the increase likely reflecting an equity raising announced by the company for working capital and development expenses.

Another sizable jump was seen in Paladin Energy ((PDN)), where shorts rose by 1.24% to 3.39% following a quarterly production report that was largely in line with market expectations. Asciano ((AIO)) also saw shorts rise for the week by more than 1.0% to a more significant 1.73%. this came as BA Merrill Lynch in particular saw few short-term catalysts for the stock given fewer potential coal contracts in the pipeline and a likely longer time-frame for cost outs to have some impact.

While still among the retail dominated top 10 short positions on the Australian market, Billabong ((BBG)) actually enjoyed a solid decline in shorts for the week from January 24. Total shorts in the stock declined 1.77% and now stand at just more than 9.0%.

Shorts also declined significantly for Australian Infrastructure ((AIX)), total positions down from nearly 2.0% previously to just 0.36% now despite little company specific news to explain such a change. Shorts in Kingsgate ((KCN)) fell 1.43% to 1.19% in total, a move seemingly justified by evidence from the company's quarterly report both the Chatree and Challenger projects have turned the corner in terms of performance.

While quarterly production from Whitehaven ((WHC)) disappointed somewhat, there has been a 1.36% decline in shorts to 1.61%, while Macquarie Atlas Roads ((MQA)) saw a similar fall to a total short position of 1.37%. Brokers remain of the view the outlook for MQA is closely tied to the upcoming Eiffarie refinancing.

The recent quarterly production report of Independence Group ((IGO)) contained no major surprises but short positions in the stock essentially halved to 1.24% in the week from January 24, while shorts in Charter Hall Office ((CQO)) have fallen to almost zero from 1.24% previously.

In terms of monthly changes in shorts, aside from Rialto the biggest increases were in Cochlear ((COH)), Fortescue ((FMG)) and OneSteel ((OST)). The latter two companies are both exposed to the iron ore market, where the shorter-term outlook appears more uncertain given ongoing concerns with respect to the Chinese and global economies.

There were few significant decreases in short positions over the month from December 22, while the top-20 short positions continue to be dominated by companies directly exposed to the retail sector such as JB Hi-FI ((JBH)), Myer ((MYR)) and David Jones ((DJS)) and those linked to discretionary spending in general such as Flight Centre ((FLT)), Carsales.com ((CRZ)) and Wotif.com Holdings ((WTF)).

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	22234609	98833643	22.51
2	ISO	914555	5403165	16.93
3	MYR	72246792	583384551	12.34
4	FXJ	272400260	2351955725	11.60
5	DJS	55131985	524940325	10.50
6	FLT	9426155	100005264	9.41
7	BBG	23147131	255102103	9.07
8	COH	4666140	56902433	8.14
9	LYC	122827184	1713846913	7.15
10	RIA	25130875	375006264	6.70
11	WTF	14105918	211736244	6.66
12	RIO	26013257	435758720	5.97
13	CRZ	13878975	233264223	5.96
14	PPT	2491736	41980678	5.94
15	HVN	59978683	1062316784	5.63
16	TRS	1390659	26071170	5.33
17	GNS	45116730	848401559	5.30
18	BOQ	11727918	229598329	5.08
19	OST	64823991	1342393583	4.82
20	WSA	8165912	179735899	4.54

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

IMPORTANT INFORMATION ABOUT THIS REPORT

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

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

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

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

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

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions on short percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not an exact science given the onus on market participants to declare to their broker when positions truly are “short”. Without any suggestion of deceit, there are always participants who are ignorant of the regulations. Discrepancies can also arise when short positions are held by a large investment banking operation offering multiple stock market services as well as proprietary trading activities. Such activity can introduce the possibility of either non-counting or double-counting when custodians are involved and beneficial ownership issues become unclear.

Finally, a simple fact is that the Australian Securities Exchange also keeps its own register of short positions. The figures provided by ASIC and by the ASX at any point do not necessarily correlate.

FNArena has offered this qualified explanation of the vagaries of short stock positions as a warning to subscribers not to jump to any conclusions or to make investment decisions based solely on these unqualified numbers. FNArena strongly suggests investors seek advice from their stock broker or financial adviser before acting upon any of the information provided herein.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Brokers have displayed some caution leading into the profit reporting season this month, the FNArena database showing the eight brokers providing coverage on Australian stocks have upgraded only eight ratings over the past week compared to 13 downgrades. This brings total Buy recommendations to 55.45%.

A solid quarterly update from Aston Resources ((AZT)) was enough for UBS to upgrade to a Buy rating, the broker noting progress at the Maules Creek project continues to be solid. Valuation has also improved in UBS's view given recent share price weakness.

For Automotive Holdings ((AHE) it was an acquisition that expands the group's presence in the Victorian market that was enough to spark an upgrade to a Buy rating from RBS Australia. An attractive valuation adds weight to the broker's rating.

Fletcher Building ((FBU)) was also upgraded to a Buy by RBS, this reflecting the view the outlook for a gradual improvement in conditions in the construction market should favour the value plays into the second half of this year.

Opinions on GWA ((GWA)) remain divided, as while Deutsche Bank suggests the current tough market conditions are priced in and so the stock offers value at current levels sufficient to justify an upgrade to a Buy, Credit Suisse disagrees. The latter has downgraded to Neutral from Outperform, this reflecting the view the current downturn will probably be deeper and last longer than has been expected up until now.

Deutsche also upgraded Mesoblast ((MSB)) to Buy from Hold as the company has received approval to advance to Phase II trials of its diabetes treatment. Further good news is expected in coming weeks from approval for Phase II trials of a congestive heart failure treatment.

Solid mask sales and stronger margins in the second quarter were enough for Deutsche to upgrade ResMed ((RMD)) to Buy from Hold, while both Roc Oil ((ROC)) and Tabcorp ((TAH)) scored upgrades primarily on valuation grounds. The former saw JP Morgan move to Overweight from Underweight, while the latter had Macquarie upgrade to a Neutral recommendation.

Among the downgrades the most common was Energy Resources of Australia ((ERA)), which is fast becoming an exploration company with potential projects threatened by bad weather. Concern over the future at Ranger Deeps and the lack of any potential catalysts for outperformance were behind downgrades to Sell ratings by both UBS and Credit Suisse.

A weak quarterly production report from Aquarius ((AQP)) and the expectation of at least one more quarter of the same level was enough for Citi to downgrade to a Neutral rating. The change reflects the lack of potential share price upside medium-term and valuation issues at current levels.

The lack of shorter-term catalysts were also enough for BA-Merrill Lynch to downgrade Asciano ((AIO)) to Neutral from Buy, especially given rival QR National ((QRN)) appears to have more shorter-term growth options.

Earnings headwinds across the IT sector have seen RBS cut its earnings estimates for ASG Group ((ASZ)), the prevailing headwinds enough to see the broker move to a Hold rating. It is a similar story over at Bank of Queensland ((BOQ)), where Deutsche has downgraded to a Hold rating to reflect the current lack of asset growth being achieved.

Reduced expectations for the Melbourne and Sydney office markets are behind Macquarie downgrading to an Underperform rating on Commonwealth Property Office ((CPA)), the broker also downgrading to a Neutral rating on Dexus for similar reasons.

A weak result and a resultant lowering in forecasts and confidence in coming years is enough for RBS to downgrade to sell from Buy on CSG ((CSV)). Upcoming commissioning risks at the Boseto project are enough for Deutsche to move to a Neutral rating on Discovery Metals ((DML)), while valuation issues and tough market conditions have prompted downgrades for James Hardie ((JHX)) and Regis Resources ((RRL)).

Outside of ERA the most significant change in price targets was in Alesco ((ALS)), as tough market conditions continue to outweigh any operational improvements the group is achieving. Mirabela ((MBN)) saw both its target and earnings estimates reduced after a disappointing quarterly report, while post somewhat disappointing quarterly reports from Gloucester Coal ((GCL)), Alacer Gold ((AQG)), Panoramic Resources ((PAN)) and Atlas Iron ((AGO)) brokers responded by lowering earnings estimates.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Suisse,Deutsche<br>Bank,JP<br>Morgan,Macquarie,RBS<br>Australia,UBS&b0=119,110,123,108,92,150,187,158&h0=79,104,84,116,87,90,113,86&s0=41,18,18,8,30,23,9,16" 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	ASTON RESOURCES LIMITED	Neutral	Buy	UBS
2	AUTOMOTIVE HOLDINGS GROUP LIMITED	Neutral	Buy	RBS Australia
3	FLETCHER BUILDING LIMITED	Neutral	Buy	RBS Australia
4	GWA GROUP LIMITED	Neutral	Buy	Deutsche Bank
5	MESOBLAST LIMITED	Neutral	Buy	Deutsche Bank
6	RESMED INC	Neutral	Buy	Deutsche Bank
7	ROC OIL COMPANY LIMITED	Sell	Buy	JP Morgan
8	TABCORP HOLDINGS LIMITED	Neutral	Neutral	Macquarie
Downgrade
9	AQUARIUS PLATINUM LIMITED	Neutral	Neutral	Citi
10	ASCIANO GROUP	Buy	Neutral	BA-Merrill Lynch
11	ASG GROUP LIMITED	Buy	Neutral	RBS Australia
12	BANK OF QUEENSLAND LIMITED	Buy	Neutral	Deutsche Bank
13	COMMONWEALTH PROPERTY OFFICE FUND	Neutral	Sell	Macquarie
14	CSG LIMITED	Buy	Sell	RBS Australia
15	DEXUS PROPERTY GROUP	Buy	Neutral	Macquarie
16	DISCOVERY METALS LIMITED	Neutral	Neutral	Deutsche Bank
17	ENERGY RESOURCES OF AUSTRALIA	Buy	Sell	UBS
18	ENERGY RESOURCES OF AUSTRALIA	Sell	Sell	Credit Suisse
19	GWA GROUP LIMITED	Buy	Neutral	Credit Suisse
20	JAMES HARDIE INDUSTRIES N.V.	Buy	Neutral	RBS Australia
21	REGIS RESOURCES LIMITED	Buy	Neutral	Deutsche Bank

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	ROC	25.0%	75.0%	50.0%	4
2	AHE	50.0%	75.0%	25.0%	4
3	KCN	40.0%	60.0%	20.0%	5
4	AZT	60.0%	80.0%	20.0%	5
5	GNC	33.0%	50.0%	17.0%	6
6	MRM	67.0%	83.0%	16.0%	6
7	ORG	75.0%	88.0%	13.0%	8
8	FBU	63.0%	75.0%	12.0%	8
9	RMD	38.0%	50.0%	12.0%	8
10	CPB	14.0%	17.0%	3.0%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	ERA	- 38.0%	- 63.0%	- 25.0%	8
2	RRL	75.0%	50.0%	- 25.0%	4
3	ALS	60.0%	40.0%	- 20.0%	5
4	CRZ	83.0%	67.0%	- 16.0%	6
5	WHC	83.0%	67.0%	- 16.0%	6
6	DXS	29.0%	14.0%	- 15.0%	7
7	CPA	- 29.0%	- 43.0%	- 14.0%	7
8	REA	71.0%	57.0%	- 14.0%	7
9	QAN	88.0%	75.0%	- 13.0%	8
10	MGX	25.0%	13.0%	- 12.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	AIO	3.371	3.790	12.43%	8
2	RRL	3.618	3.975	9.87%	4
3	ROC	0.498	0.538	8.03%	4
4	KCN	8.664	8.966	3.49%	5
5	MGX	1.609	1.623	0.87%	8
6	CPA	1.007	1.013	0.60%	7
7	RMD	3.163	3.180	0.54%	8
8	AHE	2.408	2.415	0.29%	4
9	MRM	3.493	3.502	0.26%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	ERA	2.403	1.444	- 39.91%	8
2	ALS	2.366	1.560	- 34.07%	5
3	FBU	7.350	6.350	- 13.61%	8
4	QAN	2.088	2.030	- 2.78%	8
5	BOQ	9.576	9.345	- 2.41%	8
6	WHC	6.980	6.840	- 2.01%	6
7	ORG	17.574	17.380	- 1.10%	8
8	AZT	11.888	11.763	- 1.05%	5
9	WBC	23.026	22.965	- 0.26%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	ROC	3.109	6.011	93.34%	4
2	TAP	1.625	2.125	30.77%	4
3	BPT	4.820	5.560	15.35%	5
4	SXL	14.263	16.188	13.50%	8
5	AIO	16.438	18.625	13.30%	8
6	AWE	7.286	8.200	12.54%	7
7	BRG	29.333	32.000	9.09%	3
8	IGO	5.720	6.020	5.24%	5
9	RMD	15.139	15.740	3.97%	8
10	PPT	133.257	135.443	1.64%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	MBN	0.477	- 0.199	- 141.72%	5
2	GCL	21.240	5.480	- 74.20%	5
3	AQP	16.709	7.135	- 57.30%	5
4	AQG	113.627	73.746	- 35.10%	6
5	PAN	9.925	6.800	- 31.49%	4
6	AGO	28.475	20.726	- 27.21%	8
7	MML	64.677	48.496	- 25.02%	3
8	CHC	23.467	17.800	- 24.15%	6
9	MGX	37.413	28.425	- 24.02%	8
10	ALS	22.435	17.833	- 20.51%	5

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Pharmaxis Upside Unappreciated

By Greg Peel

Pharmaxis ((PXS)) didn't have what you'd call a great year in 2011. Seven or so months ago the stock price was sitting pretty at around $3 before then absolutely falling off a cliff and marking a nadir below $1 last September. We're back around the dollar mark now and the stock remains volatile. That is, however, often the way with biotechs.

PXS specialises in developing new drugs for respiratory diseases and has one – Aridol, which tests the presence and severity of asthma – in commercial production, with another – Bronchitol, for treating cystic fibrosis – now ready for first sales from April in Germany. The drug just needs final ratification of its European Commission marketing authorisation, which is expected without issue anytime soon.

The reason PXS shares dived last year is because the company failed at its first attempt to gain EU approval when great anticipation had been building. Approval has now been granted for use by adults with adolescent use still being up in the air. This is not a perfect result, but it is a result which in the BA-Merrill Lynch analysts' view should have had the PXS share price rallying back a lot further than it has from its initial rejection crash.

Merrills suggests market reluctance can be put down to uncertainty over pricing and uncertainty over initial sales in the current macro environment, particularly in the EU. Germany will kick things off and the UK will follow shortly after, but even PXS management is playing down expectations, suggesting the sales ramp-up will be relatively slow. The company raised fresh capital in November which also helped to stall the share price recovery, and Merrills suggests the market is probably now waiting for the next definitive milestone.

Credit Suisse analysts agree, looking further ahead to FY13 before PXS is registering “meaningful” Bronchitol sales, which will come when other European countries and Australia come on line with approvals. And the US beckons too.

Credit Suisse lists upcoming potential catalysts in order as formal ratification from the EU, pricing settled and sales commenced in Germany, a submission in the US for Bronchitol use for age six and over, and the outcome of the Australian pharmaceutical benefits review. Beyond that, PSX also has another asthma drug undergoing phase two clinical trials.

Bronchitol aside, the half-year result reported by PXS last week provided no surprises, with Credit Suisse noting 7% sequential growth in Aridol and a level of cash burn expected by the analysts. The raising means PXS is now in a strong financial position, CS suggests.

It is not unusual for biotechs to attract a wide variation of target prices from brokers, and PXS is no exception. Having adjusted for the stronger Aussie, Credit Suisse (Outperform) last week dropped its target to $1.50 from $1.75 (last trade $1.00). Merrills (Buy) also updated its view on PXS last week but has a target of $2.53. RBS is the only other FNArena database broker to cover the stock, and set a target of $2.46 when upgrading to Buy in October.

Source: eSignal

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Two Major Biotech Trends In 2012

By Marc Lichtenfeld, Investment U Senior Analyst
Wednesday, January 18, 2012: Issue #1689

The workers at the restaurants and bars around Union Square in San Francisco have likely just about caught their breath. The 10,000 or so businesspeople who descended on the neighborhood for the J.P. Morgan Healthcare Conference drank their fill of Patron, ate a few tons of filets and guzzled thousands of gallons of Starbucks coffee.

What makes the conference such a big deal is that it’s the largest and most important investor event of the year in the healthcare sector. There are other healthcare conferences put on by investment banks, but nothing comes close to the quality and number of companies and attendees at JPM.

There were two important takeaways that emerged from the conference – themes that I believe will make investors a lot of money in 2012.

The Future is Now

Huge advances are being made in the area of genetics every year. But last Tuesday, when Illumina (Nasdaq: ILMN) announced that it could now sequence an entire human genome in one day, the normally reserved audience started buzzing.

Remarkably, two hours later, Life Technologies (Nasdaq: LIFE) said the same thing, and added that soon it will be able to sequence a human genome in just a few hours.

Genome sequencing is a process that reads the DNA in an organism. It used to take weeks and cost millions of dollars. Today, as I mentioned, it now takes just one day and the cost has come all the way down to $1,000. Later this year, it will be done in hours and costs around $500. Maybe even less.

Understanding the DNA of an organism is like reading the code of a piece of software. It helps scientists understand the way the organism works.

There are many exciting uses for reading DNA. For example, during the E. coli outbreak in Germany last year, scientists were able to read the DNA of the bacterium in order to figure out which antibiotics would work against it and which would not.

In humans, there are several cancers with genetic mutations that doctors know will or will not respond to certain chemotherapies.

The ability to read DNA has outpaced our knowledge of what to do with the information. But as the time and, especially, the cost of reading the genome comes way down, there will be more opportunities for research and significant progress made.

For example, within the decade, every cancer patient will likely have his or her’s tumor’s genome sequenced, so that scientists can collect the data on which genetic mutations are in each kind of tumor.

As all of that information is processed and studied, more effective therapies will be prescribed and developed. Perhaps just as importantly, treatments that don’t work but can cause severe side effects will be avoided.

And cancer isn’t the only disease that will be researched. Practically every major (and probably many minor) health issues will be studied using this information, leading to revolutionary new medicines.

There was another theme at the conference – one that will have a more immediate impact on investors in 2012.

What’s the Deal?

Hear that beeping sound? That’s the sound of the money truck backing up with a delivery to biotech companies.

Large pharmaceutical companies have been on a shopping spree. First, there was the stunning announcement in November that Gilead Sciences (Nasdaq: GILD) would pay $11 billion, an 89% premium, for Pharmasset (Nasdaq: VRUS) in order to obtain its hepatitis C drug that’s still a few years away from being approved.

At the conference, all anyone wanted to ask Bristol-Myers Squibb (NYSE: BMY) CEO Lamberto Andreotti was about the deal his company announced just three days earlier to acquire Inhibitex (Nasdaq: INHX) for $2.5 billion, or an astonishing 163% premium, also to get the rights to a still-in-development hepatitis C drug.

When asked what he thought about the price tag, Andreotti quipped, “I feel much better about $2.5 billion than $11 billion.”

Bankers, analysts and portfolio managers were all talking about the resurgence in mergers and acquisitions in the sector and trying to figure out who would be next.

One hedge fund manager told me he believes Onyx Pharmaceuticals (Nasdaq: ONXX) will be bought this year. Of course, that’s not a total stretch, as the company’s CFO said Onyx’s kidney cancer drug Nexavar makes the company an attractive target.
There are some powerful forces brewing in the sector. The most important is that starting this year, 10,000 people turn 65 every day. The Baby Boomers are becoming seniors. And that’s going to result in a $4-trillion infusion into the healthcare sector over the coming years.

Companies are scrambling to get into position to capture as many of those dollars as they can. One way they’re going to do it is by acquiring smaller companies with great drugs, devices, technology and services.

I expect 2012 to be a game-changing year in healthcare – both in the technology that emerges as well as the corporate landscape as larger companies gobble up smaller ones, in order to keep their pipelines filled and their top and bottom lines growing.

Good Investing,

Marc Lichtenfeld

Reprinted with permission of the publisher. The above story can be read on the website www.investmentU.com. The direct link is: http://www.investmentu.com/2012/January/two-things-you-need-to-know-about-biotech-in-2012.html

Nothing published by Investment U should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investment advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Investment U should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Views expressed are not FNArena's (see our disclaimer).

QRxPharma Unlocks Strategic Partnership Potential

- QRxPharma signs strategic partnership in US
- Will receive an upfront payment and royalties
- Deal viewed positively by Citi and JP Morgan
- Buy ratings on QRxPharma retained, targets lifted

By Chris Shaw

As development of MoxDuo IR and MoxDuoCR for pain relief has continued, the market has been waiting for QRxPharma ((QRX)) to announce a strategic partnership with a major drug company. This announcement came yesterday, QRxPharma announcing it had signed a deal with Actavis of the US.

For JP Morgan, terms of the Actavis deal were more favourable to QRxPharma than had been expected. An upfront payment of $6 million will be received, while Actavis will then make tiered royalty payments of 10-30%, with a 50% royalty applying to the first $150 million of cumulative net sales following the initial launch.

The key to the deal for JP Morgan is the agreement allows QRxPharma to retain some additional upside, as co-promotion rights for 25% of the US selling effort after the first 12 months will stay with QRX. This is expected to assist in the launch of MoxDuo IV and MoxDuo CR.

Citi is also broadly positive on the agreement, noting the option for Mox-Duo IV expires on January 31 of 2013. This means QRxPharma effectively retains full ownership of MoxDuo CR and MoxDuo IV and of MoxDuo IR outside the US, something Citi expects will offer potential for further licensing deals.

Actavis is seen as a good partner for QRxPharma given previous success in the pain relief market. As well, with around US$75 million in royalties expected in 2013, the agreement reduces the risk of QRxPharma needing to raise additional capital in Citi's view.

The terms of the agreement mean QRxPharma has traded off some upfront cash for larger subsequent royalties, something Citi suggests will provide the company with more leverage to marketplace success and so should generate more long-term shareholder value.

In the view of Citi the 50% royalty on the first $150 million in sales is very high, so this should more than offset what is a low upfront cash payment. The tiered royalty rate is seen as being high at lower thresholds than may normally be expected.

To reflect the agreement, both Citi and JP Morgan have lifted their valuation based price targets for QRxPharma. For Citi the increase is to $3.14 from $2.44, while JP Morgan's target rises to $2.03 from $1.74. These changes reflect increases to earnings estimates, which are most pronounced in FY14 when for example JP Morgan's earnings per share estimates increase by 45%.

Looking ahead, Citi sees the next critical milestones for QRxPharma as an FDA decision on MoxDuo IR expected in June of next year and a subsequent product launch in the following quarter. Success with respect to the FDA decision would add further value in the broker's view.

On the back of the announcement shares in QRxPharma are slightly higher and as at 11.40am today the stock was up 3c at $1.38. This compares to a trading range over the past year of $1.055 to $2.51. Relative to a consensus price target according to the FNArena database of $2.71 the current share price implies upside potential of almost 100%.

Note that RBS still has to update its views and projections post this deal.

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The Short Report

By Chris Shaw

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

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

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

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

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

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

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

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

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

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

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

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

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

Top Ten Largest Short Positions

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

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

IMPORTANT INFORMATION ABOUT THIS REPORT

Technical limitations

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

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

Recommendation

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Target Price

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Earning Forecast

Positive Change Covered by > 2 Brokers

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

Negative Change Covered by > 2 Brokers

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

Technical limitations

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

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