Tag Archives: Other Industrials

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

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

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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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

Technical limitations

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

Too Much Priced In Too Early For Qube

- Qube Logistics is one of Australia's largest integrated logistics companies
- Morgan Stanley initiates with an Underweight rating
- Longer-term the company is well placed to deliver solid growth
- Broker suggests the risk is too much upside is priced into the stock too early

By Chris Shaw

Qube Logistics ((QUB)) is one of Australia's largest integrated providers of import and export logistics services and has operations at all capital city ports in the country. Over the past five years Qube's market capitalisation has increased from around $200 million to about $1.5 billion, driven primarily by acquisitions.

The company has three main divisions – Ports and Bulks, making up just over half of all operating assets, Landside Logistics at around one-quarter of operating assets and Strategic Assets. Among the strategic assets are a 67% interest in a property in Moorebank and 100% of a property in Minto.

Management is led by chairman Chris Corrigan, who has extensive ports experience given his former work with Patrick Stevedores, which was taken over by Toll Holdings ((TOL)) in 2006. Much of the management team previously worked at Patrick.

Morgan Stanley has initiated coverage on Qube with an Underweight rating within an In-Line industry view. While cyclically and structurally Qube is in the sweet spot of its growth cycle and there is both quality management in place and a solid long-term strategy, Morgan Stanley remains cautious on pricing in too much upside too early.

The market is doing this to some extent with the stockbroker noting its numbers imply a 40% earnings premium to peers in FY13 and a 30% premium out as far as FY15. Morgan Stanley's earnings per share (EPS) forecasts stand at 7c this year and 9c in FY13, which compares to consensus EPS estimates in the FNArena database of 7.4c and 8.5c respectively.

With respect to its forecasts, Morgan Stanley notes Qube is likely to be a beneficiary of the migration of container movements from road to rail. Longer-term, the broker suggests rail volumes could grow by around 16% annually over more than 10 years if the New South Wales government's rail target of 28% of container movements is achieved by FY20.

One issue is the future of the Moorebank site, as the federal government has decided to proceed with developing an intermodal terminal. Further clarity around participants in the development remain as much as 12 months away, while Morgan Stanley notes there is still uncertainty as to what role Qube could play in the project.

Assuming a share of 24% by FY20 and Qube not developing the Moorebank Intermodal Terminal but redeploying the existing site at book value generates a base case valuation and price target for Qube of $1.45 per share. The base case scenario also factors in margin improvement at Landside Logistics and further accretive acquisitions in the Ports and Bulk businesses.

Factoring in more optimistic assumptions generates a bull case valuation of $1.93, which Morgan Stanley notes is above existing price targets for Qube. The broker's bear case valuation is $0.89. The FNArena database shows targets for Qube range from UBS at $1.60 to Credit Suisse at $1.90, with a consensus target of $1.71.

Peer relative valuations with respect to Qube is a stumbling block for the investment case in the view of Morgan Stanley, as the broker argues there is better value elsewhere. While offering slightly lower capitalised annual growth in earnings for FY12-FY15 both Asciano ((AIO)) and Brambles ((BXB)) are trading on lower earnings multiples and consequently offer better investment value. Supporting this view is Morgan Stanley's assessment both offer better earnings visibility in coming years.

The market seems to agree there is better value elsewhere, as while Qube is rated as Buy once and Hold three times by brokers in the FNArena database to cover the stock, its Sentiment Indicator reading of 0.3 compares to Asciano at 0.9 and Brambles at 0.7.

There are some potential positives for Qube, as Morgan Stanley suggests the market would view positively further accretive acquisitions, additional meaningful contract wins and news Qube was moving forward with the Moorebank site.

But with the market pricing in further positives despite some uncertainty with respect to delivery, Morgan Stanley feels justified in rating the stock as Underweight.

Shares in Qube today are down slightly in a weaker market and as at 12.40pm the stock was 1c lower at $1.525. This compares to a range over the past year of $1.205 to $1.79, the current share price implying upside of around 12% 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

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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Chandler Macleod: Yield And Growth

- Moelis rates Chandler Macleod a Buy
- Earnings growth outlook is a positive
- Yields also attractive
- Stock offers value at current levels

By Chris Shaw

With a market capitalisation of just under $200 million, human resources and employment services group Chandler Macleod receives no coverage from the eight brokers in the FNArena database. One broker to see value in the stock is Moelis, who rates Chandler Macleod as a Buy with a price target of $0.50.

The reiteration of its Buy rating comes after Moelis met with management at Chandler Macleod, where earnings guidance for the second half of EBITDA (earnings before interest, tax, depreciation and amortisation) of more than the $19.9 million delivered in the first half was confirmed.

This guidance is consistent with Moelis's forecast for full year EBITDA of $42 million. Assuming this result is achieved, Moelis notes this would equate to earnings per share (EPS) growth of more than 25% for FY12, following the 32% increase delivered in FY11.

Contributing to the strong earnings growth in the view of Moelis is the high variable cost base of Chandler Macleod. This relates primarily to headcount, which the group can increase or cut relatively quickly in line with market conditions.

As well, Moelis suggests the earnings growth performance of Chandler Macleod reflects the successful integration of the RHD acquisition and strategic initiatives introduced over the past two years. This has improved the positioning of Chandler Macleod in contracting operations, meaning the company is less exposed to the more volatile permanent recruitment sector.

Chandler Macleod now has only around 16% of group earnings exposed to permanent recruitment on the numbers of Moelis. This is seen as a positive given this sector of the market has experienced a decline in activity levels of around 25% relative to the previous corresponding period.

The more recent AHS Services group acquisition, which was completed in February, is performing in line with management expectations according to Moelis. One positive is little in the way of branding and systems integration is required.

As well, given AHS Services is Australia's largest dedicated outsourced services provider in the domestic housekeeping market of around $1.2 billion, the deal will add $7- $8 million in profit before tax in FY13. This comes before plans to expand the business into markets such as New Zealand, Singapore and Hong Kong via Chandler Macleod's existing infrastructure.

Looking forward, Moelis sees strong growth through FY14 for Chandler Macleod, this from a solid pipeline of new business opportunities and a cost efficiency program expected to materialise from FY13.

Moelis's EPS forecasts for Chandler Macleod stand at 4.8c this year, rising to 5.9c in FY13 and 6.7c in FY14. This equates to an earnings multiple of 8.4 times this year, falling to 6.0 times in FY14. This implies value even allowing for a 20% share price increase since the interim result this year.

Dividends are also attractive, as on Moelis's forecasts for payouts of 2.7c this year, 3.3c in FY13 and 3.8c in FY14, yields would rise from 6.7% in FY12 to more than 9.0% in FY14. Dividends are currently fully franked.

Shares in Chandler Macleod today are unchanged in a weaker overall market, last trading at $0.42. This compares to a range over the past year of $0.285 to $0.47.

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Another Buy Rating For NRW Holdings

- JP Morgan initiates on NRW Holdings With Overweight
- Adds to consensus Buy ratings on the stock
- Earnings growth outlook and good track record are attractions
- Moves to diversify earnings offer some risks

By Chris Shaw

Australian mining services companies have attracted increased investor interest for some time, in part reflecting a solid earnings growth. An example is NRW Holdings ((NWH)), which prior to today scored a perfect six-for-six Buy rating score from brokers in the FNArena database.

Another positive view has emerged with JP Morgan today initiating coverage on the stock with an Overweight rating. The broker is positive on the stock for two reasons, one being a good track record within the sector and the other being a strong earnings growth outlook.

With respect to the former, JP Morgan notes NRW Holdings has a good history in terms of delivery on contracts as well as contract wins with key blue chip clients in the sector. This has been built on a strong position in the Western Australian civil and iron ore mining services contractor market, which supports the current expansion into other commodity sectors such as coal and LNG as well as moves into new markets such as Queensland and West Africa.

An advantage NRW Holdings has in JP Morgan's view is the company can offer a range of services that stretch from developing new mines and production facilities as well as through the production phase.

Looking at the earnings growth outlook, J Morgan expects earnings per share (EPS) growth of 113% in FY12 and 20% in FY13. In forecasts terms this equates to EPS of 34.2c for FY12 and 41c in FY13, which compares to consensus estimates according to the FNArena database of 33.9c and 39.3c respectively.

Supporting this growth outlook is a strong balance sheet, which JP Morgan notes is allowing NRW Holdings to continue to invest in growth areas such as production drilling and blasting services. As well, the good track record of the company helps secure contracts at lower risk under negotiated terms, while JP Morgan also sees leverage to growth in capex and production in the group's markets.

Further contract wins are a key near-term catalyst in JP Morgan's view, especially if the company can be successful in gaining contracts in new markets. Potential new contracts include iron ore deals with Rio Tinto ((RIO)) in the Pilbara and at Simandou, as Citi notes NRW Holdings is a preferred contractor for Rio Tinto in iron ore.

The push by NRW Holdings to enter new markets offers some operational risk in the view of RBS Australia as it will require new skills and expanded capabilities going forward, even though there is little risk to earnings through FY13 given contracts already in place.

In RBS's view NRW Holdings should outperform FY12 earnings guidance of a net profit of $91 million, while as with JP Morgan the broker also expects strong earnings growth in FY13. For the current year RBS has lifted its forecast to a net profit of $95 million, the broker seeing scope for a share price re-rating on the back of such a strong result.

Valuation suggests a re-rating is possible as on FY13 forecasts RBS Australia estimates NRW Holdings is trading on an earnings multiple of just eight times. JP Morgan similarly sees valuation support, pointing out the stock is trading at a discount of around 21% to its valuation of $3.90.

Dividends are another attraction, as on JP Morgan's estimates NRW Holdings offers a yield of 6.5% this year and 7.7% in FY13. Dividends are currently partially franked.

JP Morgan's price target has been set a little above this at $4.08, which compares to a consensus price target according to the FNArena database of $4.28. Targets range from RBS at $3.96 to UBS at $4.85.

Shares in NRW Holdings today are higher in a stronger overall market and as at 10.30am the stock was up 6c at $3.16. This compares to a range over the past year of $2.06 to $4.36 and implies upside of around 38% relative to the consensus price target in the FNArena database.

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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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Skilled Group Offers Value

- Credit Suisse initiates with an Outperform rating on Skilled Group
- Earnings growth certainty one attraction
- Adds to consensus Buy ratings from brokers covering Skilled

By Chris Shaw

Prior to last week all three of the brokers in the FNArena database to cover outsourced labour and workforce services provider Skilled Group(SKE)) rated the stock as a Buy, with price targets ranging from 2.40 to $2.70. These ratings date to last February following the company's interim result release. Credit Suisse has now added to coverage by initiating on the stock with an Outperform rating and a $2.60 price target.

One attraction for Credit Suisse is that Skilled offers greater earnings certainty in coming years than most of its Small Industrial peers. This growth, which the broker forecasts will be 11% capitalised annual growth in earnings per share for FY12 through FY15, will come from a mix of sources.

One is an ongoing turnaround story, as management of Skilled are in the process of stripping out excess costs from the business. The second is lower interest payment requirements stemming from a stronger balance sheet, which again reflects the benefits of the turnaround strategy initiated in 2010.

As well as boosting earnings, the combination of lower interest payments and stronger cash flows should support ongoing increases in dividend payouts in the view of Credit Suisse. This should support yields, which are forecast at 4.1% in FY12 and 5.2% in FY13. Dividends are currently fully franked.

Looking forward, Credit Suisse expects Skilled will continue to deliver reasonable top-line growth, thanks in particular to strong positions in key end markets. Earnings for Skilled are weighted to the oil and gas and mining sectors and include LNG and major iron ore projects, while the outlook for the utilities and road infrastructure markets are also solid in Credit Suisse's view.

In terms of forecasts, Credit Suisse expects earnings per share (EPS) for Skilled of 20.1c this year and 22.5c in FY13. These estimates compare to consensus EPS forecasts according to the FNArena database of 21c and 23.4c respectively.

Risks to the forecasts of Credit Suisse are primarily macro-based in the broker's view and include further Eurozone uncertainty and changes to commodity prices. Offsetting this, most of Skilled's clients are top-tier, which implies less risk to earnings.

Based on its forecasts, Credit Suisse estimates Skilled is trading on a FY13 earnings multiple of 10.5 times, which is a slight discount to the Small Industrials. This is despite the fact consensus earnings revisions for Skilled are around +9% against slightly negative revisions for the ASX Small Industrials.

Elsewhere in the market, RBS Australia's Buy rating is supported by the expectation margins in Skilled's businesses will improve, particularly given expectations the macro environment will improve over time.

Macquarie and Deutsche Bank are the other brokers in the FNArena database to cover the stock and agree with Credit Suisse there is value in Skilled at current levels.

Shares in Skilled closed yesterday at $2.36, which compares to a range over the past 12 months of $1.60 to $2.50. The share price implies upside of around 7% relative to the consensus price target of $2.53 in the FNArena database.

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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

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