Tag Archives: Other Industrials

The Short Report

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By Chris Shaw

For some time the majority of the major short positions on the Australian market have been retail stocks or those companies exposed to discretionary spending, a positioning that has been proven to be justified with the likes of JB Hi-Fi ((JBH)) reporting interim results indicating trading conditions remain very difficult.

The market has not adjusted its positioning significantly over the past week, as among the top short positions are JB Hi-Fi, Myer ((MYR)), David Jones ((DJS)), Billabong ((BBG)) and Harvey Norman ((HVN)), as well as discretionary spending plays such as Flight Centre ((FLT)) and Wotif.com Holdings ((WTF)).

Outside of retail exposed stocks, interest is in the more significant changes in short positions in recent sessions. Among the largest increases in shorts for the week from January 31 was in Linc Energy ((LNC)), where positions increased by 1.66 percentage points to 3.82%. This follows the release of the group's quarterly production report at the end of last month.

Lynas Corporation ((LYC)) also saw shorts jump by a little more than 1.6ppts to 8.79%, an increase that has continued even after the company was granted a temporary operating licence for its LAMP facility in Malaysia.

Australian Infrastructure ((AIX)) shorts increased from less than 0.4% to nearly 2.0% for the week from January 31, which may be a reflection of some concerns stemming from pressure on the group's airport assets given Hochtief is having trouble selling its stake in the Budapest and Athens airports.

Shorts also rose significantly in Kingsgate Consolidated ((KCN)), total positions jumping to 2.75% from less than 1.2% previously. This came despite a quarterly report that surprised to the upside in production terms.

The largest weekly increase in shorts came from Billabong ((BBG)), with a jump of 1.8ppts to 10.88% enough to reverse what had been a similar sized decline in short positions in the stock the previous week.

Declines in company short positions were less pronounced for the week from January 31, Fortescue leading the way with a fall of 1.96ppts to total shorts of just 1.68%. This followed a solid quarterly production report but one that showed some sign of margin slippage.

Other significant declines in short positions for the week were in Asciano ((AIO)), where shorts now stand at less than 0.9%, and in Rialto Energy ((RIA)), where shorts have again dropped below 5.4% from 6.7% previously. On a monthly basis Rialto has still seen shorts rise from almost zero to more than 5.0%, while the decline in shorts for Asciano follows a period of relative underperformance by the stock against peers.

The largest fall in weekly shorts was in ISO, a Small Ordinaries ETF derivative. Total shorts here fell by more than 5.5ppts to 11.42%.

Elsewhere among the monthly changes, OneSteel ((OST)) has seen shorts rise by 2.5ppts to 5.7% and Linc by 2.4ppts to 3.8%. The changes for OneSteel come as the company continues to deal with still difficult steel and iron ore market conditions.

The major monthly declines in shorts have been seen in Gloucester Coal ((GCL)) and QR National ((QRN)), which has been the peer performing the best relative to Asciano in recent weeks. Despite months of poor performance in share price terms, shorts in QBE Insurance ((QBE)) declined in the month from January 6 to 1.39% from 2.16% previously.

Top 20 Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21818917	98833643	22.06
2	MYR	72408624	583384551	12.37
3	FXJ	269346195	2351955725	11.49
4	ISO	617102	5403165	11.42
5	DJS	58318435	524940325	11.09
6	BBG	27818742	255102103	10.88
7	FLT	9344731	100009946	9.33
8	LYC	150716728	1713846913	8.79
9	COH	4573208	56902433	8.01
10	WTF	14197112	211736244	6.70
11	HVN	68900358	1062316784	6.48
12	TRS	1652056	26071170	6.34
13	CRZ	13981140	233264223	5.99
14	PPT	2475051	41980678	5.89
15	SEK	19892549	337101307	5.89
16	OST	76775962	1342393583	5.72
17	GNS	46938546	848401559	5.52
18	RIA	23038796	431256264	5.35
19	RIO	22749882	435758720	5.20
20	BOQ	11947637	229598329	5.19

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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Transfield Still Haunted By Big Question Marks

- Transfield Services reiterates full year guidance
- Easternwell operations remain problematic
- This business a cause for concern to some brokers
- Others more confident and see value at current levels

By Chris Shaw

Last Friday management at Transfield Services ((TSE)) updated on earnings guidance for FY12 and the market was pleasantly surprised, as full year earnings are still expected to be in a range of $130-$135 million in net profit after tax terms, albeit at the lower end.

For Deutsche Bank, the key point coming out of the earnings update was the core Australian and New Zealand business continues to perform at better than expected levels. The disappointment remains the Easternwell business, where expectations have again been lowered to reflect operational issues in the Minerals operations and some deferred growth capex.

RBS Australia notes the lowering of expectations for Easternwell is the third such change since Transfield has taken ownership. In that time the business has yet to meet any stated earnings targets, which leads RBS to suggest investors should remain cautious with respect to assumptions for the division.

A positive in Deutsche's view is guidance is now based on a stronger Australian dollar rate against the US dollar of 1.06. This means earnings expectations now factor in a slight currency headwind and so are somewhat lower risk.

Based on an expectation for 1H12 earnings of $44 million on a pre-amortisation basis, the implied earnings skew between the first half and the second half for Transfield stands at 34%:66%. While the skew in FY11 was larger, RBS sees this ratio as a concern, especially as Easternwell didn't contribute to earnings in 1H11. There is also potential for FY13 to disappoint in the view of RBS, as the lower than expected run rate at Easternwell means current consensus estimates are too high.

Deutsche Bank is also concerned full year guidance won't be achieved, as the ongoing issues at Easternwell place significant pressure on the Australian and New Zealand divisions. To reflect this, Deutsche is expecting 2H earnings of around $80 million against the $86 million implied by management's guidance.

This has prompted some minor cuts to Deutsche's earnings estimates, its net profit after tax numbers being reduced by 3-6% through FY14. JP Morgan has gone the other way and lifted estimates slightly, to reflect stronger margins from efficiency gains and some cost cutting measures.

Another positive in JP Morgan's view is management now appears to be more disciplined in deploying capital on Easternwell, with the approach now being to only invest when each business is able to deliver on targeted return on investment capital.

This has JP Morgan expecting management will now start delivering on targets for Easternwell. Macquarie is also less concerned for the shorter-term, especially as the announcement of the re-commencement of a buyback implies management has some confidence guidance for the full year is achievable.

Assuming a full 10% buyback is undertaken, Macquarie estimates it would be around 4% accretive in earnings per share terms assuming a price of $2.00 per share. Given the buyback should support the share price and to reflect a higher proportion of annuity style revenues, JP Morgan sees good value in Transfield at current levels.

This has been enough for an upgrade to an Overweight rating from Neutral previously, with JP Morgan also lifting its price target to $3.04 from $2.91.

Macquarie also rates Transfield as Outperform, seeing value given a discount of as much as 28% to the peer group average. This discount appears excessive to Macquarie given near-term earnings worries have been removed.

But Deutsche Bank and RBS disagree, arguing the potential for further earnings disappointment from Easternwell is enough to support a more cautious approach to Transfield. Both brokers rate Transfield as a Hold, as share price outperformance remains unlikely when there is still potential for full year earnings to fall short of what the market expects. In other words, both brokers remain on the lookout for further downgrades to earnings guidance.

Overall, the FNArena database shows Transfield is rated as Buy three times and Hold twice, with a consensus price target of $2.58. This is down from $2.77 prior to the update from management.

Shares in Transfield today are stronger and as at 1.45pm the stock was up 7.5c or more than 3.0% at $2.275. This compares to a range over the past year of $1.755 to $3.76. The current share price implies upside of around 13% relative to the consensus price target in the 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

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Confidence In Bradken Remains High

- Bradken result largely as expected
- Growth options remain in place
- Stockbrokers continue to rate Bradken a Buy

By Chris Shaw

Engineering services provider and rail equipment manufacturer Bradken ((BKN)) delivered a somewhat weak interim profit result this week, the result held back by ESCO-related market share losses and a protracted start-up of the new Norcast business. One area better than expected was the interest line, reflecting the debt restructuring achieved in 2011.

From a divisional perspective RBS Australia notes the core engineered products and mining consumables businesses were strong, making the result overall a reasonable one. Operating cash flows were the main point of weakness, largely due to a working capital build in the rail department.

A plus from the result was management reiterated full year earnings guidance of 35-40% net profit after tax growth. JP Morgan notes achieving this will require a higher second half skew than normal, though this appears achievable thanks to a combination of new markets, the roll-out of new products and capacity expansions. Significant one-off items are not expected in the full year result.

Post the result Deutsche Bank has retained a Buy rating on Bradken. In part this reflects the fact full year guidance was retained, while the broker is also more comfortable with the increase in working capital recorded during the period because the change reflected recent acquisitions.

While concerns about the achievability of earnings guidance remain in the market, Deutsche suggests these are overdone given improving global macro conditions. This suggests material upside potential from current levels.

Deutsche is not alone in this view, as the FNArena database shows Bradken scores a perfect seven-for-seven Buy ratings. Goldman Sachs is not in the database but also rates Bradken as a Buy given the valuation upside on offer.

As Goldman Sachs points out, the order book for Bradken is already sufficient to meet FY12 guidance. This leaves execution as the key and here the broker remains positive. Macquarie agrees, attracted to the quality of management in place and Bradken's strong market share in core products.

One positive noted by Macquarie is a recent move to China could deliver Bradken a strong medium-term cost advantage across all its businesses. The cost advantage in the rail business in China will be used as a springboard for other businesses, with management investing to achieve this.

Earnings growth going forward will also come from ongoing demand increases for Bradken's mining products, while Macquarie notes the recent Norcast and Overseas Alloys acquisitions will also boost revenues in the future.

While capex is high this year at around $160 million, gearing will only be high temporarily as Macquarie notes this capex has a 3-4 year payback period. BA Merrill Lynch suggests the end prize for Bradken will emerge from FY13, as the company develops into a global mining services provider with flexible production and global distribution.

Post the interim result brokers have made relatively modest adjustments to earnings estimates for Bradken. Consensus earnings per share (EPS) forecasts according to the FNArena database now stand at 70.9c this year and 82.9c in FY13. The changes in forecasts have seen price targets adjusted, the consensus target now $9.29 against $9.37 prior to the result.

Bradken offers a relatively attractive yield, expected to be around 5.4% this year and about 6.4% in FY13. Dividends are fully franked.

Shares in Bradken today are stronger and as at 2.50pm the stock was up 29c or 3.7% at $8.12. This implies upside of around 15%.

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Everybody Loves… NRW Holdings

- Earnings growth outlook for NRW Holdings remains positive
- Company is exposed to growth markets
- Offers expansion potential into new markets and services
- Citi initiates coverage with a Buy rating

By Chris Shaw

Civil construction and contract mining group NRW Holdings ((NWH)) had enjoyed a perfect three-for-three Buy ratings in the FNArena database and this has now expanded to four positive recommendations with Citi initiating coverage today.

Citi's Buy rating on NRW Holdings reflects both an attractive valuation at current levels and the positive of exposure to strong long-term demand drivers given operations in the mine construction and production sectors.

As Citi points out, the ongoing boom in capex for both greenfield and brownfield projects in both iron ore and coal is delivering strong growth to the civil construction operations of NRW Holdings. This trend should continue for at least the medium-term.

Also supportive for the medium to longer-term in Citi's view is that when the current capex boom matures as mines move from development to production, NRW Holdings will continue to benefit through its contract mining operations. As an example of this, Citi notes Australian production volumes of both coal and iron ore are forecast to more than double over the next 10 years.

The final key theme for Citi stems from new business opportunities. The recently established Action Drill & Blast business continues to deliver strong profit growth for NRW Holdings, while Citi expects company management to continue looking at ways to expand vertically along the construction cycle and increase exposure to non-mining infrastructure construction.

While not in the FNArena database, Austock Securities also rates NRW Holdings as a Buy. This call is supported by what Austock notes is the quality client base of NRW Holdings, which includes the likes of BHP Billiton ((BHP)), Rio Tinto ((RIO)) and Fortescue Metals ((FMG)).

As well, states Austock, the company offers good earnings visibility over the next 12-18 months, with risk to the upside from new contract wins. Recurring revenues from the mining services operations in particular offers good clarity to the earnings outlook for NRW Holdings in Austock's view.

Despite concerns over the global economic outlook stemming from the slowdown in China and the EU's debt issues and the pressure this has put on commodity prices, there has been little impact on earnings for NRW Holdings in recent months. A trading update last November highlighted this, as earnings guidance was lifted on the back of some increases to margins.

This prompted those already covering NRW Holdings such as UBS, RBS Australia and Deutsche Bank to lift earnings estimates, which resulted in increases to price targets. The consensus target according to the FNArena database stood at around $3.66 prior to Citi initiating coverage and rises slightly given Citi has set its price target at $3.73.

Citi also points out despite recent share price gains there is still relative value in NRW Holdings. At current levels the stock trades marginally below domestic peers on both an earnings multiple and EV/EBITDA (enterprise value to earnings before interest, tax, depreciation and amortisation) basis, while Citi suggests a premium of around 10% seems justified.

Austock agrees NRW Holdings should trade on a premium multiple to peers, supported by a superior earnings growth profile through the next 2-3 years. Dividends are also reasonable, Citi's forecasting suggesting a fully franked dividend yield of 3.9% this year, rising to 4.5% in FY13 and more than 5.0% in FY14. Stockbroker Moelis also covers the stock with a Buy rating (price target $3.50).

Shares in NRW Holdings today are stronger and as at 12.20pm the stock was up 5c or a little more than 1.5% at $3.31. This compares to a trading range over the past year of $2.06 to $3.42. The current share price implies upside of around 10% 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

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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Weekly Broker Wrap: Building And Digging A Good Year

By Andrew Nelson and Rudi Filapek-Vandyck

There simply is no room for discussion on the topic: most securities analysts and investment strategists at stockbrokerages and investment banks have returned from their Christmas holidays with a more positive outlook for equities this year. Traditionally, the month of January is a rather quiet one as most analysts prepare for the upcoming reporting season in February, when company updates are being absorbed into earnings and valuation models, leading to re-assessments on Buy-Hold-Sell ratings and re-adjustments to valuations and price targets.

Last week was shorter than usual because of Australia Day celebrations and research reports from the main stockbrokerages in Australia were, non-surprisingly, thinner than usual, especially on Friday, the Day After The Event. In terms of common themes for the research published during the week, much of it was dedicated to the building materials sector and to mining service providers. Both sectors, stockbrokers say, should be looking towards a good year ahead in terms of new orders, margins and profit growth.

Much like the year just gone, it looks like mining services firms will be blazing the trail to higher earnings in 2012. At least that’s the case with analysts’ comments from UBS, who expect the sector to outperform the broader market. Citing continued, robust demand robust and tight capacity, the broker predicts that gross margins are set to break out, which should lead to a run of positive estimate revisions as the year progresses.

Simply put, stocks in the sector are on average cheaper than they were this time last year. The broker is predicting solid share price performance from most in the sector, which it believes will be driven by a combination of rising valuations on the back of upward estimate revisions.

UBS notes that on average, the sector is trading at a discount to historical P/E levels. Given the current market, the broker thinks this just isn’t right and notes that if one were to apply historical P/E’s, then we would see some real upside to current share prices.

Then there’s the demand dynamic. UBS points out that there is more than $200bn worth of capex on the cards for the resources sector this year and given current supply is constrained, the broker estimates the sector will experience continued margin growth over the year. In fact, if earnings margins positively surprise by only 1%-2% in FY12-13, the broker notes its EPS estimates would increase by 10-20% on average.

A key subset of mining services is drilling services providers and here is where Bank of America/Merrill Lynch (BA-ML) chimes in with their good news. Much like UBS, BA-ML think the drilling companies must be looking down the barrel of a good year given all of the capex that is in the pipeline.

In fact, BA-ML notes the major miners are increasing budgets for 2012. Junior miners are cashed up after learning how to rein in costs over the GFC, followed by what was a pretty good earnings year in 2011. Furthermore, the broker expects that metal prices will remain at premium to production costs, thus encouraging exploration and, subsequently, drilling.

While both brokers agree 2011 was a good year, they note there was some significant expense in tooling up after a few tough years. That meant that while work was steady, costs were higher, especially in servicing legacy contracts written in tougher times. Given the amount of work in hand, capacity will be tighter and combined with lower operating costs, both brokers predict a significant margin break out.

BA-ML likes Swick Mining Services ((SWK)), Boart Longyear ((BLY)), Campbell Brothers ((CPB)), Imdex ((IMD)), and Ausdrill ((ASL)) as margin recovery stories. UBS has singled out NRW Holdings ((NWH)), Macmahon Holdings ((MAH)) and Bradken ((BKN)) based on combination of fundamentals such as management quality, growth prospects, gearing and valuation, while it notes all three are likely to benefit from currently cheap valuation metrics.

Credit Suisse took a look at the domestic coal miners this week and while it has cut its near term coking coal price assumptions by 5% due to slightly weaker global demand and increasing supply, particularly from Australia, it still sees upside in the sector.

The coal price cuts weigh the most on Aquila Resources ((AQA)), Cockatoo Coal ((COK)) and Gloucester Coal ((GCL)) given their focus on PCI and semi-soft coking coal. The broker notes that Aquila and Cockatoo especially are highly sensitive to changes to coal prices given their smaller comparative output.

At the same time, CS has only trimmed its thermal coal forecast by just 1% given a warmer than expected weather in the northern hemisphere. However, this is pretty much offset by the broker’s view that demand will remain strong given demand from China and India is expected to remain strong.

Thus the broker is decidedly positive on the outlook for the Australian coal sector, noting producers are continuing to generate healthy margins and the outlook for coal prices, short term aside, remains relatively robust.

The broker’s Top picks are Cockatoo Coal and Stanmore Coal ((SMR)), noting both stocks are substantially undervalued right now given they are trading at a 40% discount to a risked valuation despite there being a number of near-term catalysts to drive the share price higher.

CS also sees a bit of continuing light for Australian Building Materials companies, bravely predicting a recovery, albeit a choppy one, is forming in the US housing market. The broker reports its US housing start assumptions have lifted by an average of 4% over FY12–14 after a recent review by its US Homebuilding and Building Products team.

Some of the emerging trends the team took note of was a steady, if subdued trend of improving employment reads, record affordability in the US housing market given the falls of the past four years and prices that seem to be bottoming. Together these trends are helping to lift new home demand from admittedly depressed levels.

However, one of the biggest barriers to a US housing recovery is the need to work through a massive distressed property pipeline. The broker notes that more than five million homes are either in foreclosure or are more than 60 days delinquent. This means foreclosures and distressed sales are still setting the prices in many regional markets. This fact continues to weigh on home prices in general and reduces the incentive for homebuilders to develop or consumers to renovate.

That said the broker still sees the seeds of recovery sprouting and notes there is hope for further US Government intervention, which would help to speed up the process of working through foreclosed and distressed homes, lifting some of the pressure on pricing.

Credit Suisse has moved to increase its US housing starts assumptions and this combined with a revision of other key assumptions see average earnings upgrade of 5.0% for James Hardie ((JHX)). While helpful, the broker notes that the near term valuation is still stretched and the broker only sees value only emerging after a clear recovery takes hold and there is subsequent proof of the company’s ability to generate strong margins again. For the time being, CS has kept James Hardie at Underperform.

BA-ML is a little more downbeat on the Australian housing market, but its negative assessment is only short term. The broker is predicting another 5% decline in house prices through 2012, driven by a cautious consumer and household deleveraging. Yet by the end of 2012, Merills thinks prices will stabilise, supported by rate cuts, improving consumer sentiment, an undersupplied market and tight rental conditions.

The broker notes that those negative on the housing market often argue that after the steep increase in house prices over the last decade across the nation (less so in Sydney), prices will need to fall considerably to return to historical valuation levels.

The team at BA-ML disagrees, however, saying that in many sub-markets, such as discretionary holiday locations near major cities, prices have already corrected by up to 50%. Look at some of the major city markets and you’ve got much stronger fundamentals, like jobs and population growth. This means more diversified demand, and thus shallower price declines. And when you figure in the broker’s expectation for only a modest rise in unemployment, the pressure should be nowhere near enough to spark a big run in distressed selling.

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Nothing Rusty About LaserBond

By Greg Peel

LaserBond. These two words conjure up fond childhood memories when a Mr Bond spent his time saving the world from lasers, back in the days when Bond movies were high camp and fun rather than serious and tedious as they are now. As to whether LaserBond's Number One is bald and likes stroking his cat is unknown, but from a technological standpoint it seems LaserBond does have some world domination in mind.

Micro-cap research specialist Microequities has initiated coverage on LaserBond ((LBL)) with a Buy rating. The company operates a portfolio of surface engineering technologies for the fortification of industrial machinery operating in hostile environments.

Put simply, LBL's technology offers water-resistance that can extend machinery life an average four to five times beyond its original service life. In a world where the cost of new machinery or machinery hire has become critical to the ongoing resources boom, and in which new mining, civil works and power generation developments are finding themselves in more and more hostile weather environments (Queensland comes to mind – beautiful one day, bucketing down every other day), the ability to much reduce such costs through machinery life extension is compelling.

LBL's proprietary thermal spray technology can be applied at a fraction of the cost of new machinery, Microequities points out.

LBL has not stopped developing new technologies, and otherwise has expanded through acquisition. Recent acquisitions have added technology that repairs damaged machinery and that can manufacture custom parts, all before the coating process. Fix-improve-protect. LBL has become a one-stop shop.

As FNArena has pointed out often enough before now, mining and construction service companies are the big winners in an era of rapidly expanding global exploration and development and even faster rising costs. The problem for investors in 2012 is nevertheless that a lot of the recognised names – think your Imdexes, Campbells and Monadelphi – now have the bulk of potential earnings growth priced in. Microequites calculates, on the other hand, LBL is trading at a significant discount to peers and a 27% discount to DCF (discounted cashflow) valuation. LBL's revenues are weighted 45% to the mining sector.

LBL has posted a 2011 result showing 154% earnings growth to deliver a 68% compound annual growth rate since listing in 2008. Since being established in 1993, LBL has boasted seventeen years of continuous profitability. Despite the risks associated with the resources sector, such as a European implosion forcing development delays, LBL actually offers a “defensive” characteristic given repair and coating is a much cheaper option than replacement.

Microequities is tipping a record FY12 profit for LBL and has set a share price target of 28c. The shares closed yesterday at 21c.

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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

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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

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