Tag Archives: Other Industrials

The Short Report

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By Chris Shaw

Changes in weekly short positions this week have seen only one case where total shorts have risen by more than 1.0%, while no reductions in short positions reached that level over the past seven days and only two fell by more than 0.5%.

On the increased short position side the biggest increase was seen by a derivative in Asciano ((AIODC)), where shorts rose nearly 1.5% from a negligible level previously. The next largest increase was seen in Alkane Resources ((ALK)), where shorts increased by 0.48% to just more than 3.0%.

On the other side of the ledger, shorts fell most significantly in Bank of Queensland ((BOQ)), a decline of 0.73% to around 4.5% coming despite JP Morgan seeing evidence of the bank still dealing with some margin pressures, but amidst market speculation BOQ's French shareholder Banque Populaire, which owns 12.1%, might be putting its stake up for sale.

Ansell ((ANN)) also enjoyed a decline in shorts of 0.57% to just over 1.5% in the past week, which comes after the company made a minor acquisition in the US that RBS Australia suggested offers some longer-term upside.

Monthly changes in short positions have shown some larger adjustments, with a number of stocks seeing total shorts change by more than 1.0%. On the increase side the largest was for Flight Centre ((FLT)) and Myer ((MYR)), shorts for both increasing by around the 2.0% mark. Despite two cuts in official interest rates signs still point to a difficult trading environment for Australian companies exposed to the consumer discretionary sector.

Another where shorts have risen well above previous levels for the month is Wesfarmers ((WES)), the stock recording an increase for the month of 1.3% to around 3.4% in total. Brokers recently trimmed earnings estimates for Wesfarmers post a site visit, this reflecting not only the impact of ongoing food deflation for Coles but also changes to expectations for the coal operations.

Monthly falls in shorts have been most pronounced for Fairfax ((FXJ)) and BlueScope Steel ((BSL)), both seeing positions decline by around 2.0%. The latter likely reflects ongoing position adjustments post the recently announced equity issue by the company.

Resource stocks have also seen short positions come in, with Western Areas ((WSA)) and Murchison Metals ((MMX)) both recording declines of close to 1.5%. Shorts remain elevated for Western Areas at around 5.7%, though the company is expected to deliver solid news flow between now and the end of the year given the recent commencement of underground mining at Spotted Quoll.

Short positions in Santos ((STO)) have also come down significantly, essentially halving over the past month to 1.3%. While costs at the PNG LNG project are likely to increase the market had been expecting this, so brokers continue to like Santos on relative valuation grounds.

Elsewhere, an increase in short positions for QR National ((QRN)) has been more modest in recent weeks, totalling only around 0.45% for the past month. Despite this, RBS Australia suggests the increase is of significance as a recent cut to coal haulage guidance for the coming year implies some downside risk to earnings in coming months.

While housing numbers in Australia continue to suggest a tough market, shorts have declined over the past month for both James Hardie ((JHX)) and Boral ((BLD)), both by close to 1.0%. For both stocks brokers have seen some signs of conditions improving, these including price increases by Boral and a gradually improving outlook in the US market for James Hardie.

Top Ten Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	21256085	98833643	21.51
2	ISO	910691	5401916	16.86
3	FXJ	306769252	2351955725	13.07
4	MYR	71330818	583384551	12.20
5	BBG	27827437	255102103	10.91
6	DJS	51341362	524940325	9.76
7	FLT	9018033	99997851	9.01
8	LYC	113981561	1713846913	6.62
9	PPT	2642927	41342420	6.38
10	WTF	13391127	211255444	6.31

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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Wesfarmers Update Sees Expectations Lowered

- Brokers trim forecasts post Wesfarmers site visit
- Price targets also come down
- USB downgrades to Neutral rating

By Chris Shaw

Industrial conglomerate Wesfarmers ((WES)) last week held a tour of its Chemicals, Fertiliser and Energy business, the update giving additional insight on three main points. One was challenges with respect to LNG and LPG projects giving rising gas prices and falling LPG content, another the expansion plans for ammonium nitrate and the final an update on earnings guidance for the division.

Stockbrokers left the tour with a somewhat mixed view on the earnings outlook for Wesfarmers, with forecasts being adjusted accordingly. The changes to views are summed up by UBS trimming earnings per share (EPS) forecasts by 6.4% for FY12 and by 1-3% in later years to reflect a likely deterioration in margins for the division in coming years.

The other factor impacting on group earnings overall for UBS was the factoring in of lower operating leverage in the Coles business, this due to continued price deflation. Others in the market have reacted in a similar way, with JP Morgan lowering its numbers by 2.5-3.5% through FY14, while Citi has been more aggressive in cutting its numbers by 7.5% this year and by 4.6% in FY13.

Citi's numbers come down to reflect lower forecasts for Coles, as like UBS the broker sees fresh produce price deflation as still an issue. As well, comparable store sales are expected to slow, while there have been some teething problems with respect to new supply chain practices.

The cuts by Citi also reflect lower hard coking coal price forecasts, this to account for slower global growth expectations and ongoing domestic cost pressures. This is significant for earnings at Wesfarmers, as Citi estimates every US$10 per tonne move in met coal changes pre-tax profit by 2.3%.

Consensus EPS forecasts for Wesfamers according to the FNArena database now stand at 206.5c in FY12 and 230.1c in FY13. This compares to the 166.3c recorded in FY11. New earnings estimates mean new price targets, with the FNArena database showing a consensus target now of $32.75. This is down from $32.94 previously.

For UBS the changes to its numbers are enough to downgrade to a Neutral rating on Wesfarmers, from Buy previously. In the broker's view the outlook for the company remains favourable, but this is reflected in the stock trading around fair value at current levels.

This changes what had been an equal weighting between Buy and Hold recommendations, as the database shows Wesfarmers is now rated as Buy three times and Hold five times.

The Buy argument for Wesfarmers continues to be supported by JP Morgan. The broker continues to see longer-term upside from an ongoing turnaround at Coles, as well as Kmart and Officeworks, strong resources demand and solid results from Bunnings.

Citi sides with UBS and rates Wesfarmers as Neutral, suggesting while a further two years of double-digit earnings growth is likely this is reflected in a high earnings multiple at current levels. This argument is taken further, Citi pointing out if the retail operations of Wesfarmers are assessed separately, these businesses are trading on a much higher multiple than retail peers This implies a turnaround at Coles is being priced in by the market.

Shares in Wesfarmers have traded in range over the past year of $26.04 to $35.26. The current share price implies upside of around 6% 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

The past week has seen downgrades by brokers in the FNArena database double the number of upgrades, 10 ratings being lowered to just five increases. Total Buy recommendations now stand at 57.1%, down from 57.4% last week.

Among the upgrades were Bathurst Resources ((BTU)), where Credit Suisse moved to an Outperform rating from Neutral given a view the smaller cap plays are now the more attractive in the Australian coal sector. Bathurst's overall rating also benefited from Citi initiating coverage with a Buy rating.

A recent profit warning saw the Fletcher Building ((FBU)) share price suffer but in JP Morgan's view the sell-off was overdone. On valuation grounds the broker upgraded to an Overweight rating from Neutral previously despite a cut in price target. Macquarie also lowered its target for the stock.

Iluka ((ILU)) has announced better than expected titanium oxide price increases, which has forced brokers across the market to lift earnings estimates and price targets. The changes suggest some upside remains for the stock, enough for RBS Australia to upgrade to a Buy rating from Hold previously.

A US asset sale by Investa Office ((IOF)) was well received by the market given a price in excess of book value. The sale saw UBS lift its price target slightly, the broker also upgrading to a Buy rating given the potential valuation upside from further asset sales.

Management at Peet ((PPC)) offered cautious commentary at the group's AGM this week and the market reacted by pushing down the stock. The falls have been overdone according to Citi, who has upgraded to a Buy rating on valuation grounds.

Among the downgrades was Adelaide Brighton ((ABC)), JP Morgan cutting its rating to Neutral from Overweight following relative outperformance. This is a valuation call as the stock is now trading close to the broker's price target.

Clough ((CLO)) has reported some cost overruns and margin pressure on two contracts, enough for RBS Australia to lower its earnings estimates and price target. The changes are enough for a downgrade to a Hold rating, again a valuation call on the part of the broker.

Valuation is also behind Credit Suisse's downgrade of Gloucester Coal ((GCL)) to a Neutral rating, this following recent share price outperformance. Minor adjustments to earnings forecasts have accompanied the downgrade.

With earnings to be impacted by some one-offs UBS has cut forecasts for HFA Holdings ((HFA)). The changes have also seen its price target cut, while a lack of positive momentum sees the broker downgrade to a Neutral rating.

A lack of positive catalysts is also behind Citi's downgrade of Hills Industries ((HIL)), as earnings are still being impacted by the strong Australian dollar and ongoing challenges in the building industry. Target has been trimmed on minor cuts to estimates.

Deutsche Bank has lowered forecasts for Newcrest ((NCM)) given changes to production expectations, the changes seeing a reduction in price target. On valuation grounds the broker has moved to a Hold rating from Buy previously, the only non-Buy recommendation on Newcrest in the FNArena database.

Demand for IT services is expected to remain subdued given weak domestic economic growth and to reflect this Macquarie sees scope for some contract cancellations. This is likely to impact on earnings for Oakton ((OKN)), so the broker has adjusted its model to the point its rating has been downgraded to Neutral.

A solid run in Programmed Maintenance ((PRG)) shares has seen Citi downgrade to a Neutral rating on valuation grounds. The downgrade comes despite a modest increase in price target. Citi has also downgraded Transurban ((TCL)) to a Neutral rating on the same basis.

United Group ((UGL)) has acquired the DTZ trading assets and this offers the company a European property footprint. Despite this RBS Australia sees a slower rate of margin improvement going forward, enough to downgrade to a Hold rating. Targets for the stock have risen overall to reflect the impact of the acquisition.

Price targets for Charter Hall Office ((CQO)) have risen slightly following news the bidding consortium has lifted its offer slightly, while targets for APN News and Media ((APN)) have fallen on the back of cuts to earnings estimates post the company's investor day.

Broker models for Australian Worldwide Exploration ((AWE)) have been adjusted on news the company has sold part of its stake in the BassGas project, the changes having minor impact on price targets across the market.

Weak global markets have Computershare's ((CPU)) earnings under pressure, enough for JP Morgan to adjust its forecasts. Models have also been adjusted to reflect the recently completed Specialised Loan Services acquisition.

New guidance from Independence Group ((IGO)) has seen brokers lower estimates and price targets, while changes to aluminium price expectations mean BA Merrill Lynch has trimmed its earnings estimates for Alumina Ltd ((AWC)).

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup Suisse,Deutsche<br>Bank,JP<br>Morgan,Macquarie,RBS<br>Australia,UBS&b0=123,118,128,107,94,149,189,158&h0=74,96,80,118,87,91,112,81&s0=41,18,14,6,25,20,6,13" 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	BATHURST RESOURCES LIMITED	Neutral	Buy	Credit Suisse
2	FLETCHER BUILDING LIMITED	Neutral	Buy	JP Morgan
3	ILUKA RESOURCES LIMITED	Neutral	Buy	RBS Australia
4	INVESTA OFFICE FUND	Neutral	Buy	UBS
5	PEET & COMPANY LIMITED	Buy	Buy	Citi
Downgrade
6	ADELAIDE BRIGHTON LIMITED	Buy	Neutral	JP Morgan
7	CLOUGH LIMITED	Buy	Neutral	RBS Australia
8	GLOUCESTER COAL LTD	Buy	Neutral	Credit Suisse
9	HFA HOLDINGS LIMITED	Buy	Neutral	UBS
10	HILLS HOLDINGS LIMITED	Buy	Neutral	Citi
11	NEWCREST MINING LIMITED	Buy	Neutral	Deutsche Bank
12	OAKTON LIMITED	Buy	Neutral	Macquarie
13	PROGRAMMED MAINTENANCE SERVICES LIMITED	Buy	Neutral	Citi
14	TRANSURBAN GROUP	Buy	Neutral	Citi
15	UNITED GROUP LIMITED	Buy	Neutral	RBS Australia

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	BTU	50.0%	100.0%	50.0%	3
2	IOF	33.0%	50.0%	17.0%	6
3	TPI	50.0%	67.0%	17.0%	6
4	ILU	75.0%	88.0%	13.0%	8
5	FBU	38.0%	50.0%	12.0%	8
6	SWM	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	CLO	100.0%	67.0%	- 33.0%	3
2	GCL	100.0%	80.0%	- 20.0%	5
3	OKN	60.0%	40.0%	- 20.0%	5
4	TCL	100.0%	86.0%	- 14.0%	7
5	UGL	71.0%	57.0%	- 14.0%	7
6	PRG	100.0%	86.0%	- 14.0%	7
7	CQO	43.0%	29.0%	- 14.0%	7
8	FKP	80.0%	67.0%	- 13.0%	6
9	ABC	88.0%	75.0%	- 13.0%	8
10	NUF	38.0%	25.0%	- 13.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	UGL	14.137	14.509	2.63%	7
2	SWM	4.045	4.151	2.62%	8
3	ILU	20.219	20.661	2.19%	8
4	PRG	2.437	2.456	0.78%	7
5	IOF	0.673	0.678	0.74%	6
6	TCL	5.859	5.899	0.68%	7
7	TPI	0.872	0.877	0.57%	6
8	CQO	3.568	3.586	0.50%	7
9	NUF	4.843	4.866	0.47%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	APN	1.140	1.004	- 11.93%	8
2	OKN	1.970	1.832	- 7.01%	5
3	CLO	0.927	0.870	- 6.15%	3
4	FKP	0.844	0.793	- 6.04%	6
5	AAX	3.016	2.873	- 4.74%	4
6	BTU	1.000	0.967	- 3.30%	3
7	NCM	45.195	43.939	- 2.78%	8
8	GCL	9.454	9.304	- 1.59%	5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	AWE	6.871	7.086	3.13%	7
2	CPU	51.447	52.513	2.07%	7
3	SWM	41.313	42.075	1.84%	8
4	SUN	78.325	79.400	1.37%	8
5	IMD	22.040	22.207	0.76%	3
6	CPB	305.329	307.043	0.56%	7
7	NHC	29.775	29.900	0.42%	3
8	MGX	38.088	38.163	0.20%	8
9	ABC	23.550	23.575	0.11%	8
10	BTU	- 0.600	- 0.667	11.17%	3

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	AZT	17.980	- 3.600	- 120.02%	5
2	GBG	0.671	0.243	- 63.79%	6
3	IGO	12.820	7.560	- 41.03%	5
4	TCL	12.314	8.929	- 27.49%	7
5	PPC	7.108	5.792	- 18.51%	6
6	PAN	11.475	10.175	- 11.33%	4
7	AWC	5.893	5.387	- 8.59%	8
8	APN	13.438	12.350	- 8.10%	8
9	CLO	7.433	6.833	- 8.07%	3
10	TNE	7.767	7.200	- 7.30%	3

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The Short Report

By Chris Shaw

The past week has seen a number of relatively significant changes in short positions on the Australian Stock Exchange, with 10 companies seeing a change of more than 1% in their total short positions relative to the previous week.

Among those where shorts came down were Beach Energy ((BPT)), shorts here falling by 3.39% over the week to 0.60%. The change follows news the Tantanna to Gidgealpa pipeline is back online, something UBS noted would boost oil volumes for Beach.

Paladin ((PDN)), BlueScope Steel ((BSL)) and James Hardie ((JHX)) also experienced falls in short positions of more than 2% over the past week. For Paladin the change may reflect the Federal Government's proposal to end the ban on uranium sales to India, BA Merrill Lynch seeing this as increasing the pressure on those opposed to uranium mining.

BlueScope has announced a capital raising and the market has likely adjusted its views on the stock given the move will strengthen the balance sheet, while the second quarter report from James Hardie last month came in above most market expectations.

David Jones ((DJS)) has also seen shorts come down, the fall of 1.58% bringing total shorts down to 8.42%. The expected Reserve Bank of Australia rate cut announced yesterday is regarded as a potential positive for the retail sector.

Shorts in Aston Resources ((AZT)) also fell by 0.65% to 0.50% in the week from November 23, which may reflect preliminary merger discussions between Aston and Whitehaven Coal ((WHC)). UBS suggests such a merger would deliver some shared synergies.

In terms of increased short positions, the largest gain over the week from November 23 was in Campbell Brothers ((CPB)), this despite a strong interim profit result. Valuation seems a concern for Campbell Brothers, JP Morgan noting the stock is priced for a continuation of buoyant conditions in its core markets.

Shorts in White Energy ((WEC)) also rose by nearly 2% for the week to just over 3.0% in total, the market still adjusting to the announcement earlier in November of an apparent fall-out with joint venture partner and coal supplier PT Bayan.

Western Areas ((WSA) saw a jump in shorts of 1.26% to 6.7% despite the company announcing the start of underground mining at Spotted Quoll. The start of new operations is when mining companies tend to experience the most teething difficulties, so investors may be adopting a cautious approach while expecting operational hiccups.

Unlike the fall in shorts for David Jones, fellow retailer Myer ((MYR)) has seen shorts rise by 1.25% to more than 11.3% in the past week. This continues a trend of increased short positions in the stock over the past month. RBS Australia estimates Myer is currently trading at a discount to David Jones. This might explain the diverging trend between the two.

RBS also notes an increase in shorts in OM Holdings ((OMH)) over the past week, which may indicate traders continuing to position themselves ahead of an expected equity raising to help fund the Sarawak smelting project.

From a longer-term perspective of a few weeks, RBS Australia notes short positions in ASX ((ASX)) have been creeping up over the past month and now stand at around 1.36%. This is up from around 0.8% a month ago, the change possibly explained by the market accounting for softening volumes in both equities trading and new listings, as well as increasing competitive threats that are emerging.

Another major increase over the past month has been in Bank of Queensland ((BOQ)), shorts here rising from 2.88% late in October to more than 4.5% in late November. Poor credit quality in the core Queensland market has been a major market concern, though some stockbrokers feel this threat has been overplayed and so the stock is seen offering value.

Shorts in Flight Centre ((FLT)) have also risen over the past month, increasing by more than 2.0% to a total short interest of nearly 9.0%. This comes despite the most recent update from the company in early November indicating a strong outbound leisure travel market. This is causing earnings to track well above year ago levels.

Another significant increase over the past month has been to short positions in Wotif.com ((WTF)), which have risen by just over 2.5% to more than 6.2%. Over the last few weeks broker commentary on Wotif.com has reflected increasing concern over the group's growth profile as competition continues to increase.

Falls in short positions of 1-2% over the past month have been experienced by Carsales.com ((CRZ)) and Goodman Fielder ((GFF)), the latter coming at the same time as management indicated a strategic review was still being undertaken to find the best way forward for the company.

Top Ten Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	FIX	209662	407763	51.42
2	BBG	28297259	255102103	11.11
3	BOQ	11865233	225369547	5.26
4	ALL	25035750	543181024	4.62
5	APN	25522616	630211415	4.03
6	ARU	10658766	367980342	2.87
7	AUT	11710494	411655343	2.82
8	ALS	2494569	94193403	2.64
9	ALK	6992475	269028158	2.60
10	ANN	2792718	131197201	2.12

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

IMPORTANT INFORMATION ABOUT THIS REPORT

Technical limitations

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

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

Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has seen downgrades again outnumber upgrades, as the eight brokers in the FNArena database have cut ratings on 10 stocks while lifting recommendations on just three. Total Buy ratings remain at 57.4%, little changed from last week.

Among those upgraded were Metcash ((MTS)) post the group's interim profit result. While the result was slightly weaker than the market had expected the medium-term earnings outlook is improved by the fact the legal uncertainty of the proposed Franklins acquisition has now mostly passed.

This was enough for JP Morgan to upgrade to a Neutral rating, while Credit Suisse went one better and upgraded Metcash to Outperform from Neutral to reflect both the Franklins purchase and improved valuation post recent share price weakness. Targets and earnings estimates were adjusted across the market.

Seven West Media ((SWM)) was the other upgrade for the week, Citi lifting its rating to Buy from Neutral. While ad market conditions remain difficult, the broker suggests lead indicators are turning a little more positive.

The still tough conditions mean stock selection will be important in the sector and here Citi also sees reasons to like Seven West relative to peers. Citi's upgrade was accompanied by changes to earnings estimates and price target. On the same basis Citi has downgraded APN News and Media ((APN)) to Neutral from Buy, while also cutting its price target for the stock.

An in-line interim result from Campbell Brothers ((CPB)) wasn't enough to stop Deutsche Bank downgrading the stock to Hold from Buy, though the change is a valuation call rather than one indicating any concerns over the growth outlook for the company. Forecasts and price targets for Campbell Brothers across the market rose on the back of the result.

Weak end markets continue to impact on earnings for GUD ((GUD)) and RBS Australia has lowered its estimates and price target accordingly. The changes have caused the broker to downgrade to a Hold rating on the stock.

Recent share price outperformance and the fact the company will be cycling tough comparable numbers in coming months has prompted RBS to downgrade Nufarm ((NUF)) to a Hold rating. There are only minor associated changes in forecasts and price target from brokers covering the stock post a trading update from management.

Primary Health Care ((PRY)) has offered fresh earnings guidance to the market in the past week but the issue for BA Merrill Lynch is the guidance doesn't appear to be conservative. This suggests limited scope for outperformance, which is enough for the broker to downgrade to a Neutral rating. The update from management has seen only minor changes to estimates and targets across the market.

A more disappointing trading update from management at Symex ((SYM)) has seen RBS take the axe to its numbers, the broker more than halving its price target. Given a debt/cost restructuring now looks more critical, the broker has downgraded to a Neutral rating.

RBS has also downgraded TPG Telecom ((TPM)) to a Hold rating, as while the company has lifted its stake in iiNet ((IIN)) the broker sees any deal between the two as difficult given cultural differences. The change in shareholding in iiNet also sees the broker adjust its price target and earnings assumptions.

Disappointing production guidance was enough for both BA-ML and UBS to downgrade ratings for Woodside, the former to Underperform and the latter to Neutral. Brokers across the market have cut earnings forecasts and price targets post the update, with a couple of mentions for Santos (STO)) as a preferred play in the sector at present.

Concerns over the growth profile for Wotif.com ((WTF)) have seen Citi downgrade to a Sell rating, this given concerns over too much leverage to domestic tourism. A cut in price target follows from changes to earnings estimates.

With UBS initiating coverage of Regis Resources ((RRL)) with a price target above others in the market there has been a lift in the consensus target for the stock, while the broker also sees some upside potential in Cardno ((CDD)) and has lifted its target there as well. The consensus target for Bathurst Resources ((BTU)) has also come down slightly on the back of Citi initiating coverage.

In terms of changes to earnings estimates, forecasts for Air New Zealand ((AIZ)) have come down to reflect high fuel costs, while weak guidance from management at Qantas ((QAN)) has also resulted in some cuts to expectations.

The potential for spending cuts in the IT sector have impacted on BA-ML's model for Technology One ((TNE)), while some adjustments to commodity price forecasts saw earnings estimates trimmed for Rio Tinto ((RIO)).

Higher costs have seen minor changes to models for Santos ((STO)), while the potential for Alacer Gold ((AQG)) to lose part of its stake in the Copler project proved enough for UBS to cut its numbers and price target.

On the positive revision side, higher than expected guidance from Miclyn Offshore ((MIO)) saw Macquarie lift its estimates and price target, while the broker also made some changes to its model for Macquarie Atlas ((MQA)).

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	Metcash Limited	Sell	Neutral	JP Morgan
2	Metcash Limited	Neutral	Buy	Credit Suisse
3	SEVEN WEST MEDIA LIMITED	Neutral	Buy	Citi
Downgrade
4	APN NEWS & MEDIA LIMITED	Buy	Neutral	Citi
5	Campbell Brothers Limited	Buy	Neutral	Deutsche Bank
6	G.U.D. HOLDINGS LIMITED	Buy	Neutral	RBS Australia
7	NUFARM LIMITED	Buy	Neutral	RBS Australia
8	PRIMARY HEALTH CARE LIMITED	Buy	Neutral	BA-Merrill Lynch
9	SYMEX HOLDINGS LIMITED	Buy	Neutral	RBS Australia
10	TPG TELECOM LIMITED	Buy	Neutral	RBS Australia
11	WOODSIDE PETROLEUM LIMITED	Neutral	Sell	BA-Merrill Lynch
12	WOODSIDE PETROLEUM LIMITED	Buy	Neutral	UBS
13	WOTIF.COM HOLDINGS LIMITED	Neutral	Sell	Citi

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	MMX	- 67.0%	- 33.0%	34.0%	3
2	MTS	- 13.0%	13.0%	26.0%	8
3	BTU	50.0%	67.0%	17.0%	3
4	GNC	50.0%	67.0%	17.0%	6
5	SUL	33.0%	50.0%	17.0%	6
6	RFG	50.0%	67.0%	17.0%	3
7	SWM	63.0%	75.0%	12.0%	8
8	AQG	40.0%	50.0%	10.0%	6
9	RRL	67.0%	75.0%	8.0%	4
10	CDD	67.0%	75.0%	8.0%	4

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	WPL	63.0%	38.0%	- 25.0%	8
2	TPM	100.0%	75.0%	- 25.0%	4
3	ORL	100.0%	80.0%	- 20.0%	5
4	CHC	100.0%	83.0%	- 17.0%	6
5	GUD	67.0%	50.0%	- 17.0%	6
6	CPB	29.0%	14.0%	- 15.0%	7
7	BSL	43.0%	29.0%	- 14.0%	7
8	WTF	38.0%	25.0%	- 13.0%	8
9	NUF	38.0%	25.0%	- 13.0%	8
10	DJS	- 25.0%	- 38.0%	- 13.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	MMX	0.203	0.390	92.12%	3
2	RRL	3.257	3.618	11.08%	4
3	CPB	49.327	50.830	3.05%	7
4	SWM	4.045	4.151	2.62%	8
5	CDD	6.213	6.333	1.93%	4
6	CHC	2.482	2.500	0.73%	6
7	NUF	4.843	4.866	0.47%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	BSL	0.851	0.627	- 26.32%	7
2	WPL	44.009	40.099	- 8.88%	8
3	RFG	3.085	2.913	- 5.58%	3
4	APN	1.140	1.081	- 5.18%	8
5	BTU	1.000	0.967	- 3.30%	3
6	WTF	4.348	4.216	- 3.04%	8
7	TPM	1.860	1.820	- 2.15%	4
8	DJS	2.796	2.745	- 1.82%	8
9	GUD	9.048	8.898	- 1.66%	6
10	GNC	8.675	8.533	- 1.64%	6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	COF	8.733	9.733	11.45%	3
2	RRL	15.867	17.150	8.09%	4
3	RFG	26.150	28.033	7.20%	3
4	CPB	286.857	305.329	6.44%	7
5	CDD	55.220	57.570	4.26%	4
6	GNC	79.377	82.617	4.08%	6
7	MIO	21.365	21.934	2.66%	4
8	MQA	8.267	8.433	2.01%	6
9	SWM	41.313	42.075	1.84%	8
10	SUL	51.117	51.717	1.17%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	AIZ	10.322	7.791	- 24.52%	4
2	QAN	14.863	12.988	- 12.62%	8
3	TNE	7.767	7.200	- 7.30%	3
4	RIO	836.708	787.603	- 5.87%	8
5	STO	62.413	59.000	- 5.47%	8
6	AQG	59.396	56.725	- 4.50%	6
7	MML	67.870	64.922	- 4.34%	3
8	SLM	31.033	29.700	- 4.30%	6
9	IFL	43.900	42.700	- 2.73%	7
10	TEL	15.065	14.695	- 2.46%	8

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Perfect Score For Bradken

- JP Morgan initiates on Bradken with an Overweight rating
- Attracted to leverage to growth in mining production
- FNArena database now shows seven Buy ratings

By Chris Shaw

For some time Bradken ((BKN)) has been among the market's preferred exposures to mining sector infrastructure spending, as evidenced by a perfect six-for-six Buy ratings among brokers in the FNArena database providing coverage of the stock.

This has now become seven positive views, with JP Morgan initiating coverage on Bradken with an Overweight rating and price target of $9.41. The primary attraction for the broker is leverage to growth in mining production in the bulk, base and precious metals sectors.

This reflects Bradken's role as a supplier of consumable products needed in the sector such as ground engaging tools, wear plates, crawler shoes, wagons and bogies. These are sourced from the company's global footprint of foundries, machine shops, fabrication facilities, engineering workshops and other facilities.

Bradken's product offering is divided into five divisions, including Mining Products, Engineered Products, Rail, Industrial and Other, the latter including Cast Metal services and Power and Cement operations in the UK.

For JP Morgan the key remains Bradken's leverage to the mining sector, where growth is being driven by continued industrialisation in the developed world. This process is supporting strong demand growth for bulk and base metals, driving prices higher and so generating a supply response. As production increases, so too does demand for products manufactured by Bradken.

This supports the strong near-term earnings growth expectations of JP Morgan. In earnings per share (EPS) terms the broker expects Bradken will grow earnings by 19% this year and 18% in FY13, supported by strong underlying demand, higher production volumes and continued investment in organic and acquisitive growth.

In EPS terms JP Morgan expects Bradken to earn 71.9c this year and 85.1c in FY13. This compares to consensus EPS forecasts according to the FNArena database of 71.5c and 82.7c respectively.

Despite the strong earnings growth expectations, JP Morgan notes Bradken trades at a 21% discount to valuation at present and so offers an opportunity. This reflects potential catalysts to closing this valuation gap, such as delivery of management's guidance for earnings growth in FY12.

As well, JP Morgan suggests the successful integration of recent acquisitions such as Norcast and AOA should act as positive share price drivers as the market gains greater confidence in earnings expectations for Bradken.

Addressing a decline in group returns stemming from strong competition putting pressure on margins and prices should also be viewed positively by the market in JP Morgan's view. Medium-term Bradken is expected to recoup some of the recent declines, but a return to historical peak rates of return looks increasingly challenging.

Among the other positive views in the market, Macquarie suggests what should help Bradken deliver solid earnings performance over the medium-term is strong management and good market share in core products.

The other supportive factor noted by BA Merrill Lynch post Bradken's AGM in October is even using bearish assumptions in its model, the resulting base case valuation implies the stock is not so far from a potential bottom.

BA-ML's price target for Bradken stands at $9.30, which is almost exactly equal to the consensus price target according to the FNArena database of $9.32. Targets range from Credit Suisse and Deutsche Bank at $8.70 to UBS at $10.15.

Shares in Bradken today are stronger and as at 10.30am the stock was up 13c at $7.46. This compares to a trading range over the past 12 months of $6.09 to $9.60. The current share price implies upside of around 7% to the consensus price target in the FNArena database.

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The Short Report

By Chris Shaw

On face value the second week of the FNArena Short Report looks very similar to last week, as eight of the top 10 securities are the same and the top seven are in the same order as the week before. But as with last week, the significance comes in identifying changes to short positions rather than the actual percentage of a particular security that has been sold short.

The top 10 short positions over the past week on the ASX have been JB Hi Fi ((JBH)), ISO, the Small Ordinaries index tracker, Fairfax Media ((FXJ)), Billabong ((BBG)), Myer ((MYR)), David Jones ((DJS)), Flight Centre ((FLT)), Gunns ((GNS)), Perpetual Trustees ((PPT)) and Lynas Corporation ((LYC)).

Shorts in Gunns have increased significantly to nearly 8% from just over 5% the previous week, this adjustment occurring in the lead-in to the company's annual general meeting. In contrast, most of the rest of the top 10 have seen little change, the likes of Myer, JB Hi Fi, Fairfax and Flight Centre all recording only minor adjustments in total short positions in the past week.

Numbers have risen slightly for Billabong, which coincides with share price weakness last week some in the market attributed to investors selling given potential for the stock to be removed from the ASX100 index. Removal from such an index would cause some fund selling given the mandates fund mangers have in place in regards to what stocks they can hold in their portfolios.

Outside the top 10, short positions have increased for the likes of Resolute Mining ((RSG)) to more than 2.6% from less than 1.0% previously, this coming after the issue of more than 5.6 million new shares following the exercise of some listed and unlisted options.

Shorts have also increased in Cochlear ((COH)) to more than 6% from around 5% previously, the general uncertainty of the company's product recall being added to by a report from Credit Suisse of market share in bone conduction devices coming under pressure from competitor Med-E1.

Steel plays remain out of favour as short positions in both BlueScope ((BSL)) and OneSteel ((OST)) have risen over the past week, this on the back of BlueScope's move to raise equity to address balance sheet concerns.

Aston Resources ((AZT)) announced changes to its board earlier this month and the market has responded by an increase in short positions, while shorts in Goodman Fielder ((GFF)) also rose leading into the group's annual general meeting.

Bathurst Resources ((BTU)) also saw an increase in short positions leading into the announcement of first coal exports from the Buller project, while investors took the opportunity to increase shorts in Beach Energy ((BPT)) prior to that company's annual general meeting.

On the other side of the market, shorts fell in Energy Resources of Australia ((ERA)) as the company completed a bookbuild for the retail shortfall of a recent equity raising. There are no signs of any major shift in preferences in the uranium sector, as the level of shorts in Paladin are largely unchanged.

Santos ((STO)) has enjoyed a reduction in short selling positions since the last FNArena Short Report, which comes just prior to what was a disappointing update from rival Woodside ((WPL)) in terms of production guidance for the coming year.

While White Energy ((WEC)) has yet to fully resolve its feed coal supply issues, the market has reduced short positions in the stock from more than 2.8% to less than 1.4%, while the market also lowered total shorts in Western Areas ((WSA)) from about 6.3% to less than 5.5% leading into the company's annual general meeting.

Top Ten Largest Short Positions

Rank	Symbol	Short Position	Total Product	%Short
1	JBH	20294875	98833643	20.53
2	ISO	885115	5401916	16.39
3	FXJ	289084551	2351955725	12.30
4	BBG	28575703	255102103	11.19
5	MYR	62657295	583384551	10.71
6	DJS	52701616	524940325	10.02
7	FLT	8507685	99990391	8.50
8	GNS	66008241	848401559	7.77
9	PPT	2890642	41342420	7.01
10	LYC	110615212	1713846913	6.41

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

IMPORTANT INFORMATION ABOUT THIS REPORT

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The past week has been a relatively balanced one in terms of changes to ratings on stocks covered by the eight brokers in the FNArena database. A total of seven upgrades and eight ratings downgrades brought total Buy recommendations to 57.4%, down a little from nearly 57.7% last week.

Centro Retail ((CER)) was one to enjoy an upgrade, Deutche Bank moving to a Buy rating from Hold previously in response to revised aggregation terms. For Deutsche, the new terms significantly reduce the risk profile going forward, while offering additional incentives for unitholders to approve the proposal.

Following a review Deutsche also made minor changes to earnings estimates and lifted its price target for the stock. Elsewhere in the property sector, plans for a buyback of shares by Commonwealth Property Office ((CPA)) were enough for JP Morgan to upgrade to Overweight from Underweight. The buyback should act as a catalyst for the share price, while the broker is also attracted to low gearing levels and a conservative balance sheet as this offers scope for expansion opportunities.

In the resources sector, RBS Australia upgraded to Buy from Hold on Discovery Metals ((DML)), reflecting both upside from ongoing exploration success and to reflect improved valuation following recent share price weakness.

RBS also upgraded Kingsgate ((KCN)) to Buy from Hold on the expectation the ending of the wet season in northern Thailand will deliver improved quarterly production results from the Chatree project. The upgrade in rating comes despite a lowering of the broker's price target.

Murchison Metals ((MMX)) was upgraded to Neutral from Underweight by JP Morgan on news the company has entered an agreement to sell its interests in Crosslands and OPR. The funds to be received imply a value of $0.47 per share and improve both the valuation and financial position of Murchison. JP Morgan's price target has been adjusted to reflect the valuation impact.

While Northern Iron ((NFE)) remains on track to meet production targets for the full year, the move by the company to raise a further $9 million from its debt facility to alleviate a tight cash position has also been viewed favourably by Macquarie. This is enough for an upgrade to an Outperform rating from Neutral previously.

Among industrials, Programmed Maintenance ((PRG)) enjoyed an upgrade from RBS Australia, the broker moving to Buy from Hold post a solid interim result. The result increases confidence in the outlook for Programmed and should also help restore some credibility in the market according to RBS.

BlueScope ((BSL)) was downgraded to Hold from Buy this week by RBS, the broker arguing while an equity raising will improve the group's balance sheet there remains a significant amount of earnings uncertainty. This uncertainty means a Buy rating is no longer appropriate in the broker's view.

Targets and earnings estimates for BlueScope have been adjusted across the market to account for the impact of the equity raising. OneSteel ((OST)) also saw cuts to earnings estimates and price targets post weak outlook commentary at its AGM during the week.

Cuts to iron ore prices by JP Morgan resulted in Gindalbie ((GBG)) being downgraded to Neutral from Overweight, while price target and earnings estimates were also reduced. It was a similar story for Mount Gibson ((MGX)), though in this case it was Citi lowering its numbers and downgrading to a Neutral rating from Buy previously.

In a tough week for IT stocks both Oakton ((OKN)) and SMS Management and Technology ((SMX)) were downgraded by RBS to Hold ratings from Buy. The changes reflect still difficult operating conditions in key markets. In both cases earnings estimates and price targets were also reduced.

Things are no easier for wealth managers as evidenced by weak guidance from IOOF ((IFL)), the update causing brokers to lower earnings forecasts and price targets. UBS also downgraded to a Neutral rating from Buy previously.

In contrast, Kathmandu ((KMD)) delivered a solid trading update but it only triggered minor changes to estimates. RBS has still downgraded to a Hold rating on valuation grounds post recent share price gains.

This week Telecom New Zealand ((TEL)) de-merged its network division and this has prompted brokers across the market to update their earnings models. Price targets have fallen across the board and Credit Suisse has downgraded to an Underperform rating from Neutral previously.

A solid second quarter result from James Hardie ((JHX)) has been enough to prompt some increases to earnings estimates and price targets, while brokers have gone the other way on David Jones ((DJS)) and trimmed forecasts and targets post yet another disappointing quarterly sales update from the department store owner.

NRW Holdings ((NWH)) delivered strong AGM earnings guidance and was being rewarded through increases to earnings estimates across the market, with all three brokers covering the stock also lifting price targets.

Forecasts for Virgin Blue ((VBA)) have also sneaked higher following solid AGM commentary, while a solid full year result from Graincorp ((GNC)) and expectations of another strong year to come have been enough for some minor revisions to estimates and price targets.

Following the acquisition of TransACT brokers have lifted forecasts for iiNet ((IIN)), the result being modest increases to price targets as well. Monadelphous ((MND)) has seen forecasts and price targets increase thanks again to positive outlook commentary at the group's AGM. Monadelphous is facing a different kind of problem than most other stocks in the Australian share market: ongoing popularity among buyers of equities. One recurring theme in stockbroker research on the company is thus, unsurprisingly, whether the shares are getting a bit expensive?

A slightly better than expected interim result has seen minor increases to forecasts for Thorn Group ((TGA)).

Shale gas developer and oil producer Beach ((BPT)) received some good news during the week with the Tantanna to Gidgealpa oil pipeline coming back on stream and this was enough for UBS to lift forecasts, while Credit Suisse revised some volume assumptions for Fortescue ((FMG)) that resulted in lower earnings estimates and a cut in price target.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	Centro Retail Group	Neutral	Buy	Deutsche Bank
2	COMMONWEALTH PROPERTY OFFICE FUND	Neutral	Buy	JP Morgan
3	DISCOVERY METALS LIMITED	Neutral	Buy	RBS Australia
4	KINGSGATE CONSOLIDATED LIMITED	Neutral	Buy	RBS Australia
5	MURCHISON METALS LTD	Sell	Neutral	JP Morgan
6	NORTHERN IRON LIMITED	Neutral	Buy	Macquarie
7	PROGRAMMED MAINTENANCE SERVICES LIMITED	Neutral	Buy	RBS Australia
Downgrade
8	BLUESCOPE STEEL LIMITED	Buy	Neutral	RBS Australia
9	GINDALBIE METALS LTD	Buy	Neutral	JP Morgan
10	IOOF HOLDINGS LIMITED	Buy	Neutral	UBS
11	KATHMANDU HOLDINGS LIMITED	Buy	Neutral	RBS Australia
12	Mount Gibson Iron Limited	Buy	Neutral	Citi
13	OAKTON LIMITED	Buy	Neutral	RBS Australia
14	SMS MANAGEMENT & TECHNOLOGY LIMITED	Buy	Neutral	RBS Australia
15	TELECOM CORPORATION OF NEW ZEALAND LIMITED	Buy	Sell	Credit Suisse

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	MMX	- 67.0%	- 33.0%	34.0%	3
2	DML	25.0%	50.0%	25.0%	4
3	KCN	20.0%	40.0%	20.0%	5
4	CER	33.0%	50.0%	17.0%	4
5	PRG	86.0%	100.0%	14.0%	7
6	STO	75.0%	88.0%	13.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	MGX	75.0%	25.0%	- 50.0%	8
2	KMD	80.0%	60.0%	- 20.0%	5
3	AZT	80.0%	60.0%	- 20.0%	5
4	OKN	80.0%	60.0%	- 20.0%	5
5	SMX	100.0%	80.0%	- 20.0%	5
6	CHC	100.0%	83.0%	- 17.0%	6
7	GBG	100.0%	83.0%	- 17.0%	6
8	BSL	57.0%	43.0%	- 14.0%	7
9	IFL	71.0%	57.0%	- 14.0%	7
10	ORG	88.0%	75.0%	- 13.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	MMX	0.220	0.390	77.27%	3
2	JHX	6.391	6.706	4.93%	8
3	PRG	2.357	2.437	3.39%	7
4	DML	1.608	1.640	1.99%	4
5	CER	0.350	0.355	1.43%	4
6	ILU	19.938	20.219	1.41%	8
7	KMD	2.083	2.103	0.96%	5
8	CHC	2.482	2.500	0.73%	6
9	ORG	17.455	17.456	0.01%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	BSL	1.356	0.851	- 37.24%	7
2	MGX	1.946	1.659	- 14.75%	8
3	AZT	12.870	11.540	- 10.33%	5
4	OKN	2.152	1.970	- 8.46%	5
5	GBG	1.078	0.995	- 7.70%	6
6	IFL	6.637	6.329	- 4.64%	7
7	SMX	6.790	6.478	- 4.59%	5
8	DJS	2.796	2.745	- 1.82%	8
9	KCN	8.744	8.664	- 0.91%	5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	NWH	25.133	30.300	20.56%	3
2	VBA	2.871	3.014	4.98%	7
3	GNC	79.377	82.550	4.00%	6
4	JHX	29.699	30.791	3.68%	8
5	IIN	29.067	29.950	3.04%	5
6	PRU	22.517	23.183	2.96%	6
7	MND	119.183	122.583	2.85%	5
8	PRG	25.414	26.086	2.64%	7
9	TGA	19.467	19.967	2.57%	3
10	BPT	4.040	4.140	2.48%	5

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	AZT	39.460	17.980	- 54.43%	5
2	TEL	18.523	14.700	- 20.64%	8
3	GBG	0.771	0.671	- 12.97%	6
4	PPC	7.833	7.108	- 9.26%	6
5	OST	15.114	13.986	- 7.46%	7
6	MGX	40.863	38.088	- 6.79%	8
7	IFL	46.100	43.900	- 4.77%	7
8	CER	3.633	3.475	- 4.35%	4
9	FMG	66.072	63.294	- 4.20%	8
10	OKN	19.420	18.620	- 4.12%	5

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NRW Holdings Knocks ‘Em Dead

- NRW Holdings lifts guidance
- Increases reflect margin improvement
- Brokers lift earnings estimates and price targets

By Chris Shaw

Civil construction and mining services company NRW Holdings ((NWH)) delivered positive earnings guidance yesterday, management's expectations for the first half of FY12 and for the full year coming in ahead of market forecasts.

Management has guided to interim revenues of $580-$610 million and net profit after tax of $41-$43 million, with similar expectations for the second half of the year. This implies full year revenues of $1.16-$1.22 billion and net profit of $82-$86 million, which compares favourably to the previous estimates of UBS of $1.15 billion and $73.1 million respectively.

Driving the increase has been margin improvement, as UBS notes the new guidance implies an EBIT (earnings before interest and tax) margin of 10.8%. This is up from the 8.7% achieved in FY11 and compared to UBS's previous estimate of 10.1% for FY12.

RBS Australia attributes the margin improvement to negotiated contract rates, Middlemount plant mobilisation and a ramp-up at the plant and some gains from recently negotiated contracts.

The better than expected guidance has seen increases to earnings forecasts across the market, with UBS lifting its earnings per share (EPS) numbers by 10-14% through FY14. Deutsche Bank has been even more aggressive in increasing its net profit forecasts by 25% for FY12 and by 18% for FY13, while the increases put through by RBS Australia are broadly in line with those of Deutsche Bank.

Post the update, the FNArena database shows consensus EPS estimates for NRW Holdings of 30.3c for FY12 and 34c for FY13. This compares to the 16.1c earned in FY11.

Changes to earnings estimates mean increases to price targets, RBS lifting its target to $3.37 from $3.08, Deutsche to $3.50 from $3.10 and UBS to $4.10 from $3.75. The consensus price target for NRW Holdings according to the database now stands at $3.66, up from $3.31 prior to the update.

There are no changes in ratings post the update, all three brokers in the database covering NRW Holdings rating the stock as a Buy. For RBS there remains upside potential from a strong pipeline of proposed mining capital expenditure over the next two years, which should support the group's order book.

As well, RBS notes NRW Holdings has a blue chip client base and a solid track record, while there is also a high level of earnings visibility with respect to near-term earnings. The current share price offers value according to RBS, the stock trading on a FY12 earnings multiple of around 9.3 times.

UBS also sees value, pointing out while the share price of NRW Holdings has risen by 28% this year, which is outperformance relative to the Small Ords index of nearly 50%, EPS forecasts have been increased by 42-43%.

As UBS points out, this implies a valuation de-rating of around 10%, something the broker suggests is not justified given the solid capex outlook for the sector and the good relationship of NRW Holdings with key customers.

It is a similar argument from Deutsche Bank, as on its numbers NRW Holdings is trading on a FY12 earnings multiple of just 8.8 times and for FY13 of 9.9 times.

Shares in NRW Holdings today are slightly higher and as at 12.30pm the stock was up 3c at $2.81. This compares to a trading range over the past year of $1.66 to $3.09. The current share price implies upside of around 33% to the consensus price target in the FNArena database.

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Is Monadelphous Now Too Expensive?

- Monadelphous delivers positive AGM commentary
- Brokers lift earnings estimates and price targets
- Valuation keeps broker opinions divided

By Chris Shaw

Tough operating conditions mean an acceleration in revenue growth is not common among ASX listed stocks at present. One stock to buck this trend is Monadelphous ((MND)), one of the leading structural and mechanical contractors to the resources sector.

AGM commentary from Monadelphous yesterday indicated at least 15% revenue growth should be achieved in FY12. UBS notes solid margins should also be maintained, which indicates management are not being forced to cut margins to generate this growth in revenues.

The revenue growth expectations of management are better than the 12.9% growth UBS had been forecasting. This has prompted the broker to lift earnings per share (EPS) estimates by 2% through FY14.

Others in the market have reacted similarly, JP Morgan increasing its EPS estimates by 2-4% through FY14 and Deutsche Bank lifting its profit forecasts by 5% for FY12 and by 7% for FY13. Macquarie's estimates have increased by a similar amount to Deutsche Bank.

Consensus EPS estimates for Monadelphous according to the FNArena database now stand at 121.5c for FY12 and 142.3c for FY13.

The changes to earnings forecasts have seen similar adjustments in price targets. JP Morgan's target increases 40c to $15.77 and UBS has lifted its target to $21.25 from $20.75. Macquarie makes the largest increase in price target to $19.83 from $18.82, while Deutsche has increased its target by 70c to $20.70.

The consensus price target according to the database now stands at $20.13, up from $19.61 prior to the AGM update. Targets ranging from JP Morgan at $15.77 to RBS Australia at $23.09.

Despite increases to forecasts and price targets, opinions on Monadelphous remain mixed. UBS continues to rate the stock as a Buy, expecting the combination of strong cash flows, triple digit returns on capital, a net cash position and a strong earnings outlook will continue to deliver share price outperformance. This should be achieved despite a valuation premium in UBS's view.

Deutsche Bank estimates at current levels Monadelphous is trading at a 35% premium to the mining services sector average. As a result, while offering one of the better quality exposures to the sector and potentially a longer cycle than others, Deutsche sees the solid earnings outlook as already priced into the stock. Macquarie similarly rates Monadelphous as Neutral.

JP Morgan is at the other end of the spectrum, taking the view the current valuation of Monadelphous factors in all the potential upside of solid earnings growth expectations and a strong financial position but doesn't account for any of the risks such as shortages of skilled labour impacting on operations.

For JP Morgan there is better value exposure to be had via the likes of UGL ((UGL)) and Ausdrill ((ASL)), meaning an Underweight rating on Monadelphous has been retained. Overall, the FNArena database shows Monadelphous is rated as Buy twice, Hold twice and Underweight once.

Shares in Monadelphous today are slightly weaker and as at 11.35am the stock was down 3c at $19.27. This compares to a trading range over the past year of $15.30 to $22.40. The current share price implies upside of around 4.6% to the consensus price target in the FNArena database.

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