Tag Archives: Transport

Treasure Chest: How To Play The RBA

By Greg Peel

The Reserve Bank of Australia has misread the Australian economy over the past year, suggests BA-Merrill Lynch, making the assumption the mining boom would offset deterioration elsewhere. Tuesday's 50 basis point “double cut” is thus a capitulation – a concession to the fact confidence has been sorely hit by by the “huge” structural change brought about by a persistently strong currency.

Merrills sees the Aussie as the fundamental issue. The RBA made 50 points of cuts late last year yet the Aussie has remained elevated and financial conditions remain as tight as they've been for twenty years. Even the double-cut this week failed to much budge the Aussie. The problem is that the usual currency adjustment to interest rate differentials is not working in the current macro climate. With the US recovery tenuous and Europe a relentless concern, liquidity is being pumped into the system globally which devalues the relevant currencies as a result. Thus on an exchange rate basis, the Aussie has been unable to breach parity and shows no signs of doing so soon.

Goldman Sachs agrees on the currency front, suggesting a weaker Aussie remains the key to a sustained economic recovery in Australia. As the RBA's easing cycle accelerates, one can look to history as a guide as to which sectors most benefit in 6-12 months time. Equity performances can be highly variable, notes Goldmans.

The past four major RBA easing phases occurred in 1990-94, 1996-97, 2001 and 2008-09. In the past the retail sector has been the main beneficiary, Goldmans notes, with the majority of the benefit accruing after six months, while building materials also receives a boost. Banks and REITs also outperform after 6-12 months while media has historically been disappointing (given the influence of News Corp ((NWS)).

However, each of those past easing cycles has been accompanied by a fall in the Aussie dollar, and that's where the Merrills analysts have their doubts. The Goldman analysts suggest:

“The combination of lower interest rates and a weaker AUD moving financial conditions into a more accommodative setting is the catalyst we are waiting for before becoming more bullish across the domestic cyclicals. A sustainable decline in the AUD would cause us to take a more positive view on the domestic cyclical stocks”.

In other words, don't go rushing in with history as a guide on the back of what may well be a sustained RBA easing phase. One hint of QE3 in the US, or further stimulus from the ECB (not to mention the Bank of England, Bank of Japan, Swiss National Bank – the list goes on) and the Aussie is unlikely to respond as hoped.

Merrills suggests “interest rate differentials are no longer a driver of the currency”. If you consider ongoing stimulus to be a form of rate cut, such that while the Fed rate remains at zero further stimulus equates to rates dropping further into the negative, then in reality the interest rate differential influence remains intact. We really need RBA rates to fall without other major central banks altering their stance or suggesting they might yet alter their stance before the Aussie can meaningfully break parity.

The typical equity beneficiaries of rate cuts have been the banks, consumer stocks and the building sector, notes Merrills. The analysts are assuming a benefit to banks and consumer stocks this time, but perhaps less than normal. Merrills is also looking ahead to when the first carbon tax compensation payments are made which would provide for a consumer boost a la the Rudd government's hand-outs in 2009. First to see some money flows would be low-end consumption and gambling, which would favour Wesfarmers ((WES)), Woolworths ((WOW)), Tatts ((TTS)), Tabcorp ((TAH)) and Echo Entertainment ((EGP)), Merrills suggests. The broker also has Toll Holdings ((TOL)) as an Outperform.

Consumer discretionary is not first port of call but given persistent retail weakness, this sector is the most consistently shorted in the market at present. A short squeeze may thus suggest some sharp upside potential. Banks and yield stocks are also beneficiaries of lower rates, Merrills notes.

But the analysts warn the carbon compensation boost may prove short-lived once utility bills start rising dramatically, as they are expected to do as the year progresses. Merrills is not keen on the building sector given the government spending programs of 2008-09 have run their course and in July the Victorian first home builder support scheme ends.

Goldman Sachs had argued prior to the RBA cut that it has been appropriate to maintain some exposure to the domestic cyclical theme, and has focused on building materials via OneSteel ((OST)), retail via Super Retail ((SUL)) and transport via Qantas ((QAN)).

But Goldmans still wants to see that weaker Aussie before becoming more excited.

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Growth Potential For Brambles

- Brambles trading update largely as expected
- Margins remain a point of focus given flat volumes
- Earnings growth outlook remains solid
- Brokers remain favourable towards the stock

By Chris Shaw

A third quarter trading update from Brambles ((BXB)) yesterday was broadly in line with the market's expectations as management reiterated earnings guidance for the full year despite still challenging operating conditions.

A highlight for Deutsche Bank was management indicating sales growth in the key divisions of Pallets Americas and RPCs was stronger than had been expected. Growth in Pallets was 6% against Deutsche's forecast of 4%, this despite a forecast organic volume growth of around 2%. This implies some market share gains and possibly some price improvement.

As well, Morgan Stanley notes management continues to look for cost efficiencies to restore margins going forward, which is a positive for the earnings outlook given the trading environment remains difficult. Morgan Stanley expects pallet margins to gradually improve in coming years.

A gradual improvement is most likely in the view of JP Morgan, the broker expecting the passing through of cost inflation will take some time given the likelihood CHEP delays price increases to grow volumes and customer satisfaction. Such a move would ensure CHEP maintains its scale advantage, which JP Morgan notes is a key barrier to entry in the market.

BA Merrill Lynch agrees margins should slowly improve but remains cautious in terms of expectations. As an example, while management at Brambles is forecasting 18% EBIT (earnings before interest and tax) margins for Pallets Americas in FY12, BA-ML is forecasting a margin of 17.4%.

There was little new news with respect to any sale of the Recall business, with the indicative sale timetable unchanged. While supportive of a sale, JP Morgan suggests Brambles should retain the business if a price of at least US$1.8 billion cannot be achieved.

With full year earnings guidance for EBIT of US$1.05-$1.08 billion maintained, changes to broker earnings forecasts post the update have been modest. This means little change in price targets as well, the exceptions including Credit Suisse lifting its target to $8.40 from $7.70 and Goldman Sachs increasing its target to $8.49 from $7.98 while retaining a Buy recommendation.

The consensus price target for Brambles according to the FNArena database now stands at $7.83, which is up from $7.72 prior to the update. Targets within the database range from Citi at $7.15 to Credit Suisse at $8.40.

Ratings are also unchanged post the result, the database showing Brambles is rated as Buy seven times and Hold once, this courtesy of BA-ML. This view reflects the weak volume outlook in the current market, which BA-ML suggests makes a conservative view appropriate. If volumes were to hold up and margin targets are achieved BA-ML concedes there is some upside risk to its FY12 earnings estimates.

Morgan Stanley is not in the FNArena database but also rates Brambles as Equal-Weight as part of an In-Line industry view, seeing the stock as fairly valued at current levels. For Morgan Stanley, Asciano ((AIO)) and QR National ((QRN)) offer better value at present.

JP Morgan is one to argue the Buy case for Brambles, the broker attracted to the expectation of double-digit earnings per share growth through FY15. Deutche Bank is similarly positive given the view Brambles is the best way to play a US recovery theme.

As well, the RPC business offers an attractive longer-term growth platform according to Deutsche given at present the business only has around 7% market share in the US and 13% in Europe. Growth in this division in the US should be underpinned by attractive pricing in Deutsche's view, as the RPC offering from Brambles costs US93c per trip against up to US$1.25 per trip for cardboard.

RBS Australia also rates Brambles as a Buy, taking the view while a FY13 earnings multiple of 15 times is not cheap it is justified given the company has a strong market position, quality management and offers a better growth outlook than peers.

Brambles shares today are down slightly in a weaker market and as at 11.20am the stock was 6c lower at $7.34. This compares to a range over the past year of $5.79 to $7.59 and implies upside relative to the consensus price target in the FNArena database of around 6%.

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Weekly Broker Wrap: Bank Result Previews And Macro Themes

- GS strategists identify dominant macro market themes
- Stockbrokers preview major banks' interim results
- RBA rate cuts to have little market impact, predicts JP Morgan
- BA-ML updates views of London clients

By Chris Shaw

While 2012 has delivered a relatively positive start in terms of equity market performance, Goldman Sachs expects a number of macro themes will continue to influence sector and stock selection for the Australian market.

The key macro themes expected to dominate Australian stock performance over the next 12 months are a US economy recovery, China's ongoing industrialisation and growth, mining capital investment, mining volumes and the domestic interest rate cycle.

Of note, Goldman Sachs points out the China industrialisation and growth plus the mining investment themes are highly correlated and have been the dominant drivers of performance over the past year. At the same time, domestic cyclicals have underperformed the market since the end of 2010, though performance within this group has been mixed given weak building material performance and outperformance from the transport sub-sector.

The US economic recovery theme has modestly outperformed since the end of the GFC and has gained momentum since late last year. Goldman Sachs notes a strong Australian dollar rally since the middle of 2010 has reduced the attractiveness of this theme for domestic investors.

Looking ahead, Goldman Sachs continues to view the US recovery themes as one of the more attractive given its long duration potential and the added benefit of offering a currency hedge against any Australian dollar weakness. Preferred stocks for such a theme are Amcor ((AMC)), Brambles (BXB)), Computershare ((CPU)), CSL ((CSL)), James Hardie ((JHX)), News Corp ((NWS)) and Sims ((SGM)).

Domestic cyclicals offer attractive earnings leverage to lower interest rates and the sector offers some value in the view of Goldman Sachs, but improved performance will require the easing of structural headwinds such as an increase in household savings and the recent strength in the Australian dollar. Preferred exposures for the domestic cyclicals at present include OneSteel ((OST)), Super Retail ((SUL)) and Qantas ((QAN)).

In exposure to Chinese growth and its impact on mining investment, Goldman Sachs expects coming years will see the resource sector move from a “delta price” to a “delta volume” environment, which would move most key commodities into surplus conditions. This leaves Goldman Sachs increasingly cautious on the ability of the resources sector to maintain its outperformance relative to the market.

Assuming mining volumes increase, exposure to a strong capital investment cycle and an increase in volumes is preferred. Goldman Sachs likes Asciano ((AIO)), Orica ((ORI)) and UGL ((UGL)) for playing this theme.

May means major banks reporting season in Australia and brokers have been updating expectations for the sector in anticipation of the results in coming weeks. Results are expected for ANZ Banking Group on May 2, Westpac ((WBC)) on May 3 and National Australia Bank ((NAB)) on May 10. Commonwealth Bank ((CBA)) will provide a trading update on May 17.

Of particular interest has been the outlook for margin pressures, cost out progress and the source of business loan growth. In general, Macquarie expects the results from ANZ, Westpac and National Australia Bank will show marginal earnings growth.

This reflects a subdued outlook for the sector, as while a mix of out-of-cycle interest rate rises and the retention of rate cuts may help control margins, it will come at the expense of increased risks with respect to softer loan growth in Macquarie's view.

Dividends are also a concern, as while payouts are sustainable, Macquarie suggests softer earnings growth is likely to see dividends decline at the absolute level. Bad debts may exacerbate this trend in the broker's view.

With respect to bad debt levels, Macquarie's review of asset quality suggests the major banks are well provisioned against a slight deterioration in the broader economy. It would take further deterioration for there to be any further significant impact on impairments in the broker's view.

Macquarie expects margins among the banks to come under pressure from higher wholesale and deposit costs eroding retail and business margins, while there is also the view institutional growth is hiding some very soft business and retail SME loan growth numbers.

Currently improving mortgage loan growth may prove to be temporary, suggests Macquarie, while wealth operations are also expected to continue to struggle given still weak market conditions. Macquarie's order of preference is ANZ and Westpac as its preferred plays, while National Australia Bank is rated as Neutral given its exposure to the poorly performing UK economy.

UBS also expects solid interim earnings results for the major banks, the major drivers being subdued loan growth and solid deposits, net interest margin, a potential bounce-back in trading income, more aggressive cost management and patchy bad debt outcomes.

Given this backdrop, UBS has looked at where bank earnings could surprise in 1H12. On a bank by bank basis, UBS expects ANZ will show good net interest margin performance, a trading rebound and 4% revenue growth, while the major question will be return on equity from the bank's Asian assets.

For National Australia Bank the expectation of UBS is for pressure on net interest margin, weak personal banking revenue but strength in the business bank operations. For Westpac, UBS sees a trading rebound in the second quarter, subdued asset growth and cost pressures.

In terms of forecasts for the upcoming bank results, Macquarie is forecasting cash profit for ANZ of $2,964 million, which would equate to cash earnings per share (EPS) of 107c. UBS is a little higher, forecasting cash EPS for ANZ of 112.6c. Macquarie suggests an institutional rebound and cost containment in New Zealand are potential sources of upside in the result.

For National Bank UBS expects cash EPS of 125.2c, while Macquarie is forecasting cash EPS of 123c. The latter sees the maintaining of margins, reasonable asset growth and continued momentum in the wealth operations as potential sources of upside to the result.

Westpac is expected to report cash EPS of 103.1c for the period according to UBS, while Macquarie's forecast stands at 101c. Good cost containment, solid margin performance and a rebound in trading profits offer possible sources of upside surprise in the view of Macquarie.

Post a recent rally the major Australian banks are not cheap in the view of UBS, as the sector is trading on a price to book ratio of 1.7 times, a FY12 earnings multiple of 11 times and a 6.8% dividend yield.

In contrast, RBS Australia expects European tensions will escalate over the next few months and under such a scenario the Australian banks are attractive given relative earnings certainty and yield support. The banks are also expected to benefit from further cuts to interest rates in Australia given pricing power should moderate the effect of funding cost headwinds.

Order of preference for RBS is National Bank and ANZ as most preferred, this due to their better positioning for structurally lower mortgage credit growth and cyclical improvement in business credit growth. As well, RBS sees NAB and ANZ as having less reliance on wholesale funding markets, while both appear better positioned for the new Basel III regulations.

In terms of the market's overall view on Australian banks, the FNArena database shows Sentiment Indicator readings of 0.5 for National Bank and Westpac, 0.4 for ANZ, and minus 0.1 for CBA.

In the view of JP Morgan, a low March quarter CPI outcome in Australia opens the door for a Reserve Bank of Australia (RBA) easing of interest rates, but this is unlikely to lift the domestic equity market out of its current range as a lot of easing is already priced in.

The benign CPI number changes the policy settings needed to hit the RBA's objective of keeping the non-mining economy cornered to keep medium-term inflation risks at bay. This makes an easing likely, but JP Morgan points out the market is already factoring in three rate cuts this year. As a result, the broker suggests the exact level of the cash rate is a secondary issue for equities.

JP Morgan agrees official interest rates are likely going to come down but this implies some earnings risk, particularly because of the ongoing struggles in the Australian housing market. On the flip side, JP Morgan suggests the bank sector is not the correct way to play a move to lower interest rates, as if the unemployment rate rises fast enough to move interest rates to a lower level than already anticipated, there will be an increase in loan quality risks. This would likely be enough to offset any potential upside in credit growth.

An alternative would be a play on the currency, but again JP Morgan notes the market is already well down this path. While there is logic to such an approach the broker suggests finding value using this approach is a more difficult issue at present.

JP Morgan continues to lean towards stocks and sectors with value drivers largely independent of the macro environment or are priced for low expectations. This includes Insurance, Energy and companies struggling from cyclical factors but with a reasonable industry structure. These include the likes of Computershare ((CPU)), Boral ((BLD)), Sims ((SGM)) and Aristocrat Leisure ((ALL)).

In a recent meeting with its London clients, BA Merrill Lynch notes the dominant view on the market at present is a continuation of the current trading range. This reflects a lack of conviction and willingness to take risks, though investors are looking to add rather than subtract risk as their next move.

There remains some concern over the pace of US economic activity, while BA-ML notes growth in Europe is viewed as a disaster everywhere except Germany. On a more positive note, a soft landing in China is seen as offsetting the weak European outlook.

A majority of clients continue to expect QE3, but BA-ML notes this is only likely after a sharp turn lower in data. There was some interest on the part of clients in BA-ML's favourite trade for the June quarter, which is long China and short US consumer discretionary.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Downgrades to stock broker ratings for individual stocks continue far outweighing upgrades and the past week proved once again no exception. The eight brokers in the FNArena database lifted recommendations on just four companies while downgrading 24 stocks. Total Buy ratings now stand at just 50.56%, the lowest level for some time despite the share market effectively moving sideways.

Among the upgrades was Aurora Oil and Gas ((AUT)), where JP Morgan lifted its rating to Neutral from Sell. While full year earnings saw both UBS and Credit Suisse downgrade to Neutral ratings from Buy previously, JP Morgan factored in its findings from a recent site visit and lifted its valuation and price target. This was enough for the broker to lift its rating to the same level as UBS and CS.

OM Holdings ((OMH)) was also upgraded to Neutral from Sell by RBS Australia, a valuation call as downside risks to earnings from lower manganese prices now appears priced into the stock following a share price fall of around 70% over the past year.

Deutsche Bank has upgraded Oz Minerals ((OZL)) to Buy from Hold following changes to commodity price and foreign exchange assumptions. While the changes meant a trimming in price target, the broker sees improved value at current levels and upgrades accordingly.

The final upgrade of the week was Telstra ((TLS)), where BA Merrill Lynch has lifted its rating to Neutral from Underperform. There is increased scope for capital management and a more stable earnings outlook in general in the broker's view, which justifies the upgrade.

So to recap: only four upgrades were issued and only one out of these four led to a Buy rating.

Among the 24 downgrades Aurora was not the only stock where ratings were lowered by more than one broker, as Leighton Holdings ((LEI)), QBE Insurance ((QBE)) and Transfield Services ((TSE)) also received multiple downgrades.

Both Deutsche Bank and Macquarie Moved to Sell ratings on Leighton from Hold previously, this given further credibility issues arising from further write-downs to problem contracts. The other issues according to Deutsche is the potential for balance sheet issues and a weak medium-term growth outlook.

Valuation is the issue for QBE, as both Citi and JP Morgan have moved to Neutral ratings on the back of recent share price strength. The insurer's AGM this week showed earnings drivers for the company have turned more positive in recent months.

With respect to Transfield, the downgrades from JP Morgan, RBS Australia and Macquarie reflect concerns over problem contracts that go beyond April's profit warning.

Post management's revised guidance, earnings estimates and price targets for Transfield have been adjusted across the market.

Elsewhere, Macquarie downgraded Boral ((BLD)) to Neutral from Buy as earnings revisions meant a cut in price target, while UBS moved to neutral from Buy on CSL ((CSL)) on valuation grounds after factoring in some changes to forex assumptions.

The changes to forecasts that saw Deutsche upgrade Oz Minerals have also seen the broker downgrade Fortescue ((FMG)), Iluka ((ILU)), Paladin ((PDN)) and Sandfire ((SFR)), as revised earnings estimates have impacted on total return expectations.

While OrotonGroup ((ORL)) remains a retail favourite of Credit Suisse, the broker has downgraded to Neutral from Buy on valuation grounds. Primary Health Care ((PRY)) has similarly been downgraded by the broker on the same basis.

Valuation has also been behind RBS Australia downgrading Pharmaxis ((PXS)) to Hold from Buy, while JP Morgan has downgraded Qantas ((QAN)) to Neutral from Overweight given the in-house view consensus earnings estimates for the airline remain too high.

A stretched valuation and some concerns over domestic ad volumes have seen BA-ML downgrade Seek to Sell from Hold, while recent share price gains have been enough for Citi to downgrade Sonic Health ((SHL)) to Neutral from Buy.

The risk of earnings and sentiment downside from current levels has prompted UBS to move to a Neutral rating on Virgin Australia ((VAH)), while Macquarie has moved to a Sell rating on Westfield Group ((WDC)) from Neutral previously as the group's shopping mall property assets business re-positioning is expected to take some time.

Price target adjustments during the week have not resulted in any changes of more than 10%, while earnings adjustments during the period were most significant in terms of increases for Macquarie Bank ((MQG)) and James Hardie ((JHX)) and cuts for Alumina Ltd ((AWC)), Leighton and Bank of Queensland ((BOQ)).

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	AURORA OIL AND GAS LIMITED	Sell	Neutral	JP Morgan
2	OM HOLDINGS LIMITED	Sell	Neutral	RBS Australia
3	OZ MINERALS LIMITED	Neutral	Buy	Deutsche Bank
4	TELSTRA CORPORATION LIMITED	Sell	Neutral	BA-Merrill Lynch
Downgrade
5	AURORA OIL AND GAS LIMITED	Buy	Neutral	UBS
6	AURORA OIL AND GAS LIMITED	Buy	Neutral	Credit Suisse
7	BORAL LIMITED	Buy	Neutral	Macquarie
8	CSL LIMITED	Buy	Neutral	UBS
9	FORTESCUE METALS GROUP LTD	Buy	Neutral	Deutsche Bank
10	ILUKA RESOURCES LIMITED	Buy	Neutral	Deutsche Bank
11	LEIGHTON HOLDINGS LIMITED	Buy	Sell	Macquarie
12	LEIGHTON HOLDINGS LIMITED	Neutral	Sell	Deutsche Bank
13	Metcash Limited	Buy	Neutral	Credit Suisse
14	OROTONGROUP LIMITED	Buy	Neutral	Credit Suisse
15	PALADIN ENERGY LTD	Buy	Neutral	Deutsche Bank
16	Pharmaxis Ltd	Buy	Neutral	RBS Australia
17	PRIMARY HEALTH CARE LIMITED	Buy	Neutral	Credit Suisse
18	QANTAS AIRWAYS LIMITED	Buy	Neutral	JP Morgan
19	QBE INSURANCE GROUP LIMITED	Buy	Neutral	Citi
20	QBE INSURANCE GROUP LIMITED	Buy	Neutral	JP Morgan
21	SANDFIRE RESOURCES NL	Buy	Neutral	Deutsche Bank
22	SEEK LIMITED	Neutral	Sell	BA-Merrill Lynch
23	SONIC HEALTHCARE LIMITED	Buy	Neutral	Citi
24	TRANSFIELD SERVICES LIMITED	Neutral	Sell	RBS Australia
25	TRANSFIELD SERVICES LIMITED	Buy	Neutral	Macquarie
26	TRANSFIELD SERVICES LIMITED	Buy	Neutral	JP Morgan
27	VIRGIN AUSTRALIA HOLDINGS LIMITED	Buy	Neutral	UBS
28	WESTFIELD GROUP	Neutral	Sell	Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	CER	50.0%	67.0%	17.0%	3
2	RRL	33.0%	50.0%	17.0%	4
3	OZL	25.0%	38.0%	13.0%	8
4	PNA	50.0%	63.0%	13.0%	8
5	TLS	38.0%	50.0%	12.0%	8
6	SKI	50.0%	57.0%	7.0%	7
7	IFN	57.0%	60.0%	3.0%	5

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	LEI	25.0%	- 13.0%	- 38.0%	8
2	PXS	100.0%	67.0%	- 33.0%	3
3	QBE	63.0%	38.0%	- 25.0%	8
4	ORL	40.0%	20.0%	- 20.0%	5
5	AUT	- 20.0%	- 40.0%	- 20.0%	5
6	VAH	60.0%	40.0%	- 20.0%	5
7	CGF	86.0%	71.0%	- 15.0%	7
8	PDN	43.0%	29.0%	- 14.0%	7
9	MQG	43.0%	29.0%	- 14.0%	7
10	SEK	57.0%	43.0%	- 14.0%	7

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	AUT	3.430	3.758	9.56%	5
2	QBE	13.351	14.443	8.18%	8
3	PXS	1.700	1.800	5.88%	3
4	SKI	1.405	1.449	3.13%	7
5	SEK	6.970	7.134	2.35%	7
6	SHL	13.098	13.281	1.40%	8
7	TLS	3.398	3.435	1.09%	8
8	RRL	4.413	4.460	1.07%	4
9	ORL	8.856	8.936	0.90%	5
10	CSL	35.998	36.273	0.76%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	LEI	23.633	21.998	- 6.92%	8
2	PNA	4.206	4.095	- 2.64%	8
3	CGF	5.039	4.953	- 1.71%	7
4	BLD	4.425	4.364	- 1.38%	8
5	OZL	12.406	12.236	- 1.37%	8
6	BOQ	8.150	8.069	- 0.99%	8
7	FMG	7.101	7.064	- 0.52%	8
8	VAH	0.480	0.478	- 0.42%	5
9	MQA	1.858	1.854	- 0.22%	5
10	PRY	3.289	3.283	- 0.18%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	MQG	211.229	291.229	37.87%	7
2	JHX	30.803	39.009	26.64%	8
3	PRG	25.414	30.386	19.56%	7
4	SGT	18.750	21.297	13.58%	6
5	CSR	15.750	17.800	13.02%	8
6	PRU	14.350	15.940	11.08%	5
7	QBE	132.729	137.164	3.34%	8
8	TGA	19.867	20.400	2.68%	3
9	BPT	8.660	8.860	2.31%	5
10	IAG	23.700	24.013	1.32%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	AWC	0.143	- 0.096	- 167.13%	8
2	LEI	187.550	128.550	- 31.46%	8
3	BOQ	39.450	28.938	- 26.65%	8
4	WHC	17.217	14.383	- 16.46%	6
5	VAH	3.300	2.940	- 10.91%	5
6	QAN	13.775	12.363	- 10.25%	8
7	BCI	55.000	49.567	- 9.88%	3
8	IGO	4.080	3.740	- 8.33%	5
9	ROC	4.977	4.577	- 8.04%	5
10	SBM	38.300	35.800	- 6.53%	3

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.

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Weekly Broker Wrap: Getting Better, With Ongoing Headwinds

By Chris Shaw

Global equity markets have risen by nearly 20% over the past four months, UBS attributing the gains to a combination of positive developments to the economic backdrop and some relief the European debt crisis has not worsened.

While the improvements are encouraging UBS continues to see headwinds to growth and returns, enough to warrant the continuation of a balanced investment approach. As cyclical earnings growth slows, and UBS expects earnings growth in the low single digit range this year, yield and valuation will become more meaningful as drivers of total returns.

In defining quality, UBS looks for strong returns on capital, the appropriate use of leverage, strength and sustainability of a company's earnings, strong dividend policies and valuation.

Among Australian stocks under coverage by UBS, only CSL ((CSL)) and BHP Billiton ((BHP)) make the broker's global equity strategy high quality stock list. UBS rates BHP as a Buy and CSL as Neutral, having downgraded from a Buy this week on valuation grounds.

Having assessed the outlook for Australian equities relative to bonds, Goldman Sachs argues equity prices are currently discounting unrealistically low growth rates into the future, valuations remain attractive across equities as determined by a number of valuation metrics and annualised four-year returns are currently cycling the worst period for equities since the early to mid 1970s.

This follows an extended period of outperformance by Australian bonds, a trend that has been consistent with other markets around the world. This has meant the bond yield to equities earnings yield has moved to an extreme level.

This leads Goldman Sachs to suggest the prospects for future returns in equities relative to bonds are as good as they have been for many years (echoing similar sentiment as expressed by colleagues in Europe). Favoured stocks are those with low earnings volatility given strong operational strategies. Goldman Sachs also recommends investors increase their US dollar exposure across portfolios.

Key picks in terms of solid earnings profiles are Wesfarmers ((WES)), Brambles ((BXB)), News Corporation ((NWS)) and CSL. Among mining stocks preferred exposure is companies exposed to increases in volumes and those with low risk LNG expansion opportunities. For Goldman Sachs these include Orica ((ORI)), Asciano ((AIO)), Oil Search ((OSH)), Woodside ((WPL)) and WorleyParsons ((WOR)).

Among the deep-value plays Goldman Sachs suggest cyclical stocks offer the greatest upside leverage to improving markets. In this category the broker's key picks are Qantas ((QAN)), Lend Lease ((LLC)), Suncorp ((SUN)) and OneSteel ((OST)).

Goldman Sachs continues to favour banks over resources at present, this reflecting the increasing risk profile for resource stocks as earnings growth drivers move from price to volumes. Preferred major bank exposures for Goldman Sachs are National Australia Bank ((NAB)) and ANZ Banking Group ((ANZ).

In the view of JP Morgan, the US GDP story is starting to wane in terms of being a positive story for equity markets as the good news is now well known and fiscal policy continues to limit the potential for upside surprises.

At the same time, JP Morgan's view is investors should not assume US corporate returns offer further upside, especially given corporate margins are already quite high. This implies US exposure in an Australian portfolio should be more selective going forward, especially given the still strong Australian dollar (even despite last week's sell-off).

JP Morgan suggests investors focus on companies that stand to gain in profit terms from an improvement in US activity and where this is not priced into the stock at present. Examples of this scenario include Sims Metal ((SGM)), Aristocrat Leisure ((ALL) and Computershare ((CPU)).

At the other end of the spectrum, JP Morgan suggests a cautious view on James Hardie ((JHX)), as despite the recovery potential of the US housing market the broker sees risks from cost and capital intensity increases and higher levels of competition going forward.

JP Morgan has Overweight ratings on Sims, Aristocrat and Computershare and rates James Hardie as Underweight, these ratings are equivalents respectively of "Buy" and "Sell".

As part of an update on the Small Cap end of the market, Credit Suisse listed its top five picks as rated by expected total shareholder return. The top five are Alliance Aviation ((AQZ)), Mermaid Marine ((MRM)), SAI Global ((SAI)), Carsales.com ((CRZ)) and Flexigroup ((FXL)).

Oroton ((ORL)) has been rated a Buy but Credit Suisse recently downgraded to a Neutral rating on the back of share price outperformance. While a strong brand and management should deliver superior earnings and returns, the stock now appears fair value in the broker's view. The analysts do advise investors should look to buy into dips as the good news story is likely to continue.

Citi notes Australian LNG exports are expected to increase from around 20 million tonnes per year last year to more than 80 million tonnes annually by 2018 as measured by approved projects only. This will make Australia one of the world's major LNG exporters.

Citi estimates the direct contribution of approved LNG capex to GDP growth in the first four years of this decade at around two percentage points or 0.5% per year, but could add as much as 3.5 percentage points in 2015-2019. This equates to around 20% of economic growth over these five years.

Capex and exports associated with LNG projects will put a floor under Australia's economic outlook according to Citi, increasing the likelihood the 20-year expansion of the economy can continue through the end of the decade.

PNG projects shifting from the capex phase to the export phase should be reflected in faster productivity growth in the mining and energy sectors, which should benefit the economy overall. As Citi suggests, if other sectors can also lift their productivity in coming years, the impact of any prospective loss of national income as commodity prices and the terms of trade normalise can be moderated.

Assessing the market overall, Deutsche Bank notes the ASX200 index is 10% lower than its level both one year and two years ago. Fortunately for investors looking to re-enter, further gains are expected this year. Deutsche is forecasting a year end level for the index of 4,700.

This is despite earnings still being under pressure, which is not a major issues in Deutsche's view. The reason is a lack of earnings momentum hasn't impacted on equity markets globally, as gains over the past six months have come entirely from PE re-ratings as forward earnings have fallen.

As well, Deutsche notes equity market rallies driven by PE re-ratings have been the historical norm for Australia, as in 1993, 2003 and 2009 a rising earnings multiple has delivered 75% of the market gains in the first six months of the rally. In the resource sector this impact is even more pronounced as a rising multiple has delivered around 95% of the gains over the first six months.

The underperformance in Australia of late can likely be explained by a lack of conviction earnings will recover anytime soon in Deutsche's view. This negative view is likely overstating the case, as Deutsche notes industrial earnings have been impacted by factors such as natural disasters and falling financial markets, which are not permanent factors.

As well, Deutsche notes a range of indicators suggest Chinese and global economies should accelerate in coming months, which should see commodity prices edge higher. This would be a further boost for Australian equities.

With earnings multiples across the market being compressed, Deutsche suggests the market overall is on the cheap side, which means it won't require the cheapest sectors to do all the work in terms of lifting the index.

Given an optimistic view of the market outlook and applying this to its model portfolio, Deutsche Bank is most overweight the Energy, Mining and Contractors sectors, while underweight positions are largest in the Telcos, property and food retailing sectors.

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

Changes to broker stock ratings have slowed down significantly post the recent interim profit season, the eight brokers in the FNArena database delivering just six downgrades and nine upgrades over the past week. Note that this week marks a reversal in trend as upgrades outnumbered downgrades. Total Buy recommendations now stand at 51.83%.

Among the upgrades airline stocks feature, as Macquarie lifted its ratings on both Air New Zealand ((AIZ)) and Qantas ((QAN) to Buy. The former was an upgrade from Sell and the latter from Neutral, the changes stemming from adjustments to forex assumptions that boosted earnings estimates and price targets.

Building material stocks also featured, with Credit Suisse upgrading both Boral ((BLD)) and James Hardie ((JHX)) to Buy from Neutral recommendations previously. For Boral the broker is attracted to cyclical leverage and has lifted estimates and price target, while for James Hardie the attractions include additional capital management initiatives, strong free cash flow and a net cash position.

Elsewhere, Macquarie has upgraded Dexus ((DXS)) to Buy from Neutral given recent share price weakness, while Citi has lifted its rating on FKP Property ((FKP)) to Neutral from Sell for similar reasons as the stock has lost more than 19% over the past month.

Deutsche Bank sees enough value in Tatts Group ((TTS)) to upgrade its rating to Buy from Neutral. Along with a positive valuation, Deutsche sees potential for some upside from the recent Tote Tasmania and Lottery acquisitions.

For United Group ((UGL)) Credit Suisse has turned more positive following increases to earnings estimates across the Engineering and Construction sector. An improved earnings outlook is enough for the broker to lift United to its top pick in the sector.

Citi has reviewed the supermarket plays and lifted forecasts and price target for Woolworths ((WOW)) as a result. Scale benefits relative to Coles should provide Woolworths with an ongoing advantage in the broker's view, enough for Citi to upgrade to a Buy rating.

Among the downgrades, Macquarie has moved to a Neutral recommendation from Buy on Ampella Mining ((AMX)) citing valuation grounds, this given a cut to forecasts and price target from factoring in revised forex and commodity price assumptions.

Similarly, Macquarie has moved to a Sell rating on St Barbara ((SBM)) from Neutral previously post revisions to its model assumptions. The downgrade has been supported by a cut to the broker's price target.

Beach Energy ((BPT)) has more risks associated with the Nappamerri shale project than the market is pricing in according to BA Merrill Lynch. These risks include costs, competition and technology and see BA-ML's rating downgraded to Sell from Neutral.

BA-ML has also downgraded Carsales.com ((CRZ)) to a Neutral rating from Buy previously, largely due to valuation issues given recent share price strength. As well, the broker has some minor concerns about the recent Torpedo7 investment as it is outside the traditional focus on classifieds businesses.

Relative valuation has prompted JP Morgan to downgrade Centro Retail ((CRF)) to Neutral from Buy, this following 9% outperformance since last December. Value is also the catalyst for Macquarie's downgrade of Qube Logistics ((QUB)) to Sell from Neutral, as on the broker's numbers the stock is trading at twice the earnings multiple of the small cap index at present.

Aside from the cut to St Barbara's price target by Macquarie the major target price change during the week was for Beadell Resources ((BDR)), UBS cutting its target to $1.40 from $1.50 largely to reflect a recent equity raising.

While earnings forecasts for Sandfire Resources ((SFR)) were adjusted significantly post the recent interim result this needs be kept in perspective, JP Morgan pointing out the company remains in the development phase for its key DeGrussa project.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	AIR NEW ZEALAND LIMITED	Sell	Buy	Macquarie
2	BORAL LIMITED	Neutral	Buy	Credit Suisse
3	DEXUS PROPERTY GROUP	Neutral	Buy	Macquarie
4	FKP PROPERTY GROUP	Sell	Neutral	Citi
5	JAMES HARDIE INDUSTRIES N.V.	Neutral	Buy	Credit Suisse
6	QANTAS AIRWAYS LIMITED	Neutral	Buy	Macquarie
7	TATTS GROUP LIMITED	Neutral	Buy	Deutsche Bank
8	UNITED GROUP LIMITED	Neutral	Buy	Credit Suisse
9	WOOLWORTHS LIMITED	Neutral	Buy	Citi
Downgrade
10	AMPELLA MINING LIMITED	Buy	Neutral	Macquarie
11	BEACH PETROLEUM LIMITED	Neutral	Sell	BA-Merrill Lynch
12	CARSALES.COM LIMITED	Buy	Neutral	BA-Merrill Lynch
13	CENTRO RETAIL AUSTRALIA	Buy	Neutral	JP Morgan
14	QUBE LOGISTICS	Neutral	Sell	Macquarie
15	ST BARBARA LIMITED	Neutral	Sell	Macquarie

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	AIZ	50.0%	100.0%	50.0%	4
2	BDR	33.0%	67.0%	34.0%	3
3	FKP	50.0%	67.0%	17.0%	6
4	CDI	50.0%	67.0%	17.0%	3
5	DXS	29.0%	43.0%	14.0%	7
6	UGL	57.0%	71.0%	14.0%	7
7	WOW	25.0%	38.0%	13.0%	8
8	BLD	25.0%	38.0%	13.0%	8
9	QAN	75.0%	88.0%	13.0%	8
10	TTS	- 25.0%	- 13.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	SBM	- 33.0%	- 67.0%	- 34.0%	3
2	AMX	100.0%	75.0%	- 25.0%	4
3	SFR	40.0%	20.0%	- 20.0%	5
4	ORL	60.0%	40.0%	- 20.0%	5
5	BPT	- 20.0%	- 40.0%	- 20.0%	5
6	CRZ	33.0%	17.0%	- 16.0%	6
7	CRF	33.0%	17.0%	- 16.0%	6
8	PRY	63.0%	50.0%	- 13.0%	8
9	ARP	25.0%	20.0%	- 5.0%	5

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	QAN	2.066	2.158	4.45%	8
2	ARP	8.663	8.818	1.79%	5
3	BPT	1.354	1.378	1.77%	5
4	CDI	0.573	0.583	1.75%	3
5	WOW	26.905	27.143	0.88%	8
6	CRF	1.955	1.958	0.15%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	BDR	1.217	1.117	- 8.22%	3
2	SBM	2.363	2.197	- 7.02%	3
3	AMX	2.083	2.033	- 2.40%	4
4	PRY	3.314	3.289	- 0.75%	8
5	IIN	3.380	3.367	- 0.38%	6
6	TTS	2.515	2.509	- 0.24%	8
7	ORL	8.974	8.954	- 0.22%	5
8	BLD	4.430	4.425	- 0.11%	8

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	BPT	7.360	8.060	9.51%	5
2	CRF	9.600	10.383	8.16%	6
3	QAN	14.225	14.625	2.81%	8
4	TSE	23.829	24.457	2.64%	5
5	IAG	23.450	23.875	1.81%	8
6	FMG	48.439	49.138	1.44%	8
7	AIZ	3.248	3.291	1.32%	4
8	VAH	3.260	3.300	1.23%	5
9	QBE	130.464	131.907	1.11%	8
10	NUF	40.513	40.888	0.93%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	SFR	17.260	- 12.100	- 170.10%	5
2	SBM	40.433	38.300	- 5.28%	3
3	BDR	6.567	6.233	- 5.09%	3
4	IIN	25.750	24.917	- 3.23%	6
5	PBG	7.925	7.688	- 2.99%	7
6	ILU	248.038	242.525	- 2.22%	8
7	WDC	65.350	64.225	- 1.72%	8
8	WHC	17.383	17.217	- 0.95%	6
9	CSR	15.950	15.813	- 0.86%	8
10	BOQ	96.288	95.513	- 0.80%	8

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

The final week of reporting season for Australian equities has again seen downgrades from brokers in the FNArena database outweigh upgrades, this time by a score of 35 to 17. The ratings changes have brought total Buy ratings to 51.45%, down from 52.15% last week.

Among the companies to receive more than one upgrade were James Hardie ((JHX)) and QBE Insurance ((QBE)). Upgrades for the former came from UBS and Credit Suisse, both moving to Neutral recommendations from Sell previously.

The changes followed a 3Q result that gave some cause for optimism the worst may be behind the company, particularly with the prospect of additional capital management initiatives going forward. At the same time Macquarie downgraded to a Neutral recommendation from Outperform on valuation grounds.

More positive were the upgrades for QBE as Citi, BA-Merrill Lynch, JP Morgan and UBS all moved to Buy ratings from Neutral previously. The changes reflect a combination of factors, including value in the stock at current levels, better understanding of the company's margin outlook post its recent result and a more positive stance on general insurance stocks in general.

Among the other upgrades where brokers moved to Buy views were Aston Resources ((AZT)), Macquarie seeing some upside from the proposal for 10% of the group's stake in the Maules Creek project to be sold.

Deutsche Bank upgraded CSL ((CSL)) to a Buy from Neutral given its view the company should continue to enjoy margin expansion in coming years, while Citi has turned more positive on Insurance Australia Group ((IAG)) also in part due to an improved margin outlook.

Jetset Travelworld ((JET)) offers potential for a re-rating over the next 12 months according to Deutsche and this was enough to prompt an upgrade to Buy, while RBS Australia made the same change with Prime Television ((PRT)) given a somewhat more positive outlook and the potential for some corporate activity involving the company.

For Deutsche the potential for grade and production expansion is enough to justify upgrading to a Buy on Regis Resources ((RRL)), though at the same time UBS has downgraded to a Neutral rating on the stock on valuation grounds.

ResMed ((RMD)) offers scope for an increased buyback boosting earnings per share, which sees Credit Suisse lift its valuation and move to a Buy rating. It was a similar story for Seven Group ((SVW)), as BA-ML no longer sees working capital as an issue and expects valuation support from the group's media assets.

Warrnambool Cheese and Butter ((WCB)) was upgraded to a Buy by RBS following a stronger than expected profit result that implies good value at current levels, while JP Morgan upgraded Westpac ((WBC)) on relative valuation grounds following what appears to be excessive underperformance relative to ANZ Bank ((ANZ)). The broker downgraded ANZ to a Sell at the same time.

On the downgrades side, those receiving multiple cuts to ratings were Aristocrat Leisure ((ALL)), Australian Worldwide Exploration ((AWE)), Harvey Norman ((HVN)) and Newcrest Mining ((NCM)).

For Aristocrat, the downgrades were a factor of valuation after recent share price gains, as full year earnings were generally better than expected and prompted increases to earnings estimates and price targets.

UBS and Deutsche both moved to Neutral ratings on AWE from previous Buy ratings, again valuation calls following recent share price gains. Harvey Norman continues to deal with poor retail conditions and brokers now see additional pressure on franchise margins, which was enough for Macquarie and BA-ML to downgrade to Sell ratings from Hold previously.

Newcrest also has some issues as Lihir is again proving a problematic asset, enough that full year production expectations have been revised lower. The changes saw JP Morgan and UBS downgrade to Neutral views as shorter-term outperformance now appears less likely.

The other most significant downgrade this week came courtesy of Macquarie, the broker moving to a Sell on Air New Zealand ((AIZ)) from a Buy previously. The change in view reflects still tough operating conditions given a combination of weaker long haul demand and increases to operating costs.

In terms of changes to price targets, the largest increases were in Seven Group, Aristocrat and Ausdrill ((ASL)), the latter on the back of a better than expected interim result. Price target cuts were most significant for Jetset, as brokers adjusted for lower than expected interim earnings.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	ABACUS PROPERTY GROUP	Sell	Neutral	JP Morgan
2	ASTON RESOURCES LIMITED	Neutral	Buy	Macquarie
3	CSL LIMITED	Neutral	Buy	Deutsche Bank
4	INSURANCE AUSTRALIA GROUP LIMITED	Neutral	Buy	Citi
5	JAMES HARDIE INDUSTRIES N.V.	Sell	Neutral	UBS
6	JAMES HARDIE INDUSTRIES N.V.	Sell	Neutral	Credit Suisse
7	JETSET TRAVELWORLD LIMITED	Neutral	Buy	Deutsche Bank
8	PRIME TELEVISION LIMITED	Neutral	Buy	RBS Australia
9	QBE INSURANCE GROUP LIMITED	Neutral	Buy	Citi
10	QBE INSURANCE GROUP LIMITED	Neutral	Buy	BA-Merrill Lynch
11	QBE INSURANCE GROUP LIMITED	Neutral	Buy	JP Morgan
12	QBE INSURANCE GROUP LIMITED	Neutral	Buy	UBS
13	REGIS RESOURCES LIMITED	Neutral	Buy	Deutsche Bank
14	RESMED INC	Neutral	Buy	Credit Suisse
15	SEVEN GROUP HOLDINGS LIMITED	Neutral	Buy	BA-Merrill Lynch
16	WARRNAMBOOL CHEESE AND BUTTER FACTORY COMPANY HOLDING LTD	Neutral	Buy	RBS Australia
17	WESTPAC BANKING CORPORATION	Neutral	Buy	JP Morgan
Downgrade
18	AIR NEW ZEALAND LIMITED	Buy	Sell	Macquarie
19	ARISTOCRAT LEISURE LIMITED	Neutral	Sell	Macquarie
20	ARISTOCRAT LEISURE LIMITED	Buy	Buy	Citi
21	ARISTOCRAT LEISURE LIMITED	Neutral	Sell	Deutsche Bank
22	ASG GROUP LIMITED	Buy	Neutral	UBS
23	AUSDRILL LIMITED	Buy	Neutral	BA-Merrill Lynch
24	AUSTAL LIMITED	Buy	Neutral	Macquarie
25	AUSTRALIA & NEW ZEALAND BANKING GROUP	Neutral	Sell	JP Morgan
26	AUSTRALIAN WORLDWIDE EXPLORATION LIMITED	Buy	Neutral	UBS
27	AUSTRALIAN WORLDWIDE EXPLORATION LIMITED	Buy	Neutral	Deutsche Bank
28	BEACH PETROLEUM LIMITED	Buy	Neutral	Macquarie
29	BRAVURA SOLUTIONS LIMITED	Buy	Neutral	JP Morgan
30	CLARIUS GROUP LIMITED	Buy	Neutral	JP Morgan
31	CROWN LIMITED	Buy	Neutral	RBS Australia
32	ECHO ENTERTAINMENT GROUP LIMITED	Buy	Neutral	Citi
33	GLOUCESTER COAL LTD	Buy	Neutral	RBS Australia
34	GRANGE RESOURCES LIMITED	Buy	Neutral	RBS Australia
35	HARVEY NORMAN HOLDINGS LIMITED	Neutral	Sell	Macquarie
36	HARVEY NORMAN HOLDINGS LIMITED	Neutral	Sell	BA-Merrill Lynch
37	HENDERSON GROUP PLC.	Buy	Neutral	Citi
38	HUTCHISON TELECOMMUNICATIONS (AUST) LIMITED	Buy	Neutral	RBS Australia
39	JAMES HARDIE INDUSTRIES N.V.	Buy	Neutral	Macquarie
40	LINDSAY AUSTRALIA LIMITED	Buy	Neutral	RBS Australia
41	MACQUARIE ATLAS ROADS GROUP	Buy	Neutral	Macquarie
42	NATIONAL AUSTRALIA BANK LIMITED	Buy	Neutral	UBS
43	NEW HOPE CORPORATION LIMITED	Buy	Neutral	RBS Australia
44	NEWCREST MINING LIMITED	Buy	Neutral	JP Morgan
45	NEWCREST MINING LIMITED	Buy	Neutral	UBS
46	PREMIER INVESTMENTS LIMITED	Neutral	Sell	Credit Suisse
47	REGIONAL EXPRESS HOLDINGS LIMITED	Buy	Neutral	RBS Australia
48	REGIS RESOURCES LIMITED	Buy	Neutral	UBS
49	RETAIL FOOD GROUP LIMITED	Buy	Neutral	JP Morgan
50	TAP OIL LIMITED	Buy	Neutral	Credit Suisse
51	TELECOM CORPORATION OF NEW ZEALAND LIMITED	Buy	Neutral	Deutsche Bank
52	THORN GROUP LIMITED	Buy	Buy	RBS Australia

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	QBE	13.0%	63.0%	50.0%	8
2	SYD	- 25.0%	17.0%	42.0%	6
3	SVW	50.0%	75.0%	25.0%	4
4	JET	50.0%	75.0%	25.0%	4
5	AZT	80.0%	100.0%	20.0%	5
6	PRT	33.0%	50.0%	17.0%	6
7	SUL	57.0%	71.0%	14.0%	7
8	RMD	50.0%	63.0%	13.0%	8
9	WBC	38.0%	50.0%	12.0%	8
10	CSL	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	AIZ	100.0%	50.0%	- 50.0%	4
2	RHC	25.0%	- 13.0%	- 38.0%	8
3	TTS	13.0%	- 25.0%	- 38.0%	8
4	NHC	67.0%	33.0%	- 34.0%	3
5	ENV	17.0%	- 17.0%	- 34.0%	6
6	RFG	67.0%	33.0%	- 34.0%	3
7	AWE	71.0%	43.0%	- 28.0%	7
8	TAP	75.0%	50.0%	- 25.0%	4
9	ALL	38.0%	13.0%	- 25.0%	8
10	NCM	100.0%	75.0%	- 25.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	SVW	9.423	10.925	15.94%	4
2	ALL	2.656	2.989	12.54%	8
3	ASL	4.018	4.456	10.90%	5
4	TOL	5.436	5.783	6.38%	8
5	PRT	0.760	0.807	6.18%	6
6	TPI	0.878	0.923	5.13%	6
7	RSG	1.750	1.833	4.74%	3
8	AWE	1.961	2.050	4.54%	7
9	IAG	3.368	3.499	3.89%	8
10	ENV	0.763	0.792	3.80%	6

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	JET	0.988	0.890	- 9.92%	4
2	FKP	0.798	0.760	- 4.76%	6
3	GCL	9.618	9.225	- 4.09%	5
4	RFG	3.017	2.917	- 3.31%	3
5	ILU	21.074	20.569	- 2.40%	8
6	NCM	42.969	41.965	- 2.34%	8
7	CWN	10.150	9.944	- 2.03%	8
8	DJS	2.656	2.605	- 1.92%	8
9	NHC	6.073	6.017	- 0.92%	3
10	TAP	1.085	1.075	- 0.92%	4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	CHC	17.800	22.417	25.94%	6
2	NWH	30.300	33.600	10.89%	4
3	SKI	12.600	13.938	10.62%	8
4	ASL	33.440	36.880	10.29%	5
5	PAN	4.700	5.050	7.45%	4
6	TAP	3.075	3.300	7.32%	4
7	ENV	4.083	4.367	6.96%	6
8	SVW	82.180	87.780	6.81%	4
9	IAG	22.013	23.450	6.53%	8
10	VBA	2.914	3.086	5.90%	7

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GCL	5.480	- 22.520	- 510.95%	5
2	AGO	20.726	7.300	- 64.78%	8
3	AIZ	6.579	3.245	- 50.68%	4
4	QUB	14.075	7.600	- 46.00%	4
5	IGO	6.020	4.080	- 32.23%	5
6	ROC	6.532	4.716	- 27.80%	5
7	FKP	10.450	8.483	- 18.82%	6
8	HZN	1.365	1.148	- 15.90%	4
9	ILU	290.388	248.038	- 14.58%	8
10	FXJ	10.600	9.163	- 13.56%	8

Technical limitations

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Top Ten Weekly Recommendation, Target Price, Earnings Forecast Changes

By Chris Shaw

With earnings season almost complete it has been a busy week for changes to broker ratings, the FNArena database showing a total of 19 upgrades and 51 downgrades to recommendations by the eight brokers covered. Total Buy ratings now stand at 52.15%, well down from 53.86% last week.

Among the upgrades were four companies where ratings were lifted by more than one broker – these were Bendigo and Adelaide Bank ((BEN)), CSL ((CSL)), David Jones ((DJS)) and Toll Holdings ((TOL)).

For Bendigo Bank, both RBS Australia and BA Merrill Lynch upgraded to Hold recommendations from Sell previously, the former as the recent profit result showed some signs of stabilisation and the latter on valuation grounds post recent share price weakness. Across the market price targets and earnings estimates for the bank were adjusted.

In contrast to a less bad result from Bendigo Bank, CSL delivered strong earnings thanks to albumin and specialty products performing well. Brokers lifted earnings estimates and price targets on the back of the result and both Macquarie and BA-ML now see enough value to upgrade to Buy ratings from Neutral previously.

For David Jones ((DLS)) it was the turn of both UBS and RBS Australia to upgrade to Neutral ratings from Sell previously, this to reflect both better value on the back of recent share price weakness and the company having better positioned itself for stronger FY13 results by clearing excess inventory.

Toll Holdings ((TOL)) has also improved its position and with potential for new contracts and some scope for positive earnings surprise relative to low expectations, both Macquarie and Deutsche Bank have upgrade to Buy ratings. This was partially offset by Credit Suisse downgrading to Neutral from Outperform on valuation grounds.

Among the other upgrades, a strong result from Ausenco ((AAX)) prompted UBS to reverse a recent downgrade and move to Buy from Sell, almost doubling its price target for the stock in the process. A similarly solid Coca-Cola Amatil ((CCL)) result, particularly given tough markets and a dispute with a key customer (Woolworths), was enough for Credit Suisse to upgrade to a Neutral view.

Emerging value following recent underperformance was enough for Citi to upgrade Oil Search ((OSH)) to Buy from Neutral, while around the market earnings estimates and price targets for the stock were largely increased following a better than expected profit result.

Super Retail Group ((SUL)) delivered one of the standout results in the consumer discretionary sector and this was enough for BA-ML to upgrade to a Buy rating, while again estimates and price targets across the market were lifted post the result.

On the downgrade side those companies copping a cut in rating from more than one broker were Charter Hall Office ((CQO)), Envestra ((ENV)), Fleetwood ((FWD)), iiNet ((IIN)), Industrea ((IDL)), Kingsgate Consolidated ((KCN)), Ramsay Health ((RHC)), Tatts Group ((TTS)), Woodside ((WPL)) and Wotif.com ((WTF)).

Valuation was behind the downgrades to both Charter Hall Office and Envestra, with both Credit Suisse and Citi seeing limited share price upside from current levels for the former even allowing for current corporate interest and RBS and Macquarie taking similar views with respect to the latter.

While Fleetwood's result was broadly as expected, the solid earnings outlook is now priced in according to RBS, a view shared by both UBS and Credit Suisse. For iiNet increasing competitive pressures means the result was a little on the disappointing side for both RBS and Credit Suisse, while both also see less relative value in the stock at current levels than was the case a few months ago.

A poor profit result from Industrea meant earnings estimate across the market have been cut significantly, which leaves the outlook for little earnings growth this unattractive when compared to peers. The earnings miss has also raised the question of management credibility in the view of BA-ML.

Kingsgate Consolidated's earnings were broadly in line with expectations but the company surprised by announcing a capital raising that prompted cuts to estimates and targets. As well, Kingsgate faces a challenging year from an operational perspective in the view of both Citi and BA-ML.

Uncertainty with respect to the outcome of proposed changes to private health insurance pose enough risks for Ramsay Health that both Macquarie and Deutsche Bank downgraded to a Neutral rating, this despite a result broadly in line with expectations. Valuation was behind the downgrade of Credit Suisse.

Limited upside potential, especially given some recent share price strength, saw both Macquarie and Citi downgrade to Sell ratings on Tatts, while less value following recent gains was enough for Citi and Credit Suisse to downgrade Woodside to Neutral from Outperform in both cases. A similar story is behind downgrades by Macquarie and BA-ML on Wotif.com, as tough market conditions suggest limited upside from current share p[rice levels.

In terms of changes to price targets, the largest increase was seen in Ausenco, as along with the near doubling in target from UBS, the likes of RBS, Macquarie and Deutsche also lifted their targets significantly.

Aside from the capital raising induced changes to targets for Kingsgate, the most significant cut in target was experienced by Alumina Ltd ((AWC)), both RBS Australia and JP Morgan cutting their targets on revisions to earnings and related commodity price estimates.

Total Recommendations	Recommendation Changes
Broker Recommendation Breakup

Broker Rating

Order	Company	Old Rating	New Rating	Broker
Upgrade
1	AUSENCO LTD	Sell	Buy	UBS
2	BENDIGO AND ADELAIDE BANK LIMITED	Sell	Neutral	RBS Australia
3	BENDIGO AND ADELAIDE BANK LIMITED	Neutral	Neutral	BA-Merrill Lynch
4	BILLABONG INTERNATIONAL LIMITED	Sell	Neutral	Deutsche Bank
5	CFS RETAIL PROPERTY TRUST	Neutral	Buy	UBS
6	COCA-COLA AMATIL LIMITED	Sell	Neutral	Credit Suisse
7	COMMONWEALTH PROPERTY OFFICE FUND	Sell	Neutral	Credit Suisse
8	CSL LIMITED	Neutral	Buy	Macquarie
9	CSL LIMITED	Neutral	Buy	BA-Merrill Lynch
10	DAVID JONES LIMITED	Neutral	Neutral	RBS Australia
11	DAVID JONES LIMITED	Sell	Neutral	UBS
12	MACQUARIE ATLAS ROADS GROUP	Neutral	Buy	Deutsche Bank
13	MIRVAC GROUP	Neutral	Buy	Credit Suisse
14	OIL SEARCH LIMITED	Neutral	Buy	Citi
15	PERPETUAL LIMITED	Sell	Neutral	UBS
16	SONIC HEALTHCARE LIMITED	Neutral	Buy	Credit Suisse
17	SUPER RETAIL GROUP LIMITED	Neutral	Buy	BA-Merrill Lynch
18	TOLL HOLDINGS LIMITED	Neutral	Buy	Macquarie
19	TOLL HOLDINGS LIMITED	Neutral	Buy	Deutsche Bank
Downgrade
20	AMCOR LIMITED	Buy	Neutral	BA-Merrill Lynch
21	AMP LIMITED	Buy	Neutral	Citi
22	BILLABONG INTERNATIONAL LIMITED	Buy	Sell	Credit Suisse
23	CHALLENGER FINANCIAL SERVICES GROUP	Buy	Neutral	Citi
24	CHARTER HALL OFFICE REIT	Neutral	Sell	Credit Suisse
25	CHARTER HALL RETAIL REIT	Neutral	Neutral	UBS
26	COMMONWEALTH PROPERTY OFFICE FUND	Buy	Neutral	UBS
27	DISCOVERY METALS LIMITED	Neutral	Neutral	Citi
28	DIVERSIFIED UTILITY AND ENERGY TRUSTS	Buy	Neutral	UBS
29	DOWNER EDI LIMITED	Neutral	Sell	Credit Suisse
30	ENVESTRA LIMITED	Buy	Neutral	RBS Australia
31	ENVESTRA LIMITED	Buy	Neutral	Macquarie
32	FKP PROPERTY GROUP	Neutral	Sell	Citi
33	FLEETWOOD CORPORATION LIMITED	Buy	Neutral	RBS Australia
34	FLEETWOOD CORPORATION LIMITED	Buy	Neutral	UBS
35	FLEETWOOD CORPORATION LIMITED	Neutral	Sell	Credit Suisse
36	FLETCHER BUILDING LIMITED	Buy	Neutral	JP Morgan
37	FLIGHT CENTRE LIMITED	Buy	Neutral	UBS
38	GR ENGINEERING SERVICES LIMITED	Buy	Neutral	Macquarie
39	IINET LIMITED	Buy	Neutral	RBS Australia
40	IINET LIMITED	Neutral	Sell	Credit Suisse
41	ILUKA RESOURCES LIMITED	Buy	Neutral	UBS
42	INDUSTREA LIMITED	Buy	Sell	BA-Merrill Lynch
43	INDUSTREA LIMITED	Buy	Neutral	UBS
44	KINGSGATE CONSOLIDATED LIMITED	Buy	Neutral	RBS Australia
45	KINGSGATE CONSOLIDATED LIMITED	Neutral	Sell	Citi
46	KINGSGATE CONSOLIDATED LIMITED	Neutral	Sell	BA-Merrill Lynch
47	MACQUARIE ATLAS ROADS GROUP	Buy	Neutral	JP Morgan
48	MORTGAGE CHOICE LIMITED	Sell	Sell	UBS
49	PERSEUS MINING LIMITED	Buy	Neutral	Credit Suisse
50	RAMSAY HEALTH CARE LIMITED	Buy	Neutral	Macquarie
51	RAMSAY HEALTH CARE LIMITED	Buy	Neutral	Credit Suisse
52	RAMSAY HEALTH CARE LIMITED	Buy	Neutral	Deutsche Bank
53	REA GROUP LIMITED	Buy	Neutral	Deutsche Bank
54	SEEK LIMITED	Buy	Neutral	Macquarie
55	ST BARBARA LIMITED	Neutral	Sell	Citi
56	TATTS GROUP LIMITED	Neutral	Sell	Macquarie
57	TATTS GROUP LIMITED	Neutral	Sell	Citi
58	TATTS GROUP LIMITED	Buy	Neutral	UBS
59	TATTS GROUP LIMITED	Neutral	Sell	Credit Suisse
60	TEN NETWORK HOLDINGS LIMITED	Buy	Neutral	JP Morgan
61	TOLL HOLDINGS LIMITED	Buy	Neutral	Credit Suisse
62	TOX FREE SOLUTIONS LIMITED	Buy	Neutral	RBS Australia
63	Transpacific Industries Group Ltd	Buy	Neutral	RBS Australia
64	TREASURY WINE ESTATES LIMITED	Neutral	Sell	Macquarie
65	UNITED GROUP LIMITED	Buy	Neutral	Macquarie
66	WOODSIDE PETROLEUM LIMITED	Buy	Neutral	Citi
67	WOODSIDE PETROLEUM LIMITED	Buy	Neutral	Credit Suisse
68	WOOLWORTHS LIMITED	Neutral	Sell	Credit Suisse
69	WOTIF.COM HOLDINGS LIMITED	Buy	Neutral	Macquarie
70	WOTIF.COM HOLDINGS LIMITED	Neutral	Sell	BA-Merrill Lynch

Recommendation

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	AAX	25.0%	100.0%	75.0%	4
2	SYD	- 25.0%	17.0%	42.0%	6
3	MGR	43.0%	71.0%	28.0%	7
4	CSL	38.0%	63.0%	25.0%	8
5	GNC	50.0%	67.0%	17.0%	6
6	OST	57.0%	71.0%	14.0%	7
7	CFX	57.0%	71.0%	14.0%	7
8	SHL	75.0%	88.0%	13.0%	8
9	OSH	75.0%	88.0%	13.0%	8
10	GMG	63.0%	75.0%	12.0%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Rating	New Rating	Change	Recs
1	KCN	60.0%	- 20.0%	- 80.0%	5
2	TTS	38.0%	- 13.0%	- 51.0%	8
3	IIN	80.0%	40.0%	- 40.0%	5
4	ENV	17.0%	- 17.0%	- 34.0%	6
5	TOX	67.0%	33.0%	- 34.0%	3
6	AMP	88.0%	63.0%	- 25.0%	8
7	WES	38.0%	13.0%	- 25.0%	8
8	WPL	38.0%	13.0%	- 25.0%	8
9	AMC	75.0%	50.0%	- 25.0%	8
10	ILU	88.0%	63.0%	- 25.0%	8

Target Price

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	AAX	3.110	4.485	44.21%	4
2	REA	13.243	13.963	5.44%	7
3	EHL	1.218	1.283	5.34%	6
4	DOW	4.146	4.367	5.33%	7
5	FLT	23.448	24.660	5.17%	8
6	IIN	3.232	3.380	4.58%	5
7	TPI	0.877	0.915	4.33%	6
8	OST	1.203	1.253	4.16%	7
9	TOX	2.583	2.683	3.87%	3
10	CSL	34.293	35.516	3.57%	8

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous Target	New Target	Change	Recs
1	KCN	8.966	7.435	- 17.08%	5
2	AWC	1.784	1.589	- 10.93%	8
3	PBG	0.737	0.672	- 8.82%	7
4	CGF	5.474	5.039	- 7.95%	7
5	BEN	8.986	8.513	- 5.26%	8
6	WES	31.961	30.335	- 5.09%	8
7	AMP	5.054	4.834	- 4.35%	8
8	SFR	8.800	8.440	- 4.09%	5
9	GFF	0.593	0.569	- 4.05%	8
10	PRU	3.853	3.712	- 3.66%	6

Earning Forecast

Positive Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	GBG	0.057	1.343	2256.14%	6
2	AIO	18.625	26.325	41.34%	8
3	AAX	27.380	33.960	24.03%	4
4	SKE	18.767	21.233	13.14%	3
5	BLY	42.214	47.184	11.77%	8
6	CTX	119.600	132.867	11.09%	6
7	MAH	7.200	7.825	8.68%	4
8	GNC	85.683	92.200	7.61%	6
9	SDM	18.500	19.867	7.39%	3
10	ASL	33.440	35.840	7.18%	5

Negative Change Covered by > 2 Brokers

Order	Symbol	Previous EF	New EF	Change	Recs
1	AWC	1.416	0.144	- 89.83%	8
2	SFR	27.450	17.260	- 37.12%	5
3	WHC	27.717	17.550	- 36.68%	6
4	MQA	28.300	22.183	- 21.61%	6
5	GFF	6.363	5.300	- 16.71%	8
6	AIX	21.650

QR National: How Much Is Priced In?

- QR National interim a little below expectations
- Messy result with bad weather also impacting
- Outlook remains for growth in coming years
- Value the question as this growth appears priced in

By Chris Shaw

Interim earnings for QR National ((QRN)) were a little below market forecasts, the company delivering a messy result given some redundancy expenses, changes in depreciation methodology and mixed divisional performance.

Wet weather also played a part, Deutsche Bank noting this was responsible for reduced tonnages in Queensland. JP Morgan agrees, noting the conditions during the half are making it difficult to assess progress being made in delivering on productivity improvements in the coal haulage operations.

A positive out of the result was management at QR National has retained full year EBIT (earnings before interest and tax) guidance of $578 million. This has kept changes to broker earnings estimates for the full year to a minimum, adjustments to numbers largely reflecting some accounting and volume assumption changes.

Consensus earnings per share (EPS) estimates for QR National according to the FNArena database now stand at 219.8c this year and 228.2c in FY13. Adjustments to earnings forecasts have seen some changes to price targets, the consensus target according to the database rising to $3.73 from $3.56 prior to the interim result.

Among the brokers to revise their models post the interim result, targets range from Credit Suisse at $3.60 to BA Merrill Lynch at $4.45.

Longer-term, management has reiterated the view there are strong growth opportunities for QR National, while improvements in revenue quality can also be expected in coming years. While Credit Suisse agrees, the broker remains of the view there are corresponding risks to the growth potential on offer.

One area Credit Suisse wants to see improvement is in productivity, as delivery in this regard would leave the broker more confident in assuming a stronger earnings outlook given future increases to earnings are likely to reflect both growth and increased efficiency.

Deutsche Bank expects some evidence of cost reductions will become apparent over the next 12 months, while lower capex assumptions are also being factored into the broker's model. This supports the expectation of solid earnings growth in coming years.

The key issue discussed in the market in respect of QR National is valuation. As Credit Suisse and Deutsche both point out, there is little valuation upside from current share price levels relative to revised valuations for QR National, though Deutsche does suggest buying the stock on any pullback in the share price.

BA-ML is more positive, taking the view an extension of asset lives among QR National's fleet and a positive outlook on coal haulage margins should continue to deliver value. On this basis, BA-ML retains a Buy rating, which is matched by RBS Australia.

At the other end of the spectrum is JP Morgan, which retains an Underweight recommendation given the view potential good news on margins and lower capex is well and truly priced into the stock at current levels. This is a similar argument to that offered by Credit Suisse.

The only change in rating for QR National post the interim result came courtesy of Macquarie, who downgraded to Neutral from Outperform on the view the stock is simply too expensive from a shorter-term perspective. Overall, the FNArena database shows QR National is rated as Buy twice, Hold three times and Sell three times.

Shares in QR National today are slightly higher and as at 12.45pm the stock was up 3.5c at $3.715. This compares to a trading range over the past year of $2.85 to $3.89. The current share price is broadly in line with the consensus price target in the FNArena database.

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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.

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.

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