Tag Archives: Weekly Reports

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Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.
 

By Greg Peel

It will be yet another highly anticipated US jobs report tonight. The number would need to be particularly soft for Wall Street to retreat from its general assumption of a December Fed rate hike. Expectations are it may be a solid result, nonetheless.

How will Wall Street respond? That is question no one can definitively answer.

China will be back on deck next week following the Golden Week break. We can expect some distorted data ahead for October. Next Friday sees September inflation numbers released but ahead of that, Caixin will release its take on the China service sector PMI tomorrow.

The Japanese market will be closed on Monday. Monday is Columbus Day in the US. Stock and commodity markets are open but bond markets and banks are closed.

The minutes of the September Fed meeting are due on Wednesday. Not quite as influential as non-farm payrolls but critical nonetheless will be Friday’s US retail sales numbers, along with inventories, consumer sentiment and the PPI.

Australia will see housing finance and the NAB business and Westpac consumer confidence surveys next week.

On the local stock front, the run of ex-divs is now all but over and now we head into both the resource sector quarterly production report season and the AGM season.

Among those reporting next week are South32 ((S32)) and Whitehaven Coal ((WHC)) and among those meeting are Telstra ((TLS)) and CSL ((CSL)).


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Weekly Broker Wrap: Health Insurance, Strategy, A-REITs And China Housing

Outlook for health insurance; Equity inflows recover; US presidential campaign; outlook for A-REITs; vulnerabilities in China's housing market.

-Policy needs to address increased utilisation and declining participation in private health insurance
-Consumers maintain preference to save and invest in housing despite high yields from equities
-A-REIT earnings growth may be affected in near term as several sell off non-core assets
-Steel and iron ore vulnerable to potential slowdown in China's housing  market
 

By Eva Brocklehurst

Health Insurance

A structural change is required in the private health insurance sector. Macquarie believes government policy is required to support medium to long term participation by the private health insurance industry, given increased utilisation of health services and declining participation in insurance among the young.

There are three main issues the broker canvasses: affordability, where wages growth has not kept pace with premium increases; value, where older policy holders are increasing as a proportion and putting pressure on the system; and penetration, as participation by those under 65 has declined over the past three quarters.

Ahead of any policy change, Macquarie moderates its expectations for the industry and believes all stake holders will have to respond, irrespective of government action. Policy holders are already downgrading or dropping out and insurers have had to cut cover to support affordability.

Nevertheless, the broker upgrades Medibank Private ((MPL)) and nib Holdings ((NHF)) to Outperform from Neutral, believing its forecasts capture the impact of value and affordability on net margin performance.

Equity Strategy

June quarter data on financial market flows confirms a recovery of funds into equities after weakness in the first quarter. ASX data also suggest further improvement in capital raisings as well. Citi observes, lagging this improvement, is consumer sentiment regarding investing, reflected in surveys. These signal a preference to save, despite record low interest rates and the relatively high earnings and yields from equities.

Superannuation funds have continued to account for the largest inflows to equities and remain higher than a few years ago. Foreign investor inflows are also solid, Citi observes. In contrast domestic investors have been patchy, which is in line with the weak consumer sentiment readings. Citi suggests this caution and tendency to save has more to do with the property market than shares.

June quarter contributions to super were down on the prior five years but the broker suggests this probably reflects concerns around the tax changes in the budget. Households on the other hand have continued to build deposits and invest in housing.

US Election

Citi wonders whether Hillary Clinton's post-debate bounce will be maintained. Ms Clinton now leads national polls by 3.8 percentage points. Moreover, her personal favourability numbers have slightly improved. The broker flags heightened risk of disruptions to the campaign and outcome in this election and believes disruptions can cast doubt on the legitimacy of the final result.

Markets are still only partially pricing in a Donald Trump victory. An earlier rally in the US dollar against the Mexican peso was the clearest indication that the risk of his victory was rising, Citi observes, but since the first debate this currency pair has rolled over.

The assumption is that Mr Trump will head an expansionary fiscal policy but the broker continues to regard the potential for reforms as low, emphasising that the last fiscal stimulus was extremely unpopular with voters.

Real Estate Investment Trusts

Australian Real Estate Investment Trusts (A-REITs) were one of the worst performing sectors in August, Morgans observes. As expectations for a US interest rate hike dissipated in September the sector made a recovery. On a 12-month basis, listed property has then outperformed, with a total return of around 22% versus the broader market at around 13%.

Distribution or earnings growth for some entities may be affected in the near term as many have taken the opportunity to sell non-core assets given the strong market conditions. Morgans also flags a plethora of property IPOs (initial public offering) which have come to market recently including Australia Office Fund ((AOF)), Propertylink ((PLG)) and Viva Energy REIT ((VVR)).

Charter Hall Long WALE REIT is also expected to list before year end. It is expected to have a market cap around $1bn with a portfolio of assets with of long-weighted average lease expiries.

The broker's preferences among small/mid caps include 360 Capital Industrial Fund ((TIX)), which has potential to be included in the the ASX 200 in the medium term and has an attractive distribution yield of around 7.8%, Aventus Retail Fund ((AVN)), exposed to large format retail, and Asia Pacific Data Centres ((AJD)), which has a defensive yield of around 6%.

In large caps the broker prefers Stockland ((SGP)) for its diversity and, for its global diversity, Westfield ((WFD)). Morgans likes Goodman Group ((GMG)) as it offers exposure to logistics and industrial assets with distribution growth of 6%.

China Housing

China's housing market has rebounded this year, which Goldman Sachs observes is partly from the effects of policy stimulus. Home mortgages grew 30% in the June quarter, double the average annual pace of the previous five years. The broker's economists estimate that housing is responsible for 14% of China's economic output.

Beneath the rising prices and increasing sales, Goldman envisages the property market is become vulnerable. Policy-driven housing booms tend to be followed by slumps. Over building in regions where demand is declining can lead to large inventories that weigh on local markets for years.

This is the case because housing is durable and depreciates very slowly and excess inventory tends to exacerbate a downturn when demand suddenly falls. The broker adds that deteriorating affordability and strong investment motives also add to downside risks to future construction activity.

Given the importance of the property market to metal demand in China, the broker believes this points to risks for prices. Over the past two years iron ore prices have displayed the highest correlation in metals with Chinese construction activity. This makes steel and iron ore more vulnerable to a potential housing slowdown in China compared with base metals.

Goldman Sachs also envisages increasing risks to commercial real estate in China. Commercial properties are more steel intensive and this is why the broker suspects steel and iron ore may face more challenges going forward.
 

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The Short Report

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) to highlight significant weekly moves in short positions registered on stocks listed on the Australian Securities Exchange (ASX). Short positions in exchange-traded funds (ETF) and non-ordinary shares are not included. Short positions below 5% are not included in the table below but may be noted in the accompanying text if deemed significant.

Please take note of the Important Information provided at the end of this report. Percentage amounts in this report refer to percentage of ordinary shares on issue.

Stock codes highlighted in green have seen their short positions reduce in the week by an amount sufficient to move them into a lower percentage bracket. Stocks highlighted in red have seen their short positions increase in the week by an amount sufficient to move them into a higher percentage bracket. Moves in excess of one percentage point or more are discussed in the Movers & Shakers report below.


Summary:

Week ending September 29, 2016

Last week saw the ASX200 continue to rally back from Fed-related selling following no change to Fed policy. Hopes for an OPEC production freeze also provided a boost.

This week we welcome into the 5% plus table, for the first time in the history of this Report, a member of ASX royalty. As I have noted previously, shorts in Rio Tinto have been quietly building of late. Last week they built to 5.2%.

Rio becomes only the second ASX top 20 company shorted by in excess of 5%, the other being Woolworths ((WOW)).

Perhaps also notable in the context of this week’s gold price plunge is the entry of two gold miners into the table this week alongside the mining giant, being Gold Road Resources ((GOR)) and Resolute Mining ((RSG)).

Aside from the mining story there is only one stock that posted a move in short position of greater than one percentage point last week. Having found a little bit of price support after its significant plunge, residential aged care company Estia Health saw its shorts drop to 7.1% from 8.7% last week.

Perhaps the shorters were a little quick to take profits. Estia shares are down 9% as I write.


Weekly short positions as a percentage of market cap:

10%+

MYR   16.1
WOR   15.0
WSA   13.2
MTS    11.5
BAL    11.1
MND   10.9
FLT     10.3

No changes

9.0-9.9%

CVO
 
Out: AWC                             

8.0-8.9%

AWC, TFC, IGO, BKL, ORI 

In: AWC, IGO, BKL             Out: EHE

7.0-7.9%

MYO, BEN, NEC, SGM, IFL, DOW, WOW, CAB, EHE, SYR

In: EHE                       Out: IGO, BKL, GEM, IVC

6.0-6.9%

SGH, IVC, GEM, AWE, ACX, PRY

In: IVC, GEM, ACX             

5.0-5.9%

OSH, GOR, SEK, NWS, UGL, MSB, RSG, JHC, CTD, RIO, PDN, KAR

In: GOR, RSG, RIO               Out: ACX


Movers and Shakers

For a lot of this year brokers have had a preference for Rio Tinto ((RIO)) over rival BHP Billiton ((BHP)) given BHP is an oil & gas producer alongside its iron ore, coal and copper interests, and Rio is not. A greater downside risk was perceived in oil prices than in iron ore prices.

Now the pendulum has swung the other way. There is little change to iron ore forecasts but oil prices appear to have stabilised, and offer further upside if, indeed, OPEC does come to a production agreement. BHP also offers greater exposure to the stellar run in coking coal prices which has caught the world by surprise. Broker preference is now leaning to BHP over Rio.

It was only a 0.4ppt gain, but this was enough last week to elevate Rio Tinto into our 5% plus shorted table. The Rio/BHP pairs trade is a popular one in the market so increased shorts in Rio are possibly offset by longs in BHP, although we note from the table below BHP is 2.0% shorted. Given both stocks have seen a solid rebound of late, it may just be a naked short play.

The bad news story for the residential aged care sector is far from over, with possible regulatory issues still hanging over the industry, and this week has seen further selling in sector names. Nor does it help that aged care stocks are a yield play, and all yield play stocks are currently being dumped on expectations the global central bank easing cycle is about to end. Estia Health ((EHE)) is so far down 9% today alone.

However last week, Estia shares did find some buying support after a prolonged plunge, which likely hurried some shorters into taking profits. Estia shorts fell 1.6ppt to 7.1%.
 

ASX20 Short Positions (%)


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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Australian Corporate Bond Price Tables

PDF file attached.

Corporate bonds offer an alternative to equity investment in providing a fixed “coupon”, or interest payment, unlike equities which pay (or not) non-fixed dividend payments, and a maturity date, unlike equities which are open-ended.

Listed corporate bonds can be traded just as listed shares can be traded. Bonds bought at issue and held to maturity do not offer capital appreciation as an equity can, but assuming no default do not offer downside capital risk either. Pricing is based on market perception of default risk, or “credit risk”, throughout the life of the bond.

Bonds do offer capital risk/reward if traded on the secondary market within the bounds of issue and maturity. Coupon rates are fixed but bond prices fluctuate on perceived changes in credit risk and on changes in prevailing market interest rates.

Note that the attached tables offer three “yield” figures for each issue, being “coupon”, “yield” and “running yield”.

If a bond is purchased at $100 face value and a 5% coupon, and face value is returned at maturity, the running yield is 5% and the yield, or “yield to maturity” is 5%.

If a bond is purchased in the secondary market at greater than $100, the running yield, which is the per annum yield for each year the bond is held, is less than 5% because the coupon is paid on face value. The yield to maturity is also less than the coupon as more than $100 is paid to receive $100 back at maturity.

If a bond is purchased in the secondary market at less than $100, the running yield, which is the per annum yield for each year the bond is held, is more than 5% because the coupon is paid on face value. The yield to maturity is also more than the coupon as less than $100 is paid to receive $100 back at maturity.

Note that if a bond is trading on the secondary market at a price greater than face value the implication is the market believes the bond is less risky than at issue, and if at a lesser price it has become more risky. Bonds trading on yields substantially higher than their coupons thus do not offer a bargain per se, just a higher risk/reward investment. In all cases, bond supply and demand balances will also impact on secondary pricing.

Note also that while most coupons are fixed, the attached table also provides prices for capital indexed bonds (CIB) and indexed annuity bonds (IAB).

This service is provided for informative purposes only. It is not, and should not be treated as, a solicitation or recommendation to buy corporate bonds. Investors should always consult their financial adviser before acting on any information gleaned from this service. FNArena does not guarantee the accuracy of information provided. Note that while FNArena publishes this table weekly, prices are fluid and potentially changing throughout each trading day. Hence prices tabled may not reflect actual market prices at the time of reading.

FNArena disclaimer

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Share Buybacks – Who’s Doing It?

International research suggests shares in companies that buy in their own equities are more likely to respond positively through share price appreciation. Investors should note, however, buying back own stock is not a guarantee for significant share price gains ahead.

For local research about investor benefits from capital management, including companies buying in their own shares, FNArena subscribers can read "Buy Capital Management"

Below is an incomplete overview of companies buying in their own shares this year. We very much appreciate all feedback, contributions and suggestions at info@fnarena.com

See attached excel file for more details (paying subscribers only)

8IH 8I Holdings 21/09/2016
ABW Aurora Absolute Return 24/08/2016
ACQ Acorn Capital Inv Fund 10/10/2016
AFA ASF Group 26/04/2016
AFR African Energy Resources 23/11/2015
AGL AGL Energy 13/10/2016
AHY Asaleo Care 01/10/2015
AIB Aurora Global Income 14/12/2015
ALR Aberdeen Leaders Ltd 27/02/2015
APW AIMS Property Securities Fund 07/09/2016
AQF Australian Governance Masters 23/11/2015
ARA Ariadne Australia 21/08/2014
ARG Argo Investments 01/01/2016
AUF Asian Masters Fund 23/11/2015
AUI Australian United Investments 14/05/2015
AUP Aurora Property Buy-Write Trust 14/12/2015
BWF Blackwall Property Fund 15/03/2016
BWR Blackwall Property Trust 07/07/715
CAM Clime Capital. 21/12/2015
CAMPA Clime Capital Preference 15/08/2016
CGO CPT Global 27/08/2015
CHN Chalice Gold Mines 30/06/2016
CIM Cimic Group 29/12/2015
CIN Carlton Investments 29/11/2015
CIW Clime Investment Management 16/12/2015
CLT Cellnet Group 09/09/2015
CMC China Magnesium Corp 28/10/2014
CNI Centuria Capital 24/12/2015
CSR CSR Ltd 21/03/2016
CSV CSG Ltd 12/03/2016
CVC CVC Ltd 07/12/2015
CVW ClearView Wealth 19/12/2013
CYG Coventry Group 23/11/2015
DXS Dexus Property Group 01/09/2015
DUI Diversified United Investments 15/05/2015
EAI Ellerston Asia Investments 27/09/2016
EMF Emerging Markets Masters Fund 21/12/2015
EZL Euroz Ltd 14/01/2016
FID Fiducian Group 03/03/2015
FRI. Finbar Group 08/12/2014
GOW Gowing Bros 20/06/2012
GRB Gage Roads Brewing 04/10/2016
HHY HHY Fund 24/08/2016
ICN Icon Energy 26/02/2015
IPE IPE Ltd 16/11/2015
ISU iSelect 30/03/2016
ITD ITL Ltd 11/12/2015
JBH JB Hi-Fi 12/09/2016
KAT Katana Capital 30/12/2014
KAR Karoon Gas Aust 17/09/2015
KBC Keybridge Capital 07/12/2015
KKT Konekt 18/11/2015
LGD Legend Corp 24/12/2015
LLC Lend Lease Corp 28/08/2015
MAH Macmahon Holdings 21/10/2015
MEL Metgasco 04/02/2016
MFF Magellan Flagship Fund 13/08/2015
MGP Managed Accounts Holdings 14/08/2015
MHM MHM Metals 17/02/16
MIN Mineral Resources 04/12/2015
NEC Nine Entertainment 25/02/2016
NVT Navitas 16/02/2016
OCL Objective Corp 26/02/2016
ORL Oroton Group 26/04/2016
OZG Ozgrowth Ltd 30/12/2015
OZL OZ Minerals 14/03/2016
PME Pro Medicus 01/04/2016
PTM Platinum Asset Management 04/10/2016
QAN Qantas 08/09/2016
RCR RCR Tomlinson 21/12/2015
RND Rand Mining 12/12/2015
RRL Regis Resources 25/08/2015
RUL RungePincockMinarco 07/12/2015
SGM Sims Metal Management 07/12/2015
SIP Sigma Pharmaceuticals 13/10/2014
SMX SMS Management & Tech 15/06/2015
SVW Seven Group Holdings 12/03/2016
SVW Seven Group Holdings 17/08/2016
SWK Swick Mining Services 14/12/2015
SWM Seven West Media 29/09/2015
TBR Tribune Resources 28/09/2015
TGG Templeton Global Growth Fund 26/02/2016
TLS Telstra Announced 11/8/16
TOF 360 Capital Office Fund 02/05/2016
TOT 360 Capital Total Return 28/03/2016
TSM Thinksmart 06/09/2016
VSC Vita Life Sciences 13/05/2016
WAT Waterco 07/04/2016
WIC Westoz Investment Co 30/12/2015
WMK Watermark Market Neutral Fund 29/09/2016
XPD XPD Soccer Gear Group 20/09/2016
YBR Yellow Brick Road Holdings 20/11/2015

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Uranium Week: From Bad To Worse

Last week saw the uranium spot price fall a further 8%, to mark a 14% fall in the month of September.


By Greg Peel

There was good news for the global uranium industry in September. The new government in the UK has approved construction of the Hinkley Point nuclear facility, having initially delayed approval given Theresa May’s sudden ascension to prime minister post the Brexit vote. And the Kazakhstan government announced that given current market conditions, the world’s biggest holder of uranium reserves would not increase production for the time being.

But that’s where it ends.

Having fallen US$1.00/lb over the first three weeks of September, industry consultant TradeTech’s uranium spot price indicator fell a further US$2.00/lb last week to US$22.25/lb. That’s an 8% fall in a week and a 14% fall for the month. The spot price has fallen 35% in 2016 and 67% since Fukushima in 2011.

The underlying story is little changed. Despite some increased buying activity in term markets, utilities across the globe remain relatively well stocked with material and therefore are in no real rush to make purchases. Only bargain prices are providing any incentive.

And to that end, there is no reason to jump at current prices given sellers remain the disadvantaged party – well stocked with material they’d like to get rid of in a hurry, be they producers or intermediaries. UBS estimates the current average cost of global uranium production is around US$30/lb, hence the production industry as a whole is presently burning cash, placing many sellers in financial difficulty.

The average cost of restoring idled production is greater, and the price required to incentivise new production much greater.

UBS thus believes the spot price cannot remain under US$30/lb for much longer. Further production shutdowns and abandonments must eventuate. There is no sign of weakness abating as yet, however.

September saw 3.5mlbs U3O8 equivalent change hands in the uranium spot market in 23 transactions. Of that volume, 800,000/lbs changed hands on the last day of the month, and the quarter, alone, explaining why such a sharp fall in price over the week.

Term markets saw four transactions concluded over the month totalling 4.5mlbs U3O8 equivalent. Alongside the weekly spot price indicator, TradeTech’s monthly term price indicators have also tumbled once more. The consultant’s mid-term indicator is down US$3.00 to US$23.70/lb and the long-term indicator is down US$1.00 to US$37.00/lb.
 

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Weekly Recommendation, Target Price, Earnings Forecast Changes

By Rudi Filapek-Vandyck, Editor FNArena

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: Citi, Credit Suisse, Deutsche Bank, Macquarie, Morgan Stanley, Morgans, Ord Minnett and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral is grouped with Hold and Underperform and Underweight are grouped as Sell to provide a Buy/Hold/Sell (B/H/S) ratio.

Ratings, consensus target price and forecast earnings tables are published at the bottom of this report.

Summary

Period: Monday September 26 to Friday September 30, 2016
Total Upgrades: 5
Total Downgrades: 3
Net Ratings Breakdown: Buy 41.00%; Hold 43.69%; Sell 15.31%

Activity levels among stockbrokers, in particular concerning upgrades and downgrades in ratings, has ground to a halt. School and public holidays are only partially to blame. For the week ending Friday, 30th September 2016, FNArena registered a total of five upgrades and three downgrades in ratings for individual ASX-listed stocks.

AGL Energy took home two upgrades, while gold digger Resolute Mining received two downgrades. In other words: the number of individual stocks involved is even smaller than the ratings numbers suggest.

Fortescue Mining received the other downgrade which means nil upgrades for miners and all the downgrades. The numbers are small, but is there a deeper message in here?

Not when it comes to target prices (and underlying valuations) where Newcrest tops the table with a 4.7% positive adjustment, followed by Beach Energy (+3.7%). The numbers are small though, both in total adjustments as in actual gains and losses. The negative side outweighs the positives for the week with Cardno suffering -21.8% and ERM Power -13.8%.

Resources stocks dominate positive adjustments to earnings estimates. Whitehaven Coal leads the pack with a gain of 21.7%, followed by South32 and Fortescue Metals. Somewhere inside the pack there's also Premier Investments and Bapcor. Resources also dominate on the negative side where the largest losses to forecasts are for Karoon Gas and Orocobre. Here we also find Programmed Maintenance (profit warning), Qube (loss of contract), Vocus Communications (analysts adjusting post sector euphoria), Japara Healthcare (still same government and margin issues) and Bank of Queensland.

The latter reports FY16 financials later this week to start off the banking reporting season in Australia. Investor attention will be focused after a rocky ride for the sector thus far in 2016.

Upgrade

AGL ENERGY LIMITED ((AGL)) Upgrade to Buy from Neutral by Citi and Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 5/0/1

Citi analysts believe the case for higher electricity prices has strengthened and this has pushed up their estimates for AGL by 14/25% for FY18/19. The analysts observe the share price has disconnected from electricity prices recently.

Target price jumps by 10% to $20.62. Upgrade to Buy from Neutral.

AGL has announced a 5% on-market buy-back and an increase in the distribution pay-out ratio to 75%. FY17 profit guidance of $720-800m is in line with Credit Suisse's expectations.

The broker estimates the company will generate $600m in free cash flow pre-growth and $400-500m per annum after growth capex in FY17-19. With the company pursuing a capital-light approach to renewables and limited other opportunities this suggests more room for buy-backs, in the broker's opinion.

Credit Suisse upgrades to Outperform from Neutral. Target is $19.90.

MEDIBANK PRIVATE LIMITED ((MPL)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/2

Value and affordability remain issues in health insurance, driven by increased utilisation and declining participation among young people.

This will require structural change in the sector, Macquarie believes, with stake holders needing to give ground to support the system.

The broker believes the pressure is building and moderates revenue growth assumptions ahead of government policy changes considered necessary to boost participation by the young.

Rating is upgraded to Outperform from Neutral given the recent share price performance. Target is reduced to $2.79 from $3.05.

NIB HOLDINGS LIMITED ((NHF)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 2/4/1

Value and affordability remain issues in health insurance, driven by increased utilisation and declining participation among young people.

 This will require structural change in the sector, Macquarie believes, with stake holders needing to give ground to support the system.

The broker believes the pressure is building and moderates revenue growth assumptions ahead of government policy changes considered necessary to boost participation by the young.

The broker upgrades to Outperform from Neutral following the recent share price performance. Target price rises to $5.00 from $4.50.

VOCUS COMMUNICATIONS LIMITED ((VOC)) Upgrade to Buy from Neutral by UBS .B/H/S: 3/2/0

The ACCC has approved the NextGen transaction and Vocus has also announced it has exceeded its first quarter corporate/wholesale new sales target. NBN subscribers have grown 21.7% since June 30.

UBS notes investors have little visibility regarding the shape of FY17/18 growth which could limit a re-rating of the stock. A lack of transparency, lacklustre organic growth in FY16 and general conservatism leads the broker to reduce FY17-18 earnings per share estimates by 10-14%.

In line with the revisions the broker's price target falls to $6.80 from $8.60. The stock looks inexpensive so UBS upgrades to Buy from Neutral.

Downgrade

FORTESCUE METALS GROUP LTD ((FMG)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/3/2

Morgan Stanley's quarterly update on commodity prices brings better bulks into the base case.

The most notable forecast changes are hard coking coal, up 18% for 2016 and 29% for 2017 followed by iron ore up 11% in 2016 and 27% in 2017 then thermal coal, up 13% in both years.

Morgan Stanley tosses up between the robust free cash flow with ongoing debt reduction and the potential for iron ore to drag the equity lower in the near term, and opts for the latter.

Rating is downgraded to Underweight from Equal-weight, with the broker looking to take the opportunity to turn positive again. Attractive industry view retained. Target is raised to $4.50 from $4.05.

RESOLUTE MINING LIMITED ((RSG)) Downgrade to Equal-weight from Overweight by Morgan Stanley and Downgrade to Neutral from Buy by Citi .B/H/S: 0/2/0

Confirmation of the company's mine plan in Queensland has brought value to the base case for Morgan Stanley, but the equity has had a strong run up and the metrics are looking fair, so the broker downgrades to Equal-weight from Overweight.

The stock has been a stand-out in the sector and execution is now key for the broker. Target rises to $2.40 from $2.00. Attractive industry view retained.

Resolute Mining has raised $150m to fund capex and working capital, for the Ravenswood Expansion Project. Citi analysts note the share price has gained 500% over the past twelve months.

The analysts have a positive view on the outlook, but for now the rating goes back to Neutral from Buy. Price target improves to $2.17.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating
 
Order Company New Rating Old Rating Broker
Upgrade
1 AGL ENERGY LIMITED Buy Neutral Citi
2 AGL ENERGY LIMITED Buy Neutral Credit Suisse
3 MEDIBANK PRIVATE LIMITED Buy Neutral Macquarie
4 NIB HOLDINGS LIMITED Buy Neutral Macquarie
5 VOCUS COMMUNICATIONS LIMITED Buy Neutral UBS
Downgrade
6 FORTESCUE METALS GROUP LTD Sell Neutral Morgan Stanley
7 RESOLUTE MINING LIMITED Neutral Buy Citi
8 RESOLUTE MINING LIMITED Neutral Neutral Morgan Stanley

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 AGL AGL ENERGY LIMITED 58.0% 25.0% 33.0% 6
2 VOC VOCUS COMMUNICATIONS LIMITED 60.0% 40.0% 20.0% 5
3 NCM NEWCREST MINING LIMITED -31.0% -50.0% 19.0% 8
4 MPL MEDIBANK PRIVATE LIMITED -6.0% -19.0% 13.0% 8
5 QUB QUBE HOLDINGS LIMITED 43.0% 33.0% 10.0% 7
6 IFL IOOF HOLDINGS LIMITED 40.0% 33.0% 7.0% 5
7 BPT BEACH ENERGY LIMITED 42.0% 36.0% 6.0% 6
8 CWN CROWN RESORTS LIMITED 33.0% 29.0% 4.0% 6
9 SEK SEEK LIMITED 33.0% 29.0% 4.0% 6
10 SXY SENEX ENERGY LIMITED 67.0% 64.0% 3.0% 6

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 EPW ERM POWER LIMITED 33.0% 50.0% -17.0% 3
2 PMV PREMIER INVESTMENTS LIMITED -33.0% -17.0% -16.0% 6
3 FMG FORTESCUE METALS GROUP LTD -7.0% 7.0% -14.0% 7
4 PPC PEET & COMPANY LIMITED 67.0% 75.0% -8.0% 3
5 CDD CARDNO LIMITED -33.0% -25.0% -8.0% 3
6 BXB BRAMBLES LIMITED 17.0% 19.0% -2.0% 6
7 ABC ADELAIDE BRIGHTON LIMITED -8.0% -7.0% -1.0% 6

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 NCM NEWCREST MINING LIMITED 20.541 19.616 4.72% 8
2 BPT BEACH ENERGY LIMITED 0.657 0.633 3.79% 6
3 AGL AGL ENERGY LIMITED 20.215 19.822 1.98% 6
4 FMG FORTESCUE METALS GROUP LTD 4.743 4.679 1.37% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 CDD CARDNO LIMITED 0.660 0.845 -21.89% 3
2 EPW ERM POWER LIMITED 1.183 1.373 -13.84% 3
3 PPC PEET & COMPANY LIMITED 1.233 1.308 -5.73% 3
4 VOC VOCUS COMMUNICATIONS LIMITED 9.040 9.400 -3.83% 5
5 QUB QUBE HOLDINGS LIMITED 2.597 2.660 -2.37% 7
6 MPL MEDIBANK PRIVATE LIMITED 2.730 2.775 -1.62% 8
7 PMV PREMIER INVESTMENTS LIMITED 15.067 15.175 -0.71% 6
8 IFL IOOF HOLDINGS LIMITED 8.480 8.483 -0.04% 5

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 WHC WHITEHAVEN COAL LIMITED 14.386 11.814 21.77% 8
2 S32 SOUTH32 LIMITED 11.135 9.530 16.84% 8
3 FMG FORTESCUE METALS GROUP LTD 44.970 38.929 15.52% 7
4 OSH OIL SEARCH LIMITED 12.475 11.444 9.01% 8
5 BHP BHP BILLITON LIMITED 87.193 80.229 8.68% 8
6 PMV PREMIER INVESTMENTS LIMITED 73.253 68.074 7.61% 6
7 RIO RIO TINTO LIMITED 273.775 263.451 3.92% 8
8 AGL AGL ENERGY LIMITED 116.083 113.757 2.04% 6
9 BAP BAPCOR LIMITED 23.500 23.225 1.18% 4
10 AWC ALUMINA LIMITED 4.353 4.310 1.00% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 KAR KAROON GAS AUSTRALIA LIMITED -12.960 -5.280 -145.45% 3
2 ORE OROCOBRE LIMITED 11.200 17.450 -35.82% 4
3 SFR SANDFIRE RESOURCES NL 31.819 35.194 -9.59% 8
4 PRG PROGRAMMED MAINTENANCE SERVICES LIMITED 21.742 23.975 -9.31% 4
5 QUB QUBE HOLDINGS LIMITED 10.086 10.623 -5.06% 7
6 NCM NEWCREST MINING LIMITED 96.397 100.147 -3.74% 8
7 VOC VOCUS COMMUNICATIONS LIMITED 39.652 40.318 -1.65% 5
8 JHC JAPARA HEALTHCARE LIMITED 12.840 13.020 -1.38% 4
9 IRE IRESS MARKET TECHNOLOGY LIMITED 44.288 44.713 -0.95% 4
10 BOQ BANK OF QUEENSLAND LIMITED 94.300 95.175 -0.92% 7

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 Top Ten News Stories

Our top ten news from 22 September 2016 to 29 September 2016 (ranked according to popularity).

1 Uranium Week: Buyers Having No Impact
Tuesday 27 September 2016 - 10:02 AM
Spot uranium demand from utilities has picked up of late but sellers are the more urgent party, leading to further price falls.
Weekly update on recommendation, target price, and earnings forecast changes.
3 Consolidation Prospects Make Nufarm Appealing
Thursday 22 September 2016 - 12:31 PM
Herbicide and pesticide producer Nufarm has a strong outlook for FY17, supported by cost savings and a better upcoming cropping season in Australia.
4 A New Era For Australian Banks
Tuesday 27 September 2016 - 03:12 PM
Are Australian bank returns on equity really too high? What lies ahead for the banking sector?
5 Material Matters: Outlook, Bulks, Oz Miners, And Gold
Thursday 22 September 2016 - 10:03 AM
Pricing outlook for mining commodities; demand increases for bulks; positive trends for Oz coal and iron ore miners; Ord Minnett's gold picks.
6 Contrarian With Big Name Companies
Wednesday 28 September 2016 - 10:25 AM
Peter Switzer of the Switzer Super Report argues the case for buying when others are selling.
7 Wait For Opportunity In Vocus
Tuesday 27 September 2016 - 10:29 AM
Michael Gable of Fairmont Equities suggests Vocus Communications should offer up an attractive entry point in time.
8 ASX200: Still Pointing Down
Monday 26 September 2016 - 10:29 AM
Nick Linton-Ffrost of Fifth Wave suggests the technical outlook for the ASX200 has not changed since last week -- sideways before lower.
Unforgiving market continues; infrastructure sells off; flat outlook for construction; Canaccord Genuity covers receivables; Bell Potter initiates on TPI Enterprises.
10 What If Donald Trump Wins?
Tuesday 27 September 2016 - 12:15 PM
Analysts sift through Donald Trump's economic policies to suggest how the financial markets will react if he wins the US presidency.
article 3 months old

Australian Corporate Bond Price Tables

PDF file attached.

Corporate bonds offer an alternative to equity investment in providing a fixed “coupon”, or interest payment, unlike equities which pay (or not) non-fixed dividend payments, and a maturity date, unlike equities which are open-ended.

Listed corporate bonds can be traded just as listed shares can be traded. Bonds bought at issue and held to maturity do not offer capital appreciation as an equity can, but assuming no default do not offer downside capital risk either. Pricing is based on market perception of default risk, or “credit risk”, throughout the life of the bond.

Bonds do offer capital risk/reward if traded on the secondary market within the bounds of issue and maturity. Coupon rates are fixed but bond prices fluctuate on perceived changes in credit risk and on changes in prevailing market interest rates.

Note that the attached tables offer three “yield” figures for each issue, being “coupon”, “yield” and “running yield”.

If a bond is purchased at $100 face value and a 5% coupon, and face value is returned at maturity, the running yield is 5% and the yield, or “yield to maturity” is 5%.

If a bond is purchased in the secondary market at greater than $100, the running yield, which is the per annum yield for each year the bond is held, is less than 5% because the coupon is paid on face value. The yield to maturity is also less than the coupon as more than $100 is paid to receive $100 back at maturity.

If a bond is purchased in the secondary market at less than $100, the running yield, which is the per annum yield for each year the bond is held, is more than 5% because the coupon is paid on face value. The yield to maturity is also more than the coupon as less than $100 is paid to receive $100 back at maturity.

Note that if a bond is trading on the secondary market at a price greater than face value the implication is the market believes the bond is less risky than at issue, and if at a lesser price it has become more risky. Bonds trading on yields substantially higher than their coupons thus do not offer a bargain per se, just a higher risk/reward investment. In all cases, bond supply and demand balances will also impact on secondary pricing.

Note also that while most coupons are fixed, the attached table also provides prices for capital indexed bonds (CIB) and indexed annuity bonds (IAB).

This service is provided for informative purposes only. It is not, and should not be treated as, a solicitation or recommendation to buy corporate bonds. Investors should always consult their financial adviser before acting on any information gleaned from this service. FNArena does not guarantee the accuracy of information provided. Note that while FNArena publishes this table weekly, prices are fluid and potentially changing throughout each trading day. Hence prices tabled may not reflect actual market prices at the time of reading.

FNArena disclaimer

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Next Week At A Glance

For a more comprehensive preview of next week's events, please refer to "The Monday Report", published each Monday morning. For all economic data release dates, ex-div dates and times and other relevant information, please refer to the FNArena Calendar.


By Greg Peel

On Sunday summer time begins in relevant Australian states. From Tuesday morning the NYSE will close at 7am Sydney time.

Monday is a public holiday in NSW, the ACT, Queensland and South Australia. The ASX is open but there will be little in the way of any broker research. FNArena will publish the Monday Report as usual.

Next week is Golden Week in China. Markets will be closed all week.

Ahead of the holiday, Caixin will publish its September manufacturing PMI today and Beijing will publish the official manufacturing and service sector PMIs tomorrow.

For other markets, Monday is manufacturing PMI day, and Wednesday service sector PMI day.

The first week of the month is jobs week in the US. The ADP private sector number is due on Wednesday and non-farm payrolls on Friday. Other US data releases during the week include construction spending, vehicle and chain store sales, factory orders and trade.

A busy data week in Australia sees the manufacturing, services and construction PMIs, ANZ job ads, building approvals, retail sales and the trade balance. On Tuesday, Philip Lowe will release his first monetary policy statement as RBA governor and not wish to upset the status quo.

The number of stocks going ex-div is now beginning to dwindle while next week Bank of Queensland ((BOQ)) will deliver its earnings report and BHP Billiton ((BHP)) will hold investor briefings.


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.