Tag Archives: Weekly Reports

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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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 November 24, 2016

Last week saw the ASX200 saw the ASX200 trading largely sideways before it began the push towards 5500.

As the table below suggests, there was quite a bit of movement in shorts last week, particularly at the bottom end of the 5% plus table. A batch of new stocks rose into the 5-6% bracket. Ozforex ((OFX)), Super Retail ((SUL)) and Metals X ((MLX)) have been spotted in the table before but we also welcome Bega Cheese ((BGA)) and plumbing parts manufacturer Reliance Worldwide ((RWC)).

Further up the list, we note child care centre operator G8 Education’s ((GEM)) stint in the 10% plus club has proven short lived while graphite producer Syrah Resources dropped out on a 1.1 percentage point reduction following the company’s AGM.

Otherwise we note hospital operator Healthscope ((HSO)) continues to climb, rising into the 9-10% bracket, while ASX Top 20 stalwart Rio Tinto ((RIO)) enjoyed a slip back into the 6-7% bracket.


Weekly short positions as a percentage of market cap:

10%+

MYR   16.8
WSA   14.5
BAL    12.8
WOR   12.7
ACX   12.5
NEC    12.0
MTS    10.7
TFC     10.4
MND   10.2

Out: GEM, SYR

9.0-9.9%

AWC, SYR, HSO
 
In: SYR, HSO                                   

8.0-8.9%

ORE, VOC, JHC, GEM, NWS, MTR

In: GEM                      Out: HSO                               

7.0-7.9%

DOW, IGO, BEN, FLT, MYO, IFL, IVC, CVO

Out: BKL, RIO

6.0-6.9%

GTY, EHE, BKL, SGH, RIO, NXT, OSH, SEK, ORI, PRY, MSB, WOW, ILU, AWE

In: BKL, RIO, NXT               Out: PDN, GOR

5.0-5.9%

PDN, OFX, GOR, SPO, CAB, SUL, CSR, BGA, MLX, DMP, RWC

In: PDN, GOR, OFX, SUL, BGA, MLX, RWC                   Out: NXT, KAR, SGM, IPH


Movers and Shakers

Shares in Syrah Resources ((SYR)) took a dive last week following the company’s AGM. Nervous shareholders did not like to hear of ramp-up delays for the company’s graphite mine but brokers found the AGM positive, outlining various plans for downstream processing facilities.

Shareholders are likely twitchy given Syrah is one of those “new age” miners. Graphite is hardly new but its use in batteries has propelled the commodity into the electric world most notably occupied by lithium. These commodities have provided for near term booms and busts over 2016, and Syrah now trades around the $3.00 mark – where it began the year – after a mid-year run up to $6.50.

Delays are part and parcel of new mine ramp-ups thus analysts always apply discounts to valuation in the ramp-up phase, winding back the discount as milestones are reached. The four FNArena database brokers covering Syrah found the plans outlined at the AGM positive. Three retain Buy or equivalent ratings.

Morgan Stanley is the contrarian, rating the stock Underweight on concerns over where Syrah is going to find the funds to pay for its capex intentions.

Syrah shorts fell to 9.3% last week from 10.4%.

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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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
ACQ Acorn Capital Inv Fund 10/10/2016
AFA ASF Group 26/04/2016
AGL AGL Energy 13/10/2016
AHY Asaleo Care 01/10/2015
AIB Aurora Global Income 14/12/2015
AIV ActivEX Ltd 01/11/2016
ALR Aberdeen Leaders Ltd 27/02/2015
ANZ ANZ Banking Group During November 2016
APW AIMS Property Securities Fund 07/09/2016
AQF Australian Governance Masters 23/11/2015
AQF Australian Governance Masters 29/11/2016
ARA Ariadne Australia 21/08/2014
ARG Argo Investments 01/01/2016
AUF Asian Masters Fund 23/11/2016
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
CMI CMI Ltd 25/11/2016
CNI Centuria Capital 24/12/2015
CSL CSL Ltd 27/10/2016
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
DUI Diversified United Investments 01/06/2016
EAI Ellerston Asia Investments 27/09/2016
EMF Emerging Markets Masters Fund 21/12/2015
EMF Emerging Markets Masters Fund 21/12/2016
EZL Euroz Ltd 14/01/2016
FID Fiducian Group 03/03/2015
FRI Finbar Group 08/12/2014
GOW Gowing Bros 20/06/2012
GPT General Property Group 06/05/2016
HHY HHY Fund 24/08/2016
HOT HotCopper Holdings 02/11/2016
IAG Insurance Australia Group 21/11/2016
ICN Icon Energy 26/02/2015
IPE IPE Ltd 12/11/2016
ISU iSelect 30/03/2016
ITD ITL Ltd 11/12/2015
ITD ITL Ltd 28/11/2016
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 15/11/2016
LGD Legend Corp 24/12/2015
LLC Lend Lease Corp 28/08/2015
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
NVT Navitas 16/02/2016
OCL Objective Corp 26/02/2016
OPG OPUS Group 09/12/2016
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
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
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
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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Australian Listed Real Estate Tables

PDF file attached.

Investors looking to diversify away from straight equity can invest in property as an alternative via direct investment, or by investing in units of listed or unlisted real estate investment trusts (REIT) or the shares of property developers.

Typically a REIT will purchase a number of similar properties, maintain those properties and collect rent from tenants, and pay a distribution (dividend) to the unit holder net of maintenance costs and management fees. REITs are primarily attractive to investors for their dividend yield but also offer capital upside on property value appreciation. The bulk of listed REITs fall into three property categories: office, being office blocks usually in a CBD; retail, being shops and shopping centres; and industrial, being warehouses, logistics centres and so forth. Other variations exist.

Property developers typically purchase land, build office, retail, industrial or residential complexes, and sell those properties. Developers offer a higher risk/reward investment than REITs given the lag time between construction and sale, and the capital committed to a project. Dividend yields are typically lower but capital up/downside typically greater.

The tables in the attached PDF list Australian REITs and developers and and calculations for dividend yield and valuation, including share price to earnings, price to net asset value (market value of property) and price to book value (property valuation on the company's/trust's books) for the purpose of investor assessment.
 

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.

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Weekly Ratings, Targets, 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 November 21 to Friday November 25, 2016
Total Upgrades: 19
Total Downgrades: 9
Net Ratings Breakdown: Buy 43.45%; Hold 41.54%; Sell 15.01%

The gap between stockbroker Buy ratings and Hold/Neutrals continues to widen in Australia. For the week ending Friday, 25th November 2016, FNArena registered 19 recommendation upgrades versus nine downgrades. Ord Minnett has now joined Morgans, Macquarie and Morgan Stanley in carrying more Buy ratings than Holds for all stocks under its coverage.

This splits the eight brokers under daily monitoring by FNArena in half. None of the other four seems likely to join soon.

Thirteen out of the nineteen downgrades went to Buy or an equivalent. Among those names including Alacer Gold, GPT, Regis Resources, St Barbara and Westfield. It seems like analysts are coming to the conclusion there is increasingly value to be had amongst sectors out of favour.

Most of the downgrades were triggered by company disappointment which explains the presence of CSG, Fisher and Paykel Healthcare, Integral Diognostics, Monadelphous and Rhipe amongst the nine receiving downgrades during the week. Five out of the nine moved to Sell.

Amongst positive target changes, only Mineral Resources and Downer EDI are worth mentioning, each enjoying a 4%+ increase. Many more price targets received a haircut, or worse, with Integral Diagnostics -22% taking top spot on the flipside, followed by Village Roadshow (-8%), Programmed Maintenance (-7%) and Boral (-6%).

There was a lot going on with adjustments to earnings estimates. Syrah Resources enjoyed a boost of 31%+, followed by CYBG (+16%), TechnologyOne (+15%), Mineral Resources (+12%), and many more. There was equally a lot happening on the negative side with Billabong's market update good for a cut to consensus estimates of -62%. Iluka saw market expectations dive by -40%. Village Roadshow took a blow of -16.8%. APN News & Media suffered a blow of -12%. There were many more on the receiving side last week.

Upgrade

ABACUS PROPERTY GROUP ((ABP)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 1/1/1

Ord Minnett has undertaken a sector-wide review, analysing implications for passive property trusts after the recent sharp pull-back.

The company is envisaged making good progress in FY17 and realising more than $30m in profits on the sale of two transactions - Browns Road in Clayton, Victoria, and Westpac House in Adelaide.

The broker believes the market is valuing the company's investment portfolio below its conservative book value. Given current metrics, Ord Minnett upgrades to Buy from Hold and the target to $3.30 from $3.20.

ALTIUM LIMITED ((ALU)) Upgrade to Neutral from Sell by UBS .B/H/S: 1/2/0

The company's share price has declined 12% since the beginning of September. At the AGM management reiterated guidance for US$100m in revenue in FY17 rising to US$200m in FY20. UBS believes these targets are achievable.

The broker believes current valuation levels appropriately reflect the fundamentals and upgrades its rating to Neutral from Sell. Target of $9.05 is unchanged.

ALACER GOLD CORP ((AQG)) Upgrade to Outperform from Neutral by Macquarie .B/H/S: 4/1/0

Macquarie acknowledges the unforeseen plunge in the gold price post-Trump and while expecting further volatility, on a medium to long term outlook believes there's an 80% chance US economic outcomes will be positive for gold.

The broker thus believes some miners have been sold off too far. Alacer is upgraded to Outperform. Target unchanged at $3.40.

CENTURIA METROPOLITAN REIT ((CMA)) Upgrade to Buy from Neutral by UBS .B/H/S: 1/0/0

The responsible entity for Centuria Metropolitan, CPFL, has conditionally acquired an 8.76% stake in 360 Capital Office Fund ((TOF)) for $14.5m.

CPFL believes the property portfolios of CMA and TOF are highly complimentary and intends to consider a merger of the two at some time in the future.

UBS notes two issues with CMA have been liquidity and scale. Hence, a larger vehicle makes sense. The broker expects confidence in the manager to build as it leases vacancy in Canberra, executes on the residential conversion opportunity in Epping and de-risks the FY17 lease expiry in Keswick.

Rating is upgraded to Buy from Neutral. Target is raised to $2.30 from $2.20.

DORAY MINERALS LIMITED ((DRM)) Upgrade to Neutral from Underperform by Macquarie .B/H/S: 0/1/0

Macquarie acknowledges the unforeseen plunge in the gold price post-Trump and while expecting further volatility, on a medium to long term outlook believes there's an 80% chance US economic outcomes will be positive for gold.

The broker thus believes some miners have been sold off too far. Doray is upgraded to Neutral. Target unchanged at 60c.

GPT ((GPT)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Buy from Hold by Ord Minnett .B/H/S: 2/2/2

Back when REITs were still in fashion, Macquarie had an Underperform rating on GPT due to its low earnings growth profile compared to peers. As REITs began to sell off, the broker upgraded to Neutral in September.

More recently, REITs have been trashed along with all bond proxy stocks. At its current share price, GPT is trading at net asset value while offering a 5.6% yield, Macquarie notes. Upgrade to Outperform. Target unchanged at $5.16.

Ord Minnett has undertaken a sector-wide review, analysing implications for large capitalisation passive property trusts after the recent sharp pull-back. The broker considers GPT oversold, warranting a better cost of capital given its asset quality and growth prospects.

The broker upgrades to Buy from Hold on the basis that its portfolio is in sound shape, with sector leading portfolio income growth over the next three years translating into circa 4% distribution growth over five years. Target is raised to $5.40 from $5.32.

INSURANCE AUSTRALIA GROUP LIMITED ((IAG)) Upgrade to Hold from Reduce by Morgans .B/H/S: 0/7/1

The company expects net claims cost of $200m from the recent NZ storm and earthquake. Despite this, FY17 reported insurance margin guidance of 12.5-14.5% is maintained.

The broker believes the update highlights the strength of the company's reinsurance planning with guidance affirmed despite two significant recent events. Nevertheless, such events take away the potential upside in FY17, ex any particularly large reserve releases, in the broker's view.

Morgan's upgrades to Hold from Reduce, with the stock now looking closer to fair value. Target is raised to $5.11 from $5.10.

MIRVAC GROUP ((MGR)) Upgrade to Outperform from Neutral by Credit Suisse .B/H/S: 4/2/0

The company's commercial asset quality has been transformed and residential risks are more than priced in, Credit Suisse observes.

The company's residential business is at an unprecedented level of earnings visibility, with pre-sales representing around 170% of development capital employed.

Mirvac is one of the few in the sector which can truly generate value, rather than simply ride the bond yield cycle, the broker believes. Rating is upgraded to Outperform from Neutral. Target is steady at $2.30.

NORTHERN STAR RESOURCES LTD ((NST)) Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/2/1

Market expectations of US fiscal stimulus should lead to higher 10-year bond yields and an increase in inflation, although not at the same pace, Deutsche Bank believes. As a result real interest rates are likely to rise.

Despite this outlook, the Australian dollar gold price is only 10% below its record high of $1820/oz, the broker notes, and the sector has de-rated 25% in the last four months to be on the lowest multiples since early 2016.

Deutsche Bank upgrades Northern Star to Hold from Sell. Target rises to $3.70 from $3.50.

OCEANAGOLD CORPORATION ((OGC)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 3/0/1

Market expectations of US fiscal stimulus should lead to higher 10-year bond yields and an increase in inflation, although not at the same pace, Deutsche Bank believes. As a result real interest rates are likely to rise.

Despite this outlook, the Australian dollar gold price is only 10% below its record high of $1820//oz, the broker notes, and the sector has de-rated 25% in the last four months to be on the lowest multiples since early 2016.

Rating is upgraded to Buy from Hold. Target steady at $4.30.

REGIS RESOURCES LIMITED ((RRL)) Upgrade to Outperform from Neutral by Macquarie and Upgrade to Hold from Sell by Deutsche Bank .B/H/S: 2/3/3

Macquarie acknowledges the unforeseen plunge in the gold price post-Trump and while expecting further volatility, on a medium to long term outlook believes there's an 80% chance US economic outcomes will be positive for gold.

The broker thus believes some miners have been sold off too far. Regis is upgraded to Outperform. Target unchanged at $3.70.

Market expectations of US fiscal stimulus should lead to higher 10-year bond yields and an increase in inflation, although not at the same pace, Deutsche Bank believes. As a result real interest rates are likely to rise.

Despite this outlook, the Australian dollar gold price is only 10% below its record high of $1820//oz, the broker notes, and the sector has de-rated 25% in the last four months to be on the lowest multiples since early 2016.

The stock's rating is upgraded to Hold from Sell. Target is steady at $2.90.

ST BARBARA LIMITED ((SBM)) Upgrade to Buy from Hold by Deutsche Bank .B/H/S: 2/1/0

Market expectations of US fiscal stimulus should lead to higher 10-year bond yields and an increase in inflation, although not at the same pace, Deutsche Bank believes. As a result real interest rates are likely to rise.

Despite this outlook, the Australian dollar gold price is only 10% below its record high of $1820//oz, the broker notes, and the sector has de-rated 25% in the last four months to be on the lowest multiples since early 2016.

St Barbara's rating is upgraded to Buy from Hold. Target is steady at $2.90.

SCENTRE GROUP ((SCG)) Upgrade to Buy from Hold by Ord Minnett .B/H/S: 3/1/2

Ord Minnett has undertaken a sector-wide review, analysing implications for large capitalisation passive property trusts after the recent sharp pull-back.

Scentre Group has the best portfolio and the most conservative valuations, in the broker's opinion. It also has the best development track record and a growing work book. Ord Minnett upgrades to Buy from Hold and retains a $4.70 target.

STOCKLAND ((SGP)) Upgrade to Neutral from Underperform by Macquarie and Upgrade to Buy from Neutral by UBS .B/H/S: 3/3/0

Macquarie previously held an Underperform rating on Stockland given the longer term structural headwinds the broker expects a number of Stockland's commercial assets will face. On a combination of rising bond yields and the assumption the housing cycle is maturing the stock has since been sold off heavily.

There is no change in the broker's view but having fallen to a reasonable valuation, Macquarie upgrades to Neutral. Target falls to $4.34 from $4.47.

UBS believes Stockland can grow its residential earnings despite market volumes declining in FY17/18.

This is considered likely, given the company's increasing market share, which is driven by more capital being employed and more active projects, as well as diversity and product mix.

The broker upgrades to Buy from Neutral, given the material movements in the market and a 18% decline from its peak. Target is reduced to $4.64 from $4.84.

SILVER CHEF LIMITED ((SIV)) Upgrade to Add from Hold by Morgans .B/H/S: 1/1/0

The company has announced a material fraud loss within its GoGetta division, which will impact FY17 net profit by $2.3m. Morgans believes the quantum of this event is a one-off and the company can rectify the operational gaps which have been exploited.

The broker expects further expansion pains over the medium term but this is in the context of a solid growth profile. Morgans upgrades to Add from Hold. Target is steady at $11.05.

WESTFIELD CORPORATION ((WFD)) Upgrade to Outperform from Underperform by Macquarie .B/H/S: 5/0/1

Westfield began underperforming the REIT sector following its August earnings result, Macquarie notes, on Brexit concerns and the plunge in the pound. The REIT sector has since been sold off heavily on rising bond yields.

The market has been waiting a long time for signs of earnings accretion from Westfield's pipeline but the broker believes the income will eventually arrive. Risks remain to FY17 earnings guidance but funds are being allocated to "the best retail product in the world", Macquarie claims, and the stock is now offering an attractive shareholder return.

Upgrade to Outperform from Underperform. Target falls to $9.58 from $10.17.

Downgrade

ALUMINA LIMITED ((AWC)) Downgrade to Underweight from Overweight by Morgan Stanley .B/H/S: 0/5/2

Alumina prices are up 53% year-to-date and the stock is up 48%, Morgan Stanley observes. The broker now believes the value proposition is fully captured and downgrades to Underweight  from Overweight.

While there are now specific downside risks the broker is concerned about, other equities sit above Alumina Ltd in order of preference. Target is reduced to $1.55 from $1.70. Industry view is Attractive.

CSG LIMITED ((CSV)) Downgrade to Equal-weight from Overweight by Morgan Stanley .B/H/S: 0/2/0

The broker downgrades to Equal-weight from Overweight after the company issued a second disappointment, within three months of FY17 guidance. FY17 EBITDA guidance is now reduced to $38-42m from the $44-48m provided in August.

The company has indicated pressure in the SME print business in Australasia, with page volumes likely under pressure, although the broker believes the customer count is stable and the up-selling of technology solutions is going to plan. In-Line sector view. Target falls to 90c from $1.70.

CYBG PLC ((CYB)) Downgrade to Reduce from Hold by Morgans .B/H/S: 1/1/3

Morgans changes its cash earnings per share estimates, reducing forecasts by 4.7% in FY18 and raising by 2.7% for FY19, ahead of the FY16 results.

This is because of higher net interest margin forecasts in each of these years as well as higher credit impairments in FY18.

The rating is downgraded to Reduce from Hold as the broker considers the rally this month has resulted in the stock being overvalued. Target is unchanged at $4.17.

FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED ((FPH)) Downgrade to Hold from Buy by Deutsche Bank .B/H/S: 2/3/0

The company delivered a strong first half result, with net profit up 26% and ahead of guidance. Deutsche Bank updates its analysis of the ongoing litigation with ResMed ((RMD)), following a detailed review of risks around the action of the International Trade Commission.

While the stock remains an attractive long-term growth story, given significant uncertainty from the litigation the broker does not believe the risk/reward balance is attractive.

Rating is downgraded to Hold  from Buy. Target is reduced to NZ$9.00 from NZ$11.30.

INTEGRAL DIAGNOSTICS LIMITED ((IDX)) Downgrade to Underweight from Overweight by Morgan Stanley .B/H/S: 2/0/1

While appreciating the long-term industry dynamics, given ongoing disappointment, Morgan Stanley no longer has confidence in Integral Diagnostic's earnings trajectory.

The stock is expected to remain depressed, with risk of further negative earnings revisions. The broker prefers the IVF companies in the sector. Rating is downgraded to Underweight from Overweight. Target is lowered to $1.28 from $2.20. Industry view: In-Line.

MONADELPHOUS GROUP LIMITED ((MND)) Downgrade to Sell from Hold by Deutsche Bank .B/H/S: 0/1/5

The company's AGM signalled slightly more positive expectations for first half revenues.

Yet the outlook for resources capital expenditure has been negative for a while and Deutsche Bank does not believe the growth projects being evaluated presently are enough to replace the role of large capital expenditure incurred over the last two years.

The broker increases FY17 forecast revenues to reflect the company's contract wins and first half guidance. The broker believes the share price appreciation is unjustified, and downgrades to Sell from Hold. Target is raised to $7.94 from $7.68.

RHIPE LIMITED ((RHP)) Downgrade to Hold from Add by Morgans .B/H/S: 1/1/0

The company's AGM update has shown good revenue trajectory in the first quarter. Underlying guidance has been reiterated but a number of one-offs now mean reported EBITDA guidance has been downgraded to $4m from $5m.

Morgans downgrades its forecasts in line guidance and believes management will need to achieve this revised guidance for investor confidence to be restored. The broker downgrades to Hold from Add. Target is reduced to $0.86 from $1.11.

SIMONDS GROUP LIMITED ((SIO)) Downgrade to Hold from Add by Morgans .B/H/S: 0/1/0

Morgans suspects the takeover scheme is unlikely to be approved and implemented in its current form. The broker envisages the substantial holding of McDonald Jones Homes as a blocking stake, noting that the majority of this holding has been acquired above the offer price.

The broker considers Simonds to be fundamentally undervalued but recognises there are short-term price risks associated with voting against the scheme, and inherent earnings risks in the vocational division. Therefore, the company is more reliant on a turnaround in the building division.

The rating is downgraded to Hold from Add. Target is steady at 44c.

SIGMA PHARMACEUTICALS LIMITED ((SIP)) Downgrade to Underweight from Equal-weight by Morgan Stanley .B/H/S: 2/0/2

The sector has de-rated since August and Morgan Stanley observes some value is emerging. Yet, while Sigma has maintained its business momentum this is considered to be more than captured in the share price.

The broker believes longer-term risk is not reflected in the multiple and on a sector-relative basis prefers to hold IVF names. Rating is downgraded to Underweight from Equal-weight. In-Line sector view retained. Target is reduced to $1.20 from $1.28.

 

Total Recommendations
 Recommendation Changes

 

Broker Recommendation Breakup

 

Broker Rating
 
Order Company New Rating Old Rating Broker
Upgrade
1 ABACUS PROPERTY GROUP Buy Neutral Ord Minnett
2 ALACER GOLD CORP Buy Neutral Macquarie
3 ALTIUM LIMITED Neutral Sell UBS
4 CENTURIA METROPOLITAN REIT Buy Neutral UBS
5 DORAY MINERALS LIMITED Neutral Sell Macquarie
6 GPT Buy Neutral Macquarie
7 GPT Buy Neutral Ord Minnett
8 INSURANCE AUSTRALIA GROUP LIMITED Neutral Sell Morgans
9 MIRVAC GROUP Buy Neutral Credit Suisse
10 NORTHERN STAR RESOURCES LTD Neutral Sell Deutsche Bank
11 OCEANAGOLD CORPORATION Buy Neutral Deutsche Bank
12 REGIS RESOURCES LIMITED Buy Neutral Macquarie
13 REGIS RESOURCES LIMITED Neutral Sell Deutsche Bank
14 SCENTRE GROUP Buy Neutral Ord Minnett
15 SILVER CHEF LIMITED Buy Neutral Morgans
16 ST BARBARA LIMITED Buy Neutral Deutsche Bank
17 STOCKLAND Neutral Sell Macquarie
18 STOCKLAND Buy Neutral UBS
19 WESTFIELD CORPORATION Buy Sell Macquarie
Downgrade
20 ALUMINA LIMITED Sell Buy Morgan Stanley
21 CSG LIMITED Neutral Buy Morgan Stanley
22 CYBG PLC Sell Neutral Morgans
23 FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED Neutral Buy Deutsche Bank
24 INTEGRAL DIAGNOSTICS LIMITED Sell Buy Morgan Stanley
25 MONADELPHOUS GROUP LIMITED Sell Neutral Deutsche Bank
26 RHIPE LIMITED Neutral Buy Morgans
27 SIGMA PHARMACEUTICALS LIMITED Sell Neutral Morgan Stanley
28 SIMONDS GROUP LIMITED Neutral Neutral Morgans

Recommendation

Positive Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 SBM ST BARBARA LIMITED 67.0% 33.0% 34.0% 3
2 SGP STOCKLAND 42.0% 8.0% 34.0% 6
3 WFD WESTFIELD CORPORATION 58.0% 25.0% 33.0% 6
4 MIN MINERAL RESOURCES LIMITED 50.0% 25.0% 25.0% 4
5 OGC OCEANAGOLD CORPORATION 50.0% 25.0% 25.0% 4
6 RRL REGIS RESOURCES LIMITED -19.0% -44.0% 25.0% 8
7 AQG ALACER GOLD CORP 80.0% 60.0% 20.0% 5
8 GMG GOODMAN GROUP 50.0% 33.0% 17.0% 6
9 MGR MIRVAC GROUP 67.0% 50.0% 17.0% 6
10 IAG INSURANCE AUSTRALIA GROUP LIMITED -13.0% -25.0% 12.0% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Rating Previous Rating Change Recs
1 IDX INTEGRAL DIAGNOSTICS LIMITED 33.0% 100.0% -67.0% 3
2 BLD BORAL LIMITED -33.0% 17.0% -50.0% 3
3 PTM PLATINUM ASSET MANAGEMENT LIMITED -50.0% -25.0% -25.0% 4
4 VRL VILLAGE ROADSHOW LIMITED 25.0% 50.0% -25.0% 4
5 FPH FISHER & PAYKEL HEALTHCARE CORPORATION LIMITED 40.0% 60.0% -20.0% 5
6 PRG PROGRAMMED MAINTENANCE SERVICES LIMITED 70.0% 88.0% -18.0% 5
7 CYB CYBG PLC -42.0% -25.0% -17.0% 6
8 DOW DOWNER EDI LIMITED 33.0% 50.0% -17.0% 6
9 MND MONADELPHOUS GROUP LIMITED -83.0% -67.0% -16.0% 6
10 JHX JAMES HARDIE INDUSTRIES N.V. 57.0% 71.0% -14.0% 7

Target Price

Positive Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 MIN MINERAL RESOURCES LIMITED 12.443 11.900 4.56% 4
2 DOW DOWNER EDI LIMITED 5.088 4.880 4.26% 6
3 MND MONADELPHOUS GROUP LIMITED 7.693 7.648 0.59% 6
4 JHX JAMES HARDIE INDUSTRIES N.V. 21.359 21.254 0.49% 7
5 IAG INSURANCE AUSTRALIA GROUP LIMITED 5.558 5.556 0.04% 8

Negative Change Covered by > 2 Brokers

Order Symbol Company New Target Previous Target Change Recs
1 IDX INTEGRAL DIAGNOSTICS LIMITED 1.593 2.053 -22.41% 3
2 VRL VILLAGE ROADSHOW LIMITED 5.028 5.490 -8.42% 4
3 PRG PROGRAMMED MAINTENANCE SERVICES LIMITED 1.940 2.090 -7.18% 5
4 BLD BORAL LIMITED 6.177 6.603 -6.45% 3
5 SYD SYDNEY AIRPORT HOLDINGS LIMITED 6.936 7.107 -2.41% 7
6 HSO HEALTHSCOPE LIMITED 2.627 2.691 -2.38% 7
7 BXB BRAMBLES LIMITED 13.126 13.313 -1.40% 7
8 SGP STOCKLAND 4.752 4.807 -1.14% 6
9 WFD WESTFIELD CORPORATION 10.400 10.498 -0.93% 6
10 PTM PLATINUM ASSET MANAGEMENT LIMITED 4.888 4.925 -0.75% 4

Earning Forecast

Positive Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 SYR SYRAH RESOURCES LIMITED -4.443 -6.518 31.83% 4
2 CYB CYBG PLC 30.735 26.418 16.34% 6
3 TNE TECHNOLOGY ONE LIMITED 15.033 13.000 15.64% 3
4 MIN MINERAL RESOURCES LIMITED 63.360 56.140 12.86% 4
5 KAR KAROON GAS AUSTRALIA LIMITED -13.000 -14.200 8.45% 4
6 RIO RIO TINTO LIMITED 309.875 294.282 5.30% 8
7 AST AUSNET SERVICES 7.829 7.496 4.44% 7
8 QBE QBE INSURANCE GROUP LIMITED 65.242 63.275 3.11% 8
9 ISD ISENTIA GROUP LIMITED 17.267 17.033 1.37% 3
10 SGM SIMS METAL MANAGEMENT LIMITED 51.826 51.397 0.83% 7

Negative Change Covered by > 2 Brokers

Order Symbol Company New EF Previous EF Change Recs
1 BBG BILLABONG INTERNATIONAL LIMITED 1.300 3.500 -62.86% 3
2 ILU ILUKA RESOURCES LIMITED 5.020 8.400 -40.24% 7
3 VRL VILLAGE ROADSHOW LIMITED 29.500 35.467 -16.82% 4
4 APN APN NEWS & MEDIA LIMITED 27.563 31.506 -12.52% 5
5 PRG PROGRAMMED MAINTENANCE SERVICES LIMITED 18.368 20.742 -11.45% 5
6 IDX INTEGRAL DIAGNOSTICS LIMITED 11.103 12.533 -11.41% 3
7 BBN BABY BUNTING GROUP LIMITED 10.967 11.967 -8.36% 3
8 AHG AUTOMOTIVE HOLDINGS GROUP LIMITED 31.044 32.444 -4.32% 7
9 JHX JAMES HARDIE INDUSTRIES N.V. 79.962 83.052 -3.72% 7
10 MVF MONASH IVF GROUP LIMITED 13.267 13.600 -2.45% 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 Top Ten News Stories

Our top ten news from 17 November 2016 to 24 November 2016 (ranked according to popularity).

1 Telstra Review Sparks Dividend Speculation
Friday 18 November 2016 - 01:18 PM
Telstra has sparked speculation among brokers as to what it intends with its capital allocation strategy review.
Weekly update on recommendation, target price, and earnings forecast changes.
3 Uranium Week: Stability Returns
Tuesday 22 November 2016 - 12:18 PM
For once the spot uranium price did not fall over the week. Has a bottom been found?
Transaction Capital enters Oz; weak Xmas ahead?; regulatory settings for automotive; Woolworths; infrastructure downgrades; volatility in aged care.
5 Your Editor On Switzer: Tougher Times Ahead
Tuesday 22 November 2016 - 11:04 AM
FNArena Editor Rudi Filapek-Vandyck explains why he thinks investors should be more cautious from here onwards as one of his market indicators is flashing a warning signal.
6 ASX200: Watching 5400
Monday 21 November 2016 - 10:25 AM
Craig Parker of Moat Capital suggests 5400 is the level to watch following a flat week last week.
7 What Could Go Right Or Wrong For Stocks?
Wednesday 23 November 2016 - 11:04 AM
Peter Switzer of the Switzer Super Report assesses the global outlook for stock markets as we head into 2017.
8 The Return Of Growth
Wednesday 23 November 2016 - 10:05 AM
In this week's Weekly Insights: - The Return Of Growth - Fool's Gold? Know Thy Enemy! - Rudi On Tour - Nothing Ever Changes, Or Does It? - Rudi On TV
9 Mineral Resources: Overflowing With Riches
Monday 21 November 2016 - 11:45 AM
Mineral processor and iron ore and lithium miner Mineral Resources' AGM revealed so much opportunity one broker was prompted to upgrade to Buy.
Trump and US energy; coking coal's price surge; improved outlook for alumina, chrome and steel; positive trends for Oz miners.
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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

Wall Street will return from the Thanksgiving holiday tonight for a half-day, half-hearted session. Few will actually return.

Most will return on Monday for a week packed with US economic releases, including house prices, pending home sales, chain store sales, vehicle sales, consumer confidence, personal income & spending, construction spending, the Chicago PMI, manufacturing PMI and the Fed Beige Book.

Does data matter at all to the Fed anymore, vis a vis the assumed December rate hike?

Next week also sees the once important jobs numbers, and a revision of the first estimate of September quarter GDP.

The big event next week will nevertheless be the OPEC meeting in Vienna on Wednesday. Oil prices appear now to have entered a calm before the production freeze yes/no storm. The current WTI price around US$48/bbl is pricing in optimism, therefore suggesting upside to not much more than 50. Downside will be more pronounced if no agreement is reached.

Thursday is the first of the month which means manufacturing PMIs from across the globe, and also the services PMI from China.

Aside from the PMI, Australia will see building approvals, private sector credit and retail sales, along with the September quarter private sector capex numbers.

There’s a mad rush next week for most Australian companies to get their AGMs over and done with before December, although a few stragglers wait until later. There’s also a raft of off-cycle earnings reports due next week, including those of ALS ((ALQ)), Aristocrat Leisure ((ALL)), SAI Global ((SAI)) and SMS Management & Technology ((SMX)).
 

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Weekly Broker Wrap: Outlook, Strategy, OPEC And Airlines

Commodities and economic outlook; outlook for equities; OPEC production meeting; outlook for airlines; and Netcomm's NBN contract.

-Commodity boost to budget expected to be undermined by low wages growth
-Oz equities still considered reasonably attractive versus very low interest rates
-OPEC deal should be forthcoming, with surplus scenario likely if it fails
-Noticeable improvement in domestic airline passenger growth and yields
 

By Eva Brocklehurst

Commodities And Economic Outlook

A surge in the price of a number of Australia's key commodity exports since mid year has been widely flagged to provide a boost to the nation's economy. This includes the additional revenue to the federal government coming from increased tax receipts. The spot prices of three key commodity exports, iron ore, coking coal and thermal coal have risen sharply this year and, more generally, Commonwealth Bank analysts note, the Reserve Bank's non-rural commodity price index is up 17% since June.

Nevertheless, weak wages are expected to be a drag on budget revenues. Annualised wage growth for the September quarter was 1.6%, well below the 2016 budget assumptions of 2.5%. The analysts suspect this will reduce revenues and may offset the gains from higher commodity prices.

The CBA analysts suspect the size and relative strength of the NSW and Victorian economies means economic data presented at the national level is masking weakness throughout the rest of the country. Economic activity in the two biggest states, along with strong dwelling price growth in Sydney and Melbourne, is likely to mean the Reserve Bank prefers to stay on the sidelines in terms of its cash rate. This is despite the fact the rest of Australia could probably do with more easing of interest rate policy.

The analysts note that, during the mining investment boom, Australia was referred to as a "two-speed" economy, where relatively high interest rates and a strong Australian dollar weighed heavily on the rest of the country, while Western Australia, Queensland and Northern Territory experienced full-blown growth. Now this “two-speed” feature applies again, but this time it is NSW and Victoria driving demand and employment growth.

UBS expects the headwinds which have buffeted the economic outlook in the past few years, such as falling commodity prices and the drag from falling capital expenditure after the resources boom, will ease. As such, Australia's growth is forecast to strengthen to 3.0% in 2017, before easing to 2.8% in 2018. Through 2018 UBS expects growth to retrace as the booming housing construction cycle goes into reverse and the initial boost from public sector expenditure fades.

Growth is forecast to slow to 2.5% by the end of 2018. Inflation is expected to remain subdued and only return to the Reserve Bank's 2-3% target in the first half of 2018. UBS expects the RBA to keep the cash rate on hold before starting to normalise rates with a 25 basis point hike late in 2018 to 1.75%.

Equity Strategy

UBS considers a large and/or rapid drop from current levels is a key risk to factor in for equities in the coming year. Australian valuations appear moderately expensive in absolute terms but the market is still reasonably attractive compared with what are very low interest rates.

Australian earnings looks set to move back to positive growth in FY17 after two years of negative growth but, ex resources, trends appear still quite constrained, UBS observes. The broker remains relatively neutral on the banks, which appear reasonable value while the issue of their capital ratios is pushed out beyond 2017. UBS remains overweight resources.

Deutsche Bank believes the current price/earnings (PE) settings are about right and envisages earnings taking the market 4% higher over the next year. On the equity side, yield stocks have moved in line with bond yields and no longer look rich, with the broker noting the excess dividend yield that yield stocks offer is now close to the six-year average.

The broker likes some yield exposure at these levels and key picks include Telstra ((TLS) and Sydney Airport ((SYD)). In terms of the value trade the broker favours low PE stocks and key picks are Macquarie Group ((MQG) and Suncorp ((SUN)). Deutsche Bank remains a little concerned about domestic growth and expects reductions in official interest rates in 2017.

Australian dollar weakness and the prospect of better US growth leads the broker to include US exposure and key picks include Aristocrat Leisure ((ALL)), Amcor ((AMC)) and Incitec Pivot ((IPL)). In housing the broker sticks with a positive view and key picks include Fletcher Building ((FBU)) and Harvey Norman ((HVN)).

OPEC

Macquarie believes agreement on production reductions by OPEC (Organisation of Petroleum Exporting Countries) has a 60% chance of success when the cartel meets on November 30, with a low US$50 price range for oil in the event of success and low US$30 on a failure to make a deal. Most OPEC members are at, or near, their production plateau levels, which the broker observes has not been the case since 2014, and should make a deal more palatable.

The form of a potential deal is far from settled. If OPEC fails to agree, Macquarie expects it will lose the power to jawbone the market and be on its way to dissolving, while members would be locked into a crude production race. Failure would force members to maximise production, resulting in large increases from Saudi Arabia, Iraq, UAE, and, eventually, Kuwait.

In this scenario the broker believes OPEC could quickly arrive at 34.5m barrels per day and create an oversupply for 2017 and part of 2018. In Macquarie's view, lower non-OPEC production would not be enough to offset OPEC growth as a result of the failure to obtain an agreement.

Airlines

Ord Minnett observes a noticeable improvement in domestic passenger growth and yields in September, and what appears to be a more disciplined approach to international airfares to and from Australia by competing carriers. These developments have positive implications for Qantas ((QAN)) and Virgin Australia ((VAH)).

The number of passengers flying domestically grew 3% in September versus the previous September, and represent an improvement on the 2% growth in August and 1% growth in July. This confirms the broker's view that the July-August period was hurt by events such as the federal election.

The broker estimates yields in September in some key routes rose by 3-18% but, while these numbers are encouraging, cautions that average yields across the first quarter of FY17 were still down by 2-13%. In international routes passenger numbers grew by 6% in August, while average yields across the September quarter ranged from down 20% to up 10%.

Netcomm Wireless

Netcomm Wireless ((NTC)) has announced a contract with the National Broadband Network (NBN) for the roll out of its fibre technology (FTTdp or fibre-to-the-distribution point). This technology strikes a balance between the higher speed, but more expensive, FTTP (fibre-to-the-premises) and a technically inferior, but cheaper, FTTN (fibre-to-the-node).

FTTdp uses more fibre than FTTN as it extends to the kerb outside a property. The company's contract is for roll-out likely starting in FY18, which means production needs to start several months in advance.

This is a significant contract for earnings and, accordingly, Canaccord Genuity increases EBITDA (earnings before interest, tax, depreciation and amortisation) estimates by 27% for FY18, while FY19 is increased by 21%. Importantly, in the broker's view, the company is now well placed to win future similar contracts overseas.

Arguably, FTTdp is a bigger opportunity than fixed wireless because it addresses the issues in metro areas, where the majority of the company's target market resides. Canaccord Genuity increases its target to $3.50 from $3.20 and retains a Buy rating on the stock.


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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 November 17, 2016

Last week saw the ASX200 level out after the initial Trump rally as the market seemingly paused to contemplate exactly what a Trump presidency might mean. Only as the President-Elect appeared to pull back from his campaign rantings, and Wall Street hit new highs, did the index take off again this week.

The period of contemplation brought little movement in short positions, as the table below suggests. However there were some notable moves – not due to any Trump impact – at the top end of the table.

A couple of weeks ago, media company Nine Entertainment ((NEC)) and SaaS company Aconex ((ACX)) entered the 10% plus shorted club for the first time. Their stories were covered by the Short Report that week. Last week Nine shorts increased to 12.4% from 11.2% and Aconex shorts increased to 12.3% from 11.8%.

Last week saw two new entries into the 10% plus club.

Sandalwood producer TFS Corp ((TFC)), which has now changed its name to Quintis, has been hanging around in the 5% plus shorted table for a very long time and more recently short positions have been building. Last week saw the stock sneak over the 10% mark from 9.9% the week before.

A more dramatic increase was posted by G8 Education, which saw its shorts jump to 10.2% from 9.1%.


Weekly short positions as a percentage of market cap:

10%+

MYR   17.2
WSA   14.8
WOR   13.4
BAL    12.8
NEC    12.4
ACX   12.3
MTS    11.5
MND   10.2
GEM   10.2
TFC     10.1

In: GEM, TFC

9.0-9.9%

AWC
 
Out: GEM, TFC                                 

8.0-8.9%

VOC, NWS, HSO, MTR, ORE, JHC

In: HSO, ORE                        Out: SYR                               

7.0-7.9%

IGO, CVO, BEN, DOW, IVC, IFL, BKL, FLT, MYO, RIO

In: BKL                      Out: ORE, EHE

6.0-6.9%

ORI, SGH, GTY, EHE, PRY, WOW, SEK, OSH, ILU, MSB, PDN, GOR, AWE

In: EHE, ILU              Out: BKL, SGM

5.0-5.9%

KAR, NXT, SPO, SGM, CAB, CSR, DMP, IPH

In: SGM, KAR, IPH              Out: ILU


Movers and Shakers

There has been no news news out of child care centre operator G8 Education ((GEM)) since the company’s earnings release in August. However child care as a topic is oft discussed in the general media. Availability, or lack thereof, cost, and government policy are indeed very hot topics among Australian families.

The week covered by this Report had ended before the Fairfax press published a damning report on one particular child care chain owned by private equity, indeed the same firm that acquired and re-floated Dick Smith for a tidy profit ahead of the company’s demise. There is no connection to G8 other than the child care sector itself.

The shorts are nevertheless building in G8. Many will be able to cast their minds back to the once high-flying, highly government-subsidised ABC Learning which crashed spectacularly in the Credit Crunch that preceded the GFC. Perhaps that memory has an influence.

 

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.

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