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1 Weekly Recommendation, Target Price, Earnings Forecast Changes

2 WorleyParsons Gets A Slap, Promises Improvement

3 Target Downgrade Sparks Discounting Fears

4 Monadelphous Falling From Favour

5 Brokers Update Equity Strategies

6 AWE: Timely Upgrade At Ande Ande Lumut

7 Boart Longyear Downgrades, As Expected

8 Cochlear Feeling The Pinch

9 Australian Banks: What Comes Next?

10 A Challenging Season For Myer

11 Is Uranium Waiting For A Chance To Run?

12 Copper: Short Term Pain, Longer Term Gain

13 Silver And Gold Post April De-Rating

14 Material Matters: Miner Strategy, US Dollar, Coal And Copper

15 Gold Exploration Has Halved In A Year

16 This Tiny Mining Sector Is About to Soar

17 US Jobs And A Mistaken Fed Exit

18 Weekly Broker Wrap: Oz Retailers Under Attack

19 The Short Report

FNArena Weekly http://www.fnarena.com/membership/pdf_weekly.cfm

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20 Losing The Loser’s Game

21 Quickstep, And The New Frontier Of Composites

22 AUD Weakness Changes Oz Market Dynamics


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Stories To Read From FNArena www.fnarena.com

1 Australia

- 17 Downgrades; 10 Upgrades - Miners dominate downgrades - 2 x upgrades for VAH, 2 x downgrades for PRY - ILUgoes to Sell from Buy

Guide:

The FNArena database tabulates the views of eight major Australian and international stock brokers: BA-MerrillLynch, CIMB, Citi, Credit Suisse, Deutsche Bank, JP Morgan, Macquarie and UBS.

For the purpose of broker rating correlation, Outperform and Overweight ratings are grouped as Buy, Neutral isgrouped 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 May 13 to Friday May 17

Total Upgrades: 10 Total Downgrades: 17

Net Ratings Breakdown: Buy 40.13%; Hold 43.40%; Sell 16.48%

Stockbrokers are switching the focus back towards more negative implications for discretionary retailers inAustralia. Not only is the mild weather an obvious negative for apparel sales, with stories of bloated inventoriesswirling around the industry, but increased competition from overseas retailers and a weakening Aussie dollar arefurther adding to the sector’s subdued outlook.

Friday’s profit warning by Wesfarmers (Target) provided yet another catalyst for further research, with pendingnegative consequences for the sector overall. This scenario will largely unfold in the week ahead.

Meanwhile, downgrades in ratings for individual stocks remain largely focused on the mining and mining relatedsectors. But that was before the Aussie dollar tanked to well below USD-parity. A weaker AUD is poised to start anearnings upgrade cycle for Australian companies, including mining stocks.

Upgrades

Commonwealth Bank ((CBA)) upgraded to Overweight from Neutral by JP Morgan. B/H/S: 2/2/4

JP Morgan reported on the third quarter trading update, saying the result showed capital generation capacitydespite the low growth environment, which was impressive. The broker also noted dividend forecasts haveincreased. FY13 earnings forecasts were largely unchanged, while FY14 and FY15 estimates were increased. JPMorgan also increased its estimated final dividend to $2.05, a 78% pay-out ratio courtesy of an extra $200m incapital retention given an absence in business credit growth. JP Morgan's ratings are sector, rather than market,specific.

K&S Corporation ((KSC)) upgraded to Outperform from Neutral by Macquarie. B/H/S: 1/0/0

The broker has revised its assumptions slightly given weak industry feedback about the latter half of the current FY.Citing a tough rail and retail environment and a likely slowdown in WA, FY13-14 EPS forecasts were reduced by 5.4%and 9.7%, which pulled the price target lower. Yet despite the seemingly negative sounding revisions, therecommendation was upgraded, Macquarie noting a 20% decline in the share price from its recent peak, which more


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than accounts for the downside risk. The broker also likes the really low gearing, explaining it provides animportant flexibility to increase returns. Lastly, the stock looks cheap to Macquarie compared to both peers and themarket.

Nexus Energy ((NXS)) upgraded to Overweight from Neutral by Macquarie. B/H/S: 1/2/1

The broker noted Nexus has agreed with Santos ((STO)) to amend the Longtom Gas Sales Agreement and whileoverall gas volumes may have fallen, Nexus managed to get a better price and also doesn't have to pay for a $65minfill well. There were no finite details, but Macquarie noted it is all a positive. With the Crux licence restructured,retention licences secured and Longtom metrics looking better, the recommendation was upgraded.

Oakton ((OKN)) upgraded to Buy from Hold by UBS. B/H/S: 1/3/0

The broker noted Oakton now expects 2H earnings to come in around 1H levels, which implies about a 12% cut toguidance. Lower than expected Federal Government spending did much of the damage. FY13-15 EPS estimates werecut by 10%, 7% and 9% to account for the new guidance and soft operating environment. Cost cutting is about theonly way to support margins, so the off-shoring of work is likely to continue. Despite the soft outlook, therecommendation was upgraded, with the stock now too cheap to be passed up, said UBS.

Senex Energy ((OKN)) upgraded to Neutral from Underweight by JP Morgan. B/H/S: 1/3/0

JP Morgan pointed to the share price roller coaster over the past several weeks, noting the stock now offers 24%potential upside to the price target, albeit in a generally undervalued sector. The company has announced theHornet gas discovery, which is a positive, but the timeframe to realise value of the CSG in the Cooper Basinremains unclear, in the broker's opinion. Senex is JP Morgan's second preference among the minor players in theCooper. The first pick is Drillsearch ((DLS)). The price target was raised to 87c from 86c.

Singapore Telecommunications ((SGT)) upgraded to Neutral from Underperform by CIMB. B/H/S: 3/3/0

The broker upgraded the recommendation and raised the target price to S$3.86 from S$3.28 after SingTel's FY13results, to Neutral from Underperform. CIMB expects capex will remain elevated after FY14 as the companyincreases spending on LTE and 3G. SingTel is also allocating S$2 billion for digital investment over the next threeyears. Despite the spending, the pay-out ratio has been raised to 60-75% from 55-70% and the broker has alsoremoved its discount for Optus on easing competition concerns.

Stockland ((SGP)) upgraded to Neutral from Underperform by Credit Suisse. B/H/S: 2/3/2

There was little that the broker found surprising in the strategic review. What the broker did like was there was nomention of a capital raising, the dividend was maintained despite lower EPS, office asset sales are slowing, which isa positive at this point in the cycle and there was no earnings downgrade despite Boral’s ((BLD)) recent downgrade.On the downside, FY13 guidance was lowered by 2.5% to account for a restructure provision. With shares havingunderperformed the sector by 6.2% this year, the recommendation was upgraded.

Sydney Airports ((SYD)) upgraded to Buy from Hold by UBS. B/H/S: 2/2/2

UBS said the upgrade is based on valuation and the view that a value protecting resolution to the tax issues may bepossible through corporatisation. The broker noted Sydney Airport has underperformed yield peers and the ASX200by 15% since December 2012. UBS has also looked at the potential to restructure and sees $1.6 billion in trapped taxlosses at the asset level that could, in the event of a restructure, protect unfranked distributions out to 2019. Theprice target was increased to $4.00 from $3.20.

Virgin Australia ((VAH)) upgraded to Overweight from Neutral by JP Morgan and to Buy from Hold by UBS. B/H/S:5/2/0

UBS thought Virgin's recent profit downgrade was due mostly to temporary revenue issues and thus the resultant17% drop in the share price was overdone. If anything, the broker thinks the outlook for the company has actuallyimproved, with just two domestic players owning pretty much the whole market. So while forecasts may have beencut by 15%-20%, the recommendation was upgraded.


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JP Morgan also responded to Virgin Australia's lower guidance for FY13. The broker found the inclusion ofnon-recurring items disappointing considering the proximity to February's guidance. Despite this, the new FY13earnings estimates could herald the bottom and JP Morgan believes the foundations are now in place for profitgrowth to begin an upward trajectory. The depressed share price is now considered a buying opportunity.

Downgrades

Evolution Mining ((EVN)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 3/3/0

The likely strength of the USD and declining inflationary pressures sees the broker revise its gold price assumptions.Deutsche Bank average forecasts now stand at US$1,533/oz for this year, US$1,500/oz for next year and US$1,450/ozfor 2015. This adds up to 6%, 17% and 25% reductions. The broker's long term price remains unchanged atUS$1,300/oz. For Evolution this added up to a downgrade, lower forecasts and a lower price target.

Iluka Resources ((ILU)) downgraded to Underperform from Outperform by Credit Suisse. B/H/S: 4/2/2

The broker said it was feeling a bit optimistic in thinking a zircon restock is underway in China. It wasn’t all goodnews, as a TiO2 feedstock recovery is probably still six months down the track. In the meantime, the share pricereached the broker's target and with little to push it higher any time soon, the recommendation was dropped.

Incitec Pivot ((IPL)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 2/6/0

The first half result was only slightly below Credit Suisse's expectations, but it seemed the market was pricing in aworse result. The broker reduced its target price to $3.25 from $3.50. Credit Suisse also flagged the fact IncitecPivot is recycling cash away from price-taking fertiliser operations and towards better structured operations such asMoranbah, Pilbara emulsion and US ammonia. This should reduce earnings volatility and assist in a structuralre-rating. Any mean reversion of the macro environment should also help. Upside should also come with morefavourable foreign exchange. In the meantime, the rating has been downgraded.

Insurance Australia Group ((IAG)) downgraded to Neutral from Overweight by JP Morgan. B/H/S: 0/6/2

Insurance Australia has rallied hard and JP Morgan has reduced its recommendation, having noted shares aretrading at 15 times FY14 earnings forecasts, which is pricing in all of the favourable trends. The broker foreseessome threats to earnings from changes in NSW CTP and lower interest rates. Upside could come in the medium termfrom Asia, but JP Morgan did not see the market taking this on board anytime soon. The price target was increasedto $5.80 from $5.65, reflecting the general increase in market valuations. The broker likes the business and believesat some point the Asian franchise will be reflected in the share price, but at the moment the stock remainssusceptible to adverse news flow.

Lend Lease ((LLC)) downgraded to Hold from Buy by Citi. B/H/S: 7/1/0

The broker noted Australian Non-Residential and Engineering work has fallen off sharply since late last year as haveforward indicators. That has caused the broker to push out its recovery forecasts and revise its growthexpectations. Forecasts for Non-residential and Engineering construction spending were cut and this saw FY13-15net profit forecasts for Building Material stocks lowered by 0-5% and Contractors by 0-6%. This also added up to adowngrade and the price target dropping to $11.55 from $11.70.

Macquarie Group ((MQG)) downgraded to Hold from Buy by UBS. B/H/S: 1/6/0

UBS downgraded its call given the recent price rally. The stock's 22% rally since the FY13 result has added about $3billion to the market cap. Given there has been little change to consensus earnings forecasts, the broker thinks themarket is valuing a sustained lift in future dividends at 18 times. UBS believes an 80% payout ratio is unsustainablefor an investment bank with global growth ambitions and single digit return on equity.

Newcrest ((NCM)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 5/3/0

The likely strength of the USD and declining inflationary pressures saw the broker revise its gold price assumptions.Deutsche Bank average forecasts now stand at US$1,533/oz for this year, US$1,500/oz for next year and US$1,450/oz


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for 2015. This adds up to 6%, 17% and 25% reductions. The broker's long term price remains unchanged atUS$1,300/oz. For Newcrest this added up to a downgrade as part of a sector review.

OZ Minerals ((OZL)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 4/4/0

After the visit to Prominent Hill and Carrapateena the broker was still of the view that the asset potential for OZMinerals is yet to be defined. So, with operational issues in 2013 and no clear path to earnings growth, the stock isnot a preferred copper play. Deutsche Bank expects the company to meet revised copper and gold productionguidance in 2013 but is cautious and assumes grades will stay low.

Primary Healthcare ((PRY)) downgraded to Neutral from Buy by BA-Merrill Lynch and to Hold from Buy by DeutscheBank. B/H/S: 2/5/1

Primary has raised earnings guidance for FY13 by 3% and the broker increased its forecasts accordingly. Despite this,the rating was downgraded given the run up in the share price. BA-Merrill Lynch also expects incremental earningspressure into FY14 from dental revenue weakness and slower radiology growth. The price target was raised to $5.08from $4.71. Despite earnings certainty the broker said it cannot see additional factors that would provide freshupside from here.

Deutsche Bank was encouraged by the company's lift in FY13 earnings guidance, but remains wary about theexposure to the bulk-billing medical centre model, particularly if Medicare indexation is frozen, as has beensuggested in the press. The price target was raised to $5.20 from $4.95 and seeing only limited upside to the target,the recommendation was cut.

REA Group ((REA)) downgraded to Neutral from Outperform by Macquarie. B/H/S: 1/6/0

Macquarie reviewed the stock after the third quarter trading and downgraded the rating, saying that while REAremains an attractive business with a strong medium term growth outlook, the broker believes this has been largelycaptured by the share price. The issue for Macquarie is one of valuation, not outlook or quality of the businessmodel. The target price was raised to $31.30 from $23.50.

Regis Resources ((REA)) downgraded to Hold from Buy by Deutsche Bank. B/H/S: 4/3/0

The likely strength of the USD and declining inflationary pressures saw the broker revise its gold price assumptions.Deutsche Bank average forecasts now stand at US$1,533/oz for this year, US$1,500/oz for next year and US$1,450/ozfor 2015. This adds up to 6%, 17% and 25% reductions. The broker's long term price remained unchanged atUS$1,300/oz. For Regis this all added up to a downgrade.

Silver Lake Resources ((SLR)) downgraded to Hold from Buy by Deutsche Bank.B/H/S: 2/2/0

The likely strength of the USD and declining inflationary pressures saw the broker revise its gold price assumptions.Deutsche Bank average forecasts now stand at US$1,533/oz for this year, US$1,500/oz for next year and US$1,450/ozfor 2015. This adds up to 6%, 17% and 25% reductions. The broker's long term price remained unchanged atUS$1,300/oz. For Silver Lake this all added up to a downgrade.

SP Ausnet ((SPN)) downgraded to Underperform from Neutral by Credit Suisse and to Sell from Hold by DeutscheBank. B/H/S: 0/5/2

SP Ausnet's result beat Credit Suisse on a lower tax rate, while distribution guidance remained intact. SPN has mayhave been included in the market's drive for yield, but the broker feels the company's return profile is relativelylacking. There also remains uncertainty over the ongoing Bushfire case.

Deutsche Bank has some issues with the stock that it does not believe are adequately priced in. Too much exposureto structurally lower regulated returns, limited cash generation to fund distributions and ongoing litigation from the2009 Victorian bushfires. With shares also trading at a 30% premium to the broker valuation, the stock is overvaluedand hence downgraded

Suncorp Group ((SUN)) downgraded to Underperform from Neutral by Credit Suisse. B/H/S: 5/1/2


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The broker took a new look at the stock and made some small increases to its profit forecasts and valuation. Thisleads to a higher price target, but the lift is not enough. The broker thinks the stock is fully priced after running 25%so far this year after a 25% run in 2012. Too much for now, thinks Credit Suisse, so the recommendation wasdowngraded.

UGL ((UGL)) downgraded to Neutral from Outperform by Credit Suisse. B/H/S: 1/6/1

Losses on underperforming power projects, delays in engineering project ramp-ups and cost cutting from minerswere all behind UGL's 39% downgrade to FY13 profit guidance. The broker's forecast earnings were dropped 34% and15% in FY13-14 in response. UGL appears to have fared worse from industry cost cutting than the rest of the sector,the broker noted, suggesting the company's costing is not competitive, or relationships with customers are breakingdown. A divisional break-up would offer up two takeover opportunities, but in the meantime the brokerdowngrades.

Significant consensus target price and earnings forecast changes tabled below.

Total Recommendations Recommendation Changes

Broker Recommendation BreakupSecurities,Citi,Credit<*br*>Suisse,Deutsche<*br*>Bank,JP<*br*>Morgan,Macquarie,UBS&b0=94,154,85,86,84,79,120,93&h0=82,151,116,99,140,101,114,139&s0=67,25,40,49,18,49,38,29" style="border:1px solid #000000;" />

Broker Rating Order Company Old Rating New Rating Broker Upgrade 1 COMMONWEALTH BANK OF AUSTRALIANeutral Buy JP Morgan 2 K & S CORPORATION LIMITED Neutral Buy Macquarie 3 NEXUS ENERGY LIMITED Neutral BuyMacquarie 4 OAKTON LIMITED Neutral Buy UBS 5 SENEX ENERGY LIMITED Sell Neutral JP Morgan 6 SINGAPORETELECOMMUNICATIONS LIMITED Neutral Neutral CIMB Securities 7 STOCKLAND Sell Neutral Credit Suisse 8 SYDNEYAIRPORT HOLDINGS LIMITED Neutral Buy UBS 9 VIRGIN AUSTRALIA HOLDINGS LIMITED Neutral Buy JP Morgan 10VIRGIN AUSTRALIA HOLDINGS LIMITED Neutral Buy UBS Downgrade 11 EVOLUTION MINING LIMITED Buy NeutralDeutsche Bank 12 ILUKA RESOURCES LIMITED Buy Sell Credit Suisse 13 INCITEC PIVOT LIMITED Buy Neutral CreditSuisse 14 INSURANCE AUSTRALIA GROUP LIMITED Buy Neutral JP Morgan 15 LEND LEASE CORPORATION LIMITED BuyNeutral Citi 16 MACQUARIE GROUP LIMITED Buy Neutral UBS 17 NEWCREST MINING LIMITED Buy Neutral DeutscheBank 18 OZ MINERALS LIMITED Buy Neutral Deutsche Bank 19 PRIMARY HEALTH CARE LIMITED Buy Neutral BA-MerrillLynch 20 PRIMARY HEALTH CARE LIMITED Buy Neutral Deutsche Bank 21 REA GROUP LIMITED Buy Neutral Macquarie22 REGIS RESOURCES LIMITED Buy Neutral Deutsche Bank 23 SILVER LAKE RESOURCES LIMITED Buy Neutral DeutscheBank 24 SP AUSNET Neutral Sell Credit Suisse 25 SP AUSNET Neutral Sell Deutsche Bank 26 SUNCORP GROUP LIMITEDNeutral Sell Credit Suisse 27 UGL LIMITED Buy Neutral Credit Suisse Recommendation Positive Change Covered by >2 Brokers Order Symbol Previous Rating New Rating Change Recs 1 VAH 43.0% 71.0% 28.0% 7 2 MAH 25.0% 50.0% 25.0%4 3 MGR 17.0% 33.0% 16.0% 6 4 WRT 43.0% 57.0% 14.0% 7 5 CBA - 38.0% - 25.0% 13.0% 8 6 CRZ 17.0% 29.0% 12.0% 7Negative Change Covered by > 2 Brokers Order Symbol Previous Rating New Rating Change Recs 1 IPL 50.0% 25.0% -25.0% 8 2 SLR 75.0% 50.0% - 25.0% 4 3 PRY 38.0% 13.0% - 25.0% 8 4 ILU 50.0% 25.0% - 25.0% 8 5 EVN 67.0% 50.0% - 17.0% 66 MQG 29.0% 14.0% - 15.0% 7 7 REA 29.0% 14.0% - 15.0% 7 8 RRL 71.0% 57.0% - 14.0% 7 9 OZL 63.0% 50.0% - 13.0% 8 10SUN 50.0% 38.0% - 12.0% 8 Target Price Positive Change Covered by > 2 Brokers Order Symbol Previous Target NewTarget Change Recs 1 REA 22.506 25.066 11.37% 7 2 MGR 1.602 1.734 8.24% 6 3 PRY 4.563 4.928 8.00% 8 4 CRZ 8.6589.164 5.84% 7 5 CBA 63.295 64.628 2.11% 8 6 MQG 41.437 42.151 1.72% 7 7 SUN 12.483 12.545 0.50% 8 8 IAG 5.375 5.3940.35% 8 9 SHL 13.861 13.870 0.06% 7 Negative Change Covered by > 2 Brokers Order Symbol Previous Target NewTarget Change Recs 1 SLR 2.538 2.338 - 7.88% 4 2 MAH 0.363 0.343 - 5.51% 4 3 EVN 1.490 1.408 - 5.50% 6 4 OZL 6.1065.906 - 3.28% 8 5 IPL 3.325 3.218 - 3.22% 8 6 RRL 4.424 4.310 - 2.58% 7 7 NCM 22.813 22.575 - 1.04% 8 8 VAH 0.471 0.467- 0.85% 7 9 LLC 11.300 11.281 - 0.17% 8 Earning Forecast Positive Change Covered by > 2 Brokers Order SymbolPrevious EF New EF Change Recs 1 CGF 53.553 59.428 10.97% 8 2 CTX 162.429 164.957 1.56% 7 3 CBA 457.813 464.7131.51% 8 4 BHP 230.337 233.627 1.43% 8 5 CSR 10.369 10.475 1.02% 8 6 REA 81.256 82.013 0.93% 7 7 AUT 26.874 27.0900.80% 6 8 WRT 19.427 19.556 0.66% 7 9 NAB 249.113 250.563 0.58% 8 10 FBU 37.096 37.248 0.41% 8 Negative ChangeCovered by > 2 Brokers Order Symbol Previous EF New EF Change Recs 1 VAH 2.580 1.723 - 33.22% 7 2 ILU 21.39915.075 - 29.55% 8 3 AQG 33.379 29.643 - 11.19% 6 4 SLR 25.300 22.550 - 10.87% 4 5 BDR 12.200 11.475 - 5.94% 4 6 PRU12.057 11.414 - 5.33% 7 7 IPL 21.606 20.796 - 3.75% 8 8 DLX 24.329 23.443 - 3.64% 7 9 PRY 28.778 27.803 - 3.39% 8 10SBM 10.833 10.500 - 3.07% 3 Technical limitations

If you are reading this story through a third party distribution channel and you cannot see charts included, we


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apologise, but technical limitations are to blame.

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


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2 Australia

-Earnings downgrade hits hard -Company is diverse and resilient -Hydrocarbons key to growth -And there's adividend while waiting

By Eva Brocklehurst

Diversified resources infrastructure provider, WorleyParsons ((WOR)), hit the market with an earnings downgradeand investors took out their frustrations on the share price. Is this justified? Brokers are of mixed views on that.Near term, as is the case for many that are providing services to build mine infrastructure, the talk is all aboutcut-backs to scope and project delays. Longer term? The geographic spread and exposure to the more buoyanthydrocarbons sector means WorleyParsons should be well placed, when things improve.

Cost cutting by WorleyParsons' clients in Western Australia contributed a large part to the downgrade, as well assoftening conditions in the Canadian oil sands market. The oil sands company Cord was a key to first half strengthbut construction activity has softened and it appears this business will not deliver the level of growth previouslyexpected. One of the negative aspects of the Canadian oil sands economics is that Canadian oil sands prices are ata discount to West Texas Intermediate. Greenfield projects are harder to justify. What may deliver a benefit forWorleyParsons, in Macquarie's view, is the Keystone pipeline approval in the next six months. This could deliverimproved supply of Canadian oil sands to the US Gulf coast and, in turn, reduce the price discount.

The growth for FY13 is gone, nonetheless, largely courtesy of Western Australia. This is what the market hasfocused on. The profit guidance of $320-340 million for FY13 compares to FY12's underlying earnings of $345.6m. Thequantum of the impact of the downturn was larger than JP Morgan expected and this broker does not expectconditions to get better soon. The company's Improve division - brownfields operations and maintenance - is likelyto provide the growth and visibility on earnings down the track but this business does have lower marginscompared the execution phase businesses. JP Morgan is just not convinced that all the negatives have beenfactored in and remains the most cautious of the brokers on the FNArena database, with a Sell rating (sectorrelative).

Hydrocarbons is the company's strongest division, representing 70% of earnings, and here growth is expected. Theoutlook for US downstream activity in refining and petroleum is improving, instigated by cheap US gas. Macquarienotes 45% of WorleyParsons' revenue now comes from North America but the exposure to hydrocarbons is global.WorleyParsons has 33% of segment revenue from Canada, 18% from the US/Caribbean, 13% from Europe and 19%from Australia. Credit Suisse views the company as well placed to win a fair share of new projects in deep water,sub-sea, arctic and unconventional oil and gas where WorleyParsons has a competitive advantage. Managementflagged the fact that some key customers in the Middle East and the US were actually intent on increasing capexspending next year in this regard.

Macquarie calls it the "second half club", which WorleyParsons has now joined. The second half is not meetingexpectations for a number of companies and they are being forced to issue profit warnings. Macquarie had flaggedWorleyParsons' potential to be initiated into the club, but thought the strength in hydrocarbons and diversity ofearnings streams would get the company over the line. It seems the Western Australian infrastructure andenvironment division delivered the biggest blow with resource project deferrals, including Woodside Petroleum's((WPL)) Browse Basin decision. There is also WA restructuring costs and onerous lease provisions in the second halfwhich are contributing to the deterioration. There was also reduced spending in South Africa, the US and Canada.

Macquarie finds WorleyParsons is now trading at a 17% discount to global peers on a FY13 price/earnings ratio. It istrading at a slight premium to closest peers Amec and Wood but at a discount to Jacob. In spite of this,WorleyParsons is considered one of the few that can deliver sustainable earnings growth over the next few years.The key word is "confidence". Here, guidance at the FY13 results in August will be critical for brokers. UBS haslowered expectations for FY13, FY14 and FY15 earnings by 10%, 23% and 25% respectively, assuming an ongoing


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deterioration in the minerals/metals and infrastructure & environment divisions. Yet, medium-to longer-term theoutlook is robust on the back of favourable oil and gas fundamentals.

The earnings downgrade relates to the underperformance of divisions which account, collectively, for 14% ofrevenue and on this basis Credit Suisse believes the market reaction was over the top. The stock on Credit Suisse'sestimates is trading on a forward price/earnings of 12.1x. To arrive at a discounted cash flow valuation in line withthe current share price the assumption must be made that earnings margins stabilise below trough levels. ForCredit Suisse this is overly bearish, given the company's dominant market position, solid execution and acquisitiontrack record.

CIMB had formed a view, just before the latest guidance was issued, that WorleyParsons was significantlyundervalued given the global footprint and diversity of its business. The broker is not eating humble pie, other thanto cut earnings forecasts for FY13 in line with guidance, observing that, within the Western Australian businesses itwas the bottom-line leverage of one poor performer, representing just 4% of revenue, that was underestimated.

CIMB admits the market will want proof that the company can grow but, if the Cord problems are mostly abouttiming and Western Australia is restructured appropriately, then this could be end of the downgrade. Moreover,with a 5% yield in FY14 and a payout ratio under 70%, the broker believes investors will be at lest well paid whilethey wait.

On the FNArena database the consensus dividend yield for FY13 earnings is 4.6% and for FY14 earnings 4.9%. Theconsensus target price is $22.62, signalling 14.7% upside to the last share price. There are four Buy ratings on thestock, three Hold and one Sell.

WOR has pursued a strategy of globalisation for its metals, mining & chemicals and infrastructure & environmentbusinesses. In FY10, Australia accounted for 59% and 56% of respective revenue. In FY13, Macquarie estimatesAustralia will account for closer to 40% of each. Latin America and Asia/China have driven much of thediversification in the former while Latin America and Africa have driven the latter.



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3 Australia

-Warm autumn affects apparel sales -Inventory clearance and discounting likely -Target likely to trigger "Sales" byothers -Shopping Centre operators affected

By Eva Brocklehurst

Retailers are still negotiating troubled waters. Wesfarmers' ((WES)) has downgraded earnings expectations forTarget stores and sent another shiver through the ranks of retail analysts. It was a warmer-than-usual autumn sopeople were not buying coats and cardies. Perhaps the fashion trends this year are too subdued. Too much blackthis winter. Everyone has something in black in the back of the wardrobe.

Of more importance, retailers were not jumping in so fast this time to discount items on a poor start to the season.Maybe shoppers have been spoilt by frequent discounting and are playing a game of bluff with retailers. Who'll win?Probably the shoppers as the first retailer to capitulate will trigger a chain reaction in discounting.

UBS has received trade feedback which suggests April was soft and it affected retailers of apparel. The broker'sanalysis shows that for every 1% variance in peak temperature there is a relative 4% underperformance in apparelsales. UBS has trimmed earnings estimates for department store and apparel retailers by 1-2% for FY13 butemphasises that earnings are still expected to grow, just more modestly. There's just so much out there to supportrenewed spending, such as low interest rates, rising confidence and improving housing and equity market prices.

There's a raft of excuses for why the season started poorly, including the upcoming election, but Citi is not buyingthem all. For Target, it's a case of too much inventory. The excess could affect earnings by $40-50 million if clearedat cost, so this explains half Target's $100 million earnings downgrade. The rest is about restructuring costs and"shrinkage" - which leads Citi to question how inventory is managed at Target. UBS suspects Target is carrying $70min excess stock which will need to be cleared in coming months. This will lead to heightened discounting and putpressure on the industry in the second half.

CIMB is also concerned about the increase in inventory shrinkage, which suggests systems and process issues thatmay not be easily corrected. The broker believes Target's business model may have to be re-visited. Target'searnings reduction may be to Kmart's gain, perhaps. The other of Wesfarmers' discretionary retailers is expected togrow earnings. Kmart has grown substantially over recent years based on high volume, low margin business, butCiti suspects this has hurt Wesfarmers overall.

Target is between a rock and a hard place. The chain is in the stages of re-positioning up the ladder as a discountdepartment store. For Citi, it is unclear how the chain will build credibility and take market share off Myer ((MYR))and specialty stores. It either proceeds with this or goes the other way - but then it would bump into Kmart'sposition on the discount ladder.

UBS estimates marking down prices and the cost of doing business accounts for a substantial amount of decline insecond half operating margins for retailers. This is outside the Target-specifics of inventory shrinkage andrestructuring. The broker suspects that heightened promotional activity by a large operator sends a message toothers in the sector to increase the amount of discounting. David Jones ((DJS)) is expected to have suffered fromthe unusual April warmth. While not being a competitor to Target, UBS estimates David Jones generates 40% ofturnover from seasonal items and the need to discount is likely to adversely impact second half sales and grossmargins. Myer competes more with the discount department stores and consequently discounting is likely to impactmargins.

A third retailer that might be getting signals from Target is Pacific Brands ((PBG)). While not competing in the storesense, and supplying less seasonally sensitive items, there could be some spill from the discounting and so UBS hasalso revised down earnings expectations in that quarter. The specialty retailer that could be affected is Premier


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Investments ((PMV)), with abnormal weather and discounting by Target impacting store margins and volumes.

BA-Merrill Lynch suspects there's been an over-reaction in the market to the news and that Wesfarmers' coalbusiness and Kmart will more than offset the earnings reduction from Target. In the broader market too, UBSbelieves further earnings downgrades are of a short term nature and should be seen as buying opportunities.

Regardless of the extent weather, fashion and all else is having on the retailers, they are a powerful link in theconsumer chain. If apparel retailers are suffering from poor sales then the re-leasing spreads are pressured forthose operators of discretionary retailer-dominated shopping centres. UBS notes Westfield Group's ((WDC))operating metrics deteriorated in the March quarter and lease deals declined. The broker is therefore inclined topost a Sell rating for discretionary retailer-anchored investments, specifically Westfield Retail ((WRT)), CFS RetailProperty ((CFX)) and GPT ((GPT)). Westfield Group doesn't fit this bill because of the exposure to the US and capitalmanagement potential.



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4 Australia

- Sell ratings dominate - Analysts spooked by mining capex slowdown - CLSA sees little near term hope

By Andrew Nelson

The company's interim profit report back in February marked a distinct turning point for engineering andconstruction services provider Monadelphous ((MND)). It’s not that it was a bad result. In fact, the numbers werein-line with most broker forecasts and even ahead of a few. It still wasn’t enough to keep three FNArena databasebrokers from downgrading their recommendations on what were then creeping fears about the slowdown in miningcapex and the cancellation and/or deferral of projects.

Macquarie, who used the opportunity to downgrade its recommendation to Neutral from Outperform, summed upthe broader broker stance back in February. While Macquarie admitted it was another guidance-beating result andFY13 revenue guidance was lifted, it still saw the need for more caution. Margins had slipped and earnings growthwas already fading, the broker noted. Macquarie did think management was being cautious about new awards inFY14, warning a period of consolidation is at hand. Yet while Macquarie suggested this may be somewhatconservative, the broker nevertheless saw little chance for outperformance in the short term.

The result was also in line with Deutsche Bank, who lifted FY13 revenue forecasts on the result, which fed throughto a 2% increase to net profit forecasts. The broker also noted competition was starting to bite, margins were underpressure and uncertainty remained around new project approvals. Deutsche Bank said back in February it expectsthe pipeline to keep shrinking, which would put FY14 revenue growth in doubt. BA-Merrill Lynch was of the opinionback then that revenue had peaked for the cycle and despite the company’s oil and gas opportunities, new workwill be harder and harder to come by. That was the reason both brokers downgraded to Sell.

Citi and UBS didn’t downgrade their calls at the time, but that’s because they were both already at Sell (orequivalent). In a report this month, Citi was unsurprisingly concerned about the fact that Australian non-residentialand engineering work has fallen off so sharply since late last year. What’s worse, so have forward indicators. Thiscaused Citi to push out its recovery forecasts and revise its growth expectations.

UBS also updated its view this month and is also of the belief that end markets are continuing to deteriorate. Thebroker is also now thinking we’ll see an earlier than previously expected decline in earnings. Probably as soon asFY14 rather than FY16. The broker lifted its FY13 earnings forecasts by 1.5%, reduced FY14-15 by 18% and cut itsprice target by around the same amount.

Regional broker CLSA Asia-Pacific Markets was on the fence, at least until this week. The broker actually lifted itscall a notch back in March on the belief that increasing work in the LNG market would be enough to offset softnessin iron ore. Not so, unfortunately, and once the broker came to this view it downgraded back to Sell.

Switching from mildly optimistic back to a Sell call yesterday, the broker now expects a cocktail of the issuesmentioned by various brokers above. CLSA sees group revenues dropping 12%, with margins shrinking by 100bps inFY14. This saw CLSA’s FY14 EPS forecast cut by 21%. With the broker now forecasting declining earnings growth forthe next two years, it feels the stock simply does not justify any premium to the market and this is despite thequality of this business.

The broker explained that even the highest quality company in mining services cannot remain immune to acommodities slowdown. In fact, with BHP Billiton ((BHP)) and Rio Tinto ((RIO)) both increasing their focus on costsand savings, shelving plans for expansion, CLSA thinks margins for all mining services companies will remain underpressure. The broker sees this continuing to play out over the next twelve months, at least.

Why will margins fall 100bps in FY14? CLSA has laid out a hit list, which includes an increasing maintenance


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contribution to the revenue stream, fewer positive contract variations, lower headline margins, less shutdownwork and the inability to use Sinostruct in LNG.

There is just one true believers in Monadelphous still standing: CIMB. Although it must be noted the last sign ofsupport was back with the first half result in February. The broker said back then that is still saw further growthahead from cost cutting in the business. This was despite management's assessment that FY14 would be a year ofconsolidation. CIMB also thought the share price reaction to that admission was too excessive. In fact, the brokersaw it as a great buying opportunity and upgraded to Outperform. Back then.

The FNArena Database shows there is currently 25.3% upside to the consensus price target. Broker sentiment for thestock is negative, the database showing a Buy/Hold/Sell ratio of 1/2/5.



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5 Australia

- Yield chase continues - Other opportunities now emerging - Sustainable growth important - Global economy stable

By Greg Peel

CIMB believes market concern this month over slowing Chinese growth and a stronger US dollar have beenoverdone, which in turn suggest commodity price weakness is overdone. All things being equal, a stronger US dollarimplies lower dollar-denominated commodity prices. This scenario should play out if dollar strength is only due to awind-back of Fed easing policy, but in theory the Fed will only begin winding back policy if the US economy isstrong. If the US economy is strong, commodity prices should be supported.

If the Chinese economy is weak, then it makes sense for dollar-denominated commodity prices to fall. If the USeconomy is strong, we have the competing forces of higher expected demand for commodities and the implicitstronger greenback. The exception is gold, which is not an end-use commodity but a currency proxy. If the USdollar rises, the dollar-denominated price of gold should fall assuming low inflation expectations.

CIMB does not see the Chinese economy as weak as others in the market fear, and underlines the point that astrong US dollar does not by default imply weaker commodity prices. The Chinese recovery from 2012 is indeedmodest, the analysts acknowledge, but is a recovery nevertheless. Growth in commodity consumption will not beas strong in China as in previous years, but growth should still be enough to keep commodities in tight supply.

The supply side of the commodities price equation is equally as important as the demand side, and here there havealso been fears of growing global supply meeting falling global demand. But such a fear ignores the fact that lowerprices make high-cost production uneconomic, and CIMB suggests that at current spot prices as much as half ofglobal commodity production is uneconomic. High-cost supply will shut down to offset growth in lower cost supply.

CIMB is bullish on prices for oil, copper, tin and the platinum group metals, and neutral on natural gas, coal(thermal and metallurgical), uranium, lead, zinc, nickel, iron ore and the precious metals. CIMB is bearish onaluminium.

Commodity prices remain fundamental to the strength of the Australian economy, and no less so now that we aretransitioning into the “supply” phase from the “growth” phase in mining. Weak commodity prices, and resultantlower tax revenues, have shot the government’s foolishly optimistic budget projections to pieces. Yet thisgovernment, and the incoming government, are both committed to a return to surplus come hell or high water.Thus while the RBA eases, the government tightens.

It is this “fiscal drag” which Macquarie sees as the critical take-away from last week’s Federal Budget, and a newgovernment will be little different. Treasury has downgraded its GDP growth forecast to 5.0% for FY13-14 from5.25% and Macquarie (and just about everyone else with a pulse) considers this forecasts still too optimistic. Withthe government’s spending cuts (or deferred spending) to be funded by increases to (or deferred decreases to)business tax increases, there will be no much needed boost to business confidence. The analysts see such policy asonly serving to drive further corporate cost-cutting and productivity increases to offset weaker consumer andbusiness demand.

Domestic fiscal policy, as well as global economic conditions, have forced the RBA to cut its cash rate further and itis likely the central bank will need to cut yet again. The resultant low interest rate environment is driving thegreat “yield chase” in the Australian (and global) stock market. Investors who turned to yield early have benefitedfrom a re-rating of price/earnings (PE) ratios among high yielders above and beyond the market’s net PE re-rating.But with share prices now in many cases fully capturing the value of yield, and with payout ratios having alreadybeen lifted, Macquarie believes better risk/reward opportunities are now emerging elsewhere in the market.


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However, there remain listed companies which should be able to sustainably lift dividends per share and these arestill likely to see a positive share price reaction, Macquarie suggests. They include companies which would notnecessarily be considered as “yield stocks”, such as CSL ((CSL)), Woolworths ((WOW)), News Corp ((NWS)), FlightCentre ((FLT)), Platinum Asset Management ((PTM)), Seek ((SEK)), Santos ((STO)), TPG Telecom ((TPM)), Asciano((AIO)) and Aurizon ((AZJ)).

Macquarie also disagrees with market consensus recommendations on DuluxGroup ((DLX)), not with regard to yieldbut from an earnings growth potential. Macquarie rates the stock as Outperform. The same is true for Arrium((ARI)).

Macquarie also disagrees with consensus recommendations on various other stocks, but in these cases the broker isholding Underperform ratings against otherwise positive consensus. Those stocks are AMP ((AMP)), Cochlear ((COH))and Westfield ((WDC)).

RBS Morgans (CIMB) has taken a step further than Macquarie and, on the argument of the yield rally now having runits course, has begun to identify opportunities in the “growth stock” category. Whereas yield stocks tend to bedefensive, growth stocks tend to be cyclical. The analysts have selected ten stocks which they believe offerattractive growth upside on a five-year view, based on four “future growth drivers”.

The first such growth driver is the ageing population, which underpins value in healthcare and retirement planning.Here RBS likes Sonic Healthcare ((SHL)) and AMP ((AMP)). The second is internet data growth and thecommoditisation of internet revenue, offering up Next DC ((NXT)) and Carsales.com ((CRZ)).

Third is the LNG and shale revolution of the energy sector, and here RBS likes Oil Search ((OSH)) and WorleyParsons((WOR)). Fourth is the Asian consumer growth story along with global consumer trends in food and travel. In thiscategory the analysts prefer Domino’s Pizza ((DMP)), ALS ((ALQ)), Amcor ((AMC)) and Corporate Travel ((CTD)).

Citi notes that the yield-based rally has been focused mostly on large cap stocks and has left the small cap spacebehind, to the point at which relative performance is still at ten-year lows. The result is that many smallindustrials are looking attractive on a relative value basis, but Citi’s warns that this could be a “value trap” inmany cases. The Small Industrials sector is forecast to provide a net negative return ahead.

Citi warns investors only to consider small industrials with solid balance sheets, good cash coverage and thepotential for earnings growth. On this basis, Citi’s preferred candidate is M2 Telecoms ((MTU)), while Forge Group((FGE)), G8 Education ((GEM)), Miclyn ((MIO)), McMillan Shakespeare ((MMS)), Southern Cross Media ((SXL)) and TPGTelecom all rate a mention.

The same argument does not necessarily hold for the Small Resources, given sentiment has been so weak in thisspace. Sentiment is not improving, Citi notes, but relative valuations suggest there is only so far some stock pricescan fall. On this basis, the analysts see support for AWE ((AWE)), Mt Gibson Iron ((MGX)) and Sandfire Resources((SFR)).

Aside from looking for Australian stocks with “future” growth potential, RBS Morgans has been advising Australianinvestors, since late last year, to diversify into overseas markets for growth. While many foreign equity marketshave also had a good run in the interim, many are still cheaper on a PE basis than the local market. The Aussiedollar, although weaker than it was, still offers up a good entry point.

The good news is that investors do not have to actually trade overseas in order to gain overseas exposure. The ASXnow boasts a number of locally-listed and Aussie-denominated exchange traded funds (ETF) which provides thelocal investor with exposure to portfolios of foreign stocks, and overcome the constraints the Australian marketoffers in terms of achieving exposure to all industry sectors and themes. The bad news is that foreign investmentdoes not offer franking benefits, hence return comparisons must be made on a full taxation basis.

RBS Morgans highlights four ETFs recommended by research partner Morningstar. They are the iShares S&P 500 (ASXcode IVV), which tracks the US broad market S&P 500 index, the Vanguard US Total Market Shares Index (VTS),which tracks the MSCI US Broad Market Index rather than the S&P 500, the Vanguard All-World ex-US Shares (VEU)which, as the name suggests, invests everywhere but in the US for a total of 2,200 separate company exposures,


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and the iShares S&P Global 100 Index (IOO) which invests in 100 global large cap stocks (although not necessarilythe top 100 by market cap).

The UBS global equity strategists were feeling worried in February as the sharp rally progressed given theprevailing issues of Italy, Cyprus and US sequestration. In May, UBS is not so worried, suggesting global economicmomentum has stabilised, fears of a more sinister soft patch have eased, and technical indicators are pointing to agreater rebound in risk appetite, which should imply stronger cyclical performance.

Valuations have continued to rise, meaning the total return outlook is less compelling now than it was in February,but risk premiums should continue to ease as the global economy continues to normalise, suggests UBS, centralbankers are pushing investors into riskier assets and the relative valuation case for equities (against other assets)remains hard to ignore.

To reflect its change of heart, the strategists have upgraded their global Financials rating to Overweight, whilereducing Energy to Neutral and Telcos to Underweight.

A compliant Fed has looked on while Wall Street has crashed through prior peaks, notes Citi’s US equity strategists,aided by improved US corporate credit, solid earnings and improved data such as jobless claims. The rally is nowexhibiting a level of capitulation, in that previously wary traders have joined in despite already having assumedthe market was overbought. Citi suggests this “overshoot” could continue for a bit longer before the usual summerback-off (otherwise known as “sell in May”) occurs.

The market may seem overbought, but Citi cites a few typical indicators which suggest this may not yet quite bethe case. Investor surveys in the US have become more bullish than bearish but not as bullish as has been markedin previous rallies. New IPO numbers have increased but not by much more than last year. The broker’s own panic-euphoria index is Neutral, but the analysts are suggesting more interest in the market from potential investors. Andvaluations overall do not yet look particularly threatening on a variety of measures (PE or otherwise).



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6 Australia

-2P reserve upgrade at Ande Ande Lumut -Enhances sell-down potential -AWE seen a strong growth contender

By Eva Brocklehurst

Australian-based oil producer and explorer, AWE ((AWE)), has welcomed a reserve upgrade at the Ande Ande Lumut(AAL) oil field, offshore Indonesia. This field is wholly owned by AWE and the company has previously announced asale process whereby up to 50% of the asset may be sold down. The outcome is expected at the end of theSeptember quarter. The upgrade to reserves is timely, as brokers believe it will enhance the attractiveness of theasset in the sale process.

The independent assessment has resulted in gross 2P - proved and probable - oil reserves increasing to 101 millionbarrels from the previous estimate of 76mmbbl. The net entitlement oil reserves estimate has increased to50mmbbl from 43mmbbl. The smaller increase in net entitlement highlights the low profit share for the asset. AWEoriginally acquired the field for US$139 million in 2011.

UBS models a 25% contractor profit share in valuing AAL. What surprised UBS was the company's realised oil priceexpectations - at, or around, the Brent price. The oil in AAL is quite heavy and the broker had expected it wouldsell for a discount to Brent. UBS assumes a sell down for AAL will net US$100m for a 50% interest, but could be asmuch as US$140m if higher oil price assumptions are used. Macquarie estimates AWE could realise up to US$110m.Macquarie's oil price forecasts help. The broker values a development of the primary K-sands at US$5.3/barrel ofoil equivalent and this compares favourably to the US$1.8/boe value in the original acquisition price.

Citi rates AWE as a Buy and thinks the market is underestimating the value of AAL. A sell-down by the end ofSeptember will confirm it has been a value-adding acquisition. The broker values AAL at 59c a share to AWE andthinks the Sugarloaf asset is also undervalued, attributing 55c a share to that asset, net to AWE. While cautious onshale gas in Australia and concerned about attributing too much value prematurely, Citi believes AWE is still astrong growth contender because of a recovery in the Bass Strait gas production, continued growth at Sugarloaf andat AAL. Citi believe that AAL will add 25% to AWE production in FY16.

Adding to the AAL momentum is Yolla field, which has shown a positive performance to date with productionramping up to 57 terajoules/day from 42TJ/d. This, in BA-Merrill Lynch's view, is a key asset for AWE andcontributes 30% of the broker's valuation of the stock and 25% of estimated earnings in FY13. Merrills has thoughtthe value of AWE's base business was being discounted by the market because of prior poor performance from Yolla.This is now expected to dissipate. Macquarie also thinks, with hindsight, that the acquisition of AAL, and AdelphiEnergy in 2010, were cheap buys for AWE. In the light of the expanded reserves the price of AAL acquisition equatesto just US$1.02/barrel.

As with all oil development there are copious risks. UBS finds the key risk at AAL relates to the reservoir and howoil and water production rates change over time. Only three vertical wells have been drilled into the field to dateand there is a a good chance that the reservoir is not even throughout, meaning there could be a lot more waterearlier in the field life than is currently modelled. The broker concedes that AWE is mitigating this risk somewhatby the large number of development wells that are planned (up to 43) and the high level of water handling beingbuilt into the facility. This should allow the field to maintain 25,000 bopd production rates, even as the water cutincreases materially.

The FNArena database contains five Buy ratings and one Hold (Deutsche Bank). Where the brokers mostly diverge ison the methodologies that they use to derive value, and hence the price objectives. This has produced a targetprice range on the database of $1.40 (Deutsche Bank) to $2.50 (Macquarie). Macquarie has reached a valuation thatreflects the larger resource base at AAL and produces a 7% rise to net asset value (NAV). The broker's target pricerepresents a 15% discount to the new risked NAV. Macquarie assumes a potential buyer for the sell down of AAL


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adopts a similar oil price and discounts the substantial progress made regarding sub-surface optimisation, with a60% risk weighting for the K-sands in AAL.

Towards the other end of the scale (Deutsche Bank has not updated as yet), BA-Merrill Lynch has a target price of$1.55 with a 15% discount to valuation derived from discounted cash flow. The broker's target is based on aUS$100/bbl price for Brent (realised 2016) and domestic gas prices of $4.00 per gigajoule. UBS, which upgraded thestock to Buy from Hold on this news, has valued the stock on the assumption $100m is received for the 50% stakeand this is paid in cash in the first half of 2014. The broker's sum of the parts valuation increases to $1.70 a shareand a 10% discount is applied to account for uncertainty surrounding AAL's development and the BassGasdevelopment phasing.

All up, the consensus target price of $1.86 suggests 48.5% upside to the last share price. AWE obtains production andrevenues from the Tui project, offshore New Zealand, plus Australian oil and gas assets in Bass Strait and PerthBasin, In FY12 AWE’s total production was 4.7million barrels of oil equivalent, split between oil (36%), gas (55%) andgas liquids (9%).



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7 Australia

-Downgrade to FY13 earnings -Gearing may present a problem -Threat to dividends -Broad footprint a mitigatingfactor

By Eva Brocklehurst

Another week, another downgrade in the mining services sector. At its AGM, drilling services and products supplierBoart Longyear ((BLY)) notified the market that FY13 earnings are likely to be at the lower end of consensus rangeof US$199-271 million. This compares with the guidance the company gave back in February of US$260m.Management expects a recovery at some stage, but the bets are off regarding just when that will happen.

The stock has been sold off since the beginning of April by about 35% so a lot of the bad news is factored in. It didn'tstop brokers ratcheting down their price targets further. The guidance assumes conditions do not deterioratefurther and management stated rig utilisation rates have steadied to around 60%. Macquarie has decided, with thestock trading at 4-year lows and the downgrade not as bad as feared, that a Buy rating can remain in place, joiningtwo others on the FNArena database.

UBS is the most negative of those brokers covering the stock and believes there is worse to come. On the basis ofcommentary from peers, a lack of exploration funding for junior miners and delays in decision making by majorcustomers, UBS has forecast a nil dividend pay-out in FY13 and a heightened risk to debt covenants, rating thestock a Sell. BA-Merrill Lynch's Hold recommendation is driven by the valuation. Nevertheless, the broker is startingto think this looks interesting as the market factors in a lasting downturn. JP Morgan is also expecting the nearterm environment to place pressures on the share price, and there are no catalysts that could narrow the discountto the broker's valuation.

On the FNArena database there are three Buy ratings, four Hold and one Sell. The consensus target price has beenreduced post guidance downgrade to $1.21 from $1.60, suggesting 70.6% upside to the last share price.

Debt has moved higher in May but this is a seasonal build-up and Macquarie is not unduly worried. Macquarieestimates earnings would need to fall to US$140-150m before there was a potential breach of covenants. Moreover,the broker does not expect earnings to revisit the GFC lows of US$111m. This is because gold and copper prices arestill generally above the cash cost of production and Boart Longyear has less exposure to the junior miners than itdid back in 2008/09. Activity levels were also affected by a credit freeze back then, which is not the case in thecurrent circumstances. Another reason to be cheerful is that the company has modernised its fleet and revenue perrig is considerably higher than it was four years ago.

Deutsche Bank remains concerned about the room to manoeuvre on the debt front and has opted for a Hold rating.The broker notes the company is responding to the market conditions by reducing costs and the revised guidanceallows it to maintain debt covenants. JP Morgan, mindful too of the lack of room in the debt covenants, doeshighlight some improvements to debt structure which could help the company better manage weaker earnings.

Protecting the equity value is vital, in BA-Merrill Lynch's view, and longer-term strategic options are off the table.They will resurface eventually because, as the broker notes, the returns for equity in the current structure havebeen poor. Gearing is the largest problem. This will end FY13 at 31%. Management did indicate there may be areduction in the dividend to conserve capital and improve gearing.

Moves to cut dividends, reduce working capital and cut capital expenditure are all warranted but a spin-off of theproducts business is not, in Merrills' opinion. JP Morgan found commentary around greater integration andcollaboration between services and products, which could add cost savings, also signalled management preferredto keep these businesses together. While capex maybe pulled back, production rates across bulk, base and preciousmetals continue to hold up and this is supportive of those operators that are directly linked to the volume market.


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JP Morgan continues to view subdued equity raising activity among junior miners as the key problem for themineral exploration sector. Equity is a major source of funds for junior miners as they are normally unable tosecure debt, or rely on operating cash flow to finance exploration. As these miners represent a meaningful portionof exploration activity this leads to a slowing of drilling demand. Where Boart Longyear can counter this is in theprovision of production related services and products.

Management did indicate at the AGM that some areas of drilling services were proving more resilient, such asunderground coring, mine de-watering and production related drilling. These segments accounted for 40% of drillingservices revenue in FY12. For FY13, pricing for drilling services is expected to decline by around 10% and productspricing should be flat to slightly lower. The backlog of products business has declined to US$35 million in mid Mayfrom US$51m in mid February. Management does not expect material impairment of the inventory balance.

Boart Longyear is trading at a 21% premium to domestic peers on a FY13 price earnings basis. Historically, this hasbeen a discount because peers such as Leighton Holdings ((LEI)), Downer EDI ((DOW)) and Orica ((ORI)) are moreexposed to mining production than exploration. Mining production is considered more stable than exploration. Interms of drilling services, Major Drilling is the closer global peer and Boart Longyear is trading at a premium toMajor. This could be justified, in Macquarie's view, as Boart Longyear has a products business as well as a broadergeographic footprint. In terms of drilling products, the company is seen trading at a discount to Atlas Copco andSandvik, which are much larger global businesses across a range of construction and resources machinery.



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8 Australia

-Competition in cochlear implants heats up -Cochlear expected to lose market share -Stock viewed as overvalued

By Eva Brocklehurst

Cochlear ((COH)), the leader in implants for the profoundly deaf, has a battle on its hands. Sonova's AdvancedBionics is making inroads into its markets, quickly. Advanced Bionics has recently reported a 47.1% increase in salesfor FY13, on a constant currency basis. The quantum of this increase is not reflective of market share gains but, inUBS' estimation, that could be as much as 10%. At any rate, it does put a good deal of pressure on the 70% marketshare that Cochlear enjoys.

Both Cochlear and Advanced Bionics are to launch new products at the EU conference in Istanbul, Turkey, thisweek. Full approval of the products is expected by the end of the northern summer, while US FDA approval couldtake longer, perhaps by the end of the year. MedEL is also expected to launch the new all-in-oneprocessor/headpiece "Rondo" at the conference. Advanced Bionics is expected to close the current performancegap with Cochlear's device, if not better it. The new speech processor will deliver improved performance and haswireless connectivity enhancements. The Cochlear N6 which is to be launched has a new thin profile but is yet toincorporate the wireless technology from partner GN resound, something which surprised UBS. There is nosuggestion as to when that may become available.

UBS has checked sources and found the first tranche of the 2013 Chinese contract gave 1400 of 4000 units tocompetitor MedEL. In 2012 Cochlear won 2800 of the 4000 units so it is still possible that Cochlear will participate inthe remaining volume for 2013. The Chinese tender had been held up as an example of where Cochlear couldcapture volume sales, but that appears to be also under pressure.

Cochlear's market share and franchise may be well entrenched but the innovations by competitors suggest thetechnological leadership is now questionable. UBS offers three key determinants for brand selection. They are peerreference, reliability and technology. Advanced Bionics has matched many of the features of Cochlear's N5, whichwas recalled, and has also leveraged parent Sonova's expertise in sounds processing. MedEL's Rondo is worn off theear and has been well received, particularly by those who wear glasses as traditional behind-the-ear devices caninterfere.

Usually, 12 months after a launch Cochlear makes its new processor backward compatible to recipients of earliermodels. UBS notes the first year of such sales for N5 captured 20% of the potential patient base. There are around30,000 patients with N5, which was capped by the recall. So, Cochlear could launch a N6 backward compatibleinside of the 12 months that could boost near term earnings, but this would disrupt the longevity of the forwardearnings cycle, in UBS' opinion. Industry capacity to accommodate an upgrade cycle is also a cap on total sales inany given 12 month period.

Citi also expects the new products will lead to Advanced Bionics gaining market share. Even if Cochlear catches upwith enhanced technology, there is sufficient momentum to Advanced Bionics' gains that Cochlear will lose 20% ofmarket share over the next 18 months. Citi views the stock as expensive, as it is trading on a 12-month forwardprice earnings ratio of 26 times. This is particularly of concern given the risk of market share losses. The brokerfavours a Sell rating, as does UBS.

UBS believes the premium that the stock commands to the ASX Industrials ex Financials index as well as globalpeers - 55-85% - is not rational. On the FNArena database the recommendations underpin the same belief the stockis overvalued. There are seven Sell ratings and just one Hold (BA-Merrill Lynch). Cochlear has a dividend yieldbased on consensus earnings forecasts for FY13 of 3.5%. For FY14 it is 3.7%. The consensus target price is $62.32,suggesting 12.6% downside to the last share price.


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See also, Questions Mount Over Cochlear's Top Status on February 6 2013.



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9 Australia

- CommBank widely expected to announce additional capital management in August - Big Four Bank shares widelyseen as fully valued, but brokers reluctant to take a negative stance - Thirst for yield might still push up shareprices higher - Questions whether Big Four Banks are currently in a sweet spot

By Greg Peel

Last week Commonwealth Bank ((CBA)) provided a brief update of its position post the March quarter. The updateprovides bank analysts with a chance to contrast/compare all four major banks following the interim reportsoffered earlier by each of ANZ Bank ((ANZ)), Westpac ((WBC)) and National Bank ((NAB)). CBA is the odd bank out inaccounting on a June year-end while the other three account on a September year-end.

This reporting mismatch has arguably never been as significant as this time around given CBA announced its interimdividend in February while the others have announced their interims this month. Never before has a market beenso obsessively focused on yield, and such a focus has come to a head in 2013. To that end, ANZ and Westpac haveplayed to the crowd and announced an increased payout ratio (ANZ) and a special dividend (WBC). No doubt NABwould have liked to have followed suit, but for the capital impact of bad debts in NAB’s UK business. CBA’s earlierinterim dividend was nothing out of the ordinary, so the pressure is now on for the bank’s final dividend, to beannounced in August, to deliver.

Unlike the other three’s interim profit reports, CBA’s quarterly update was scant on detail, yet there was enoughfor analysts to suggest the bank’s quarterly profit largely matched the “run rate” of second half forecasts, and tosuggest its breakdown was similar to peers. UBS echoed other brokers in summing up the highlights as soft revenue,given low growth across the Australian banking system, improved net interest margin, given loan repricing (notpassing on RBA rate cuts in full), reasonable trading income, well managed cost control, and lower bad debtcharges. CBA’s asset quality remains benign, UBS suggests, and organic capital generation is strong.

The simplest split to make between the Big Big Banks (CBA, WBC) and the Small Big Banks (ANZ, NAB) is that theformer lean more towards retail banking and the latter towards business banking. We recall that CBA and Westpacwent somewhat berserk snatching up mortgages in 2009-10, both by acquiring smaller banks and non-bank loanbooks and by attracting the bulk of government-subsidised first home buyer stimulus. Once loaded to the gunwales,both then backed off by actively being less competitive on mortgage rates. JP Morgan notes that after three yearsin the wilderness, CBA is back to growing its mortgage book. This has helped to offset a lack of growth in thebusiness book.

That’s all well and good, but of course for investors the question is: what about yield? Will CBA match peers, comeAugust, in announcing an increase in capital return?

The Australian credit market is very subdued, with the long process of post-GFC deleveraging still continuing fromboth households and businesses. Earnings growth is therefore hard to come by from traditional operating income.BA-Merrill Lynch acknowledges that we might at least be seeing the beginnings of a more sustained recovery inhousing finance, but the response to date has been less than typical of what one might expect from 200 basis pointsof RBA cash rate cuts. While credit demand has not yet rebounded from the GFC, offshore funding costs have fallenconsiderably from GFC panic rates and GFC-inspired bad debts are rolling off.

The banks have also been on a concerted drive to attract deposits over the last few years, and term depositinvestments have proven very popular. Cost cutting has also been prevalent, outside of IT upgrades whichultimately provide greater efficiency. The bottom line is that if we take increased deposits, cheaper funding, fewerbad debts and lower costs on the one hand, and subdued credit demand despite low base interest rates on theother, Australia’s banks effectively all dressed up with no place to go. They have the capital security to invest inthe “normal” business of offering loans, but customers are few and the outlook does not yet suggest a rebound in


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demand. What, then, to do with the excess money?

Return capital, of course. What we have witnessed in this six-monthly bank reporting season is a demand for yieldfrom the market and the capacity to provide such yield from the banks. NAB is the exception, albeit brokersassume that NAB will also be able to join in the hand-outs shortly as its UK bad debts run off. CBA is yet to deliverits capital gift, if it is to do so, because the bank reports on a different cycle.

At its quarterly update, CBA management noted that “shareholders want the payout ratio optimised”. The bank’scurrent dividend policy, dating back to the February interim report, is to deliver a payout ratio of 70 to 80%. Theinterim dividend announced in February represented a ratio closer to 70%. Analysts are now assuming CBA willeither lift its payout ratio come its full-year report, al la ANZ, or offer a special dividend, a la Westpac.

For shareholders, an increased payout ratio is more attractive than a special dividend, and for the banks theopposite is true. “Special” means what it says, and implies “this is a bonus only and don’t think there’s necessarilymore down the track”. A lift in payout ratio, on the other hand, sets a precedent. Banks are heroes when they lifttheir payout, but villains when they reduce them, as they did in 2009. Right now, in a yield hungry market, thebanks are being taunted into lifting their payouts and were they to reduce their payouts later, they would becrucified by the angry mob. Westpac’s payout ratio was already peer-leading, so a special made sense rather than afurther lift. ANZ’s payout was bottom-of-peer, given the bank was using capital to develop its Asian business, so itmade sense for ANZ to lift its ratio.

CBA lies in between. Hence analyst opinion lies in between. Morgan Stanley, for example, believes CBA will lift itspayout to 78% for the final dividend. JP Morgan is also now assuming 78%. Citi, on the other hand, suggests “thebank may be in a sufficiently strong capital and franking credit position at FY13 to be able to add a small specialdividend to shareholders,” while Macquarie suggests that while a special final dividend is possible, it dependswhether CBA would then be comfortable with a lower capital ratio than peers and whether the bank is happy to useits franking credit surplus.

The franking credit issue is not an insignificant one. Australian investors have grown used to Australian banks notonly offering attractive nominal yields, but offering fully franked yields. Yet each of the four Big Banks has at leastsome level of offshore operation; in New Zealand for example, and in NAB’s case the UK and in ANZ’s case Asia. Itis only because the banks have been accumulating large levels of franking credits in the post-GFC years that fullfranking has been maintained. With higher payout ratios and special dividends, those credits are being consumed.The day is not far off when bank dividends will only be partially franked, particularly if domestic lending remainssubdued for some time.

And the subdued domestic credit market also offers up an interesting conundrum. As Macquarie puts it, “there is arisk of return to higher growth”.

As noted above, the banks are currently in a position to return capital and thus appease shareholders because theycannot use the capital to provide “normal” lending while credit demand remains subdued. The yield feast couldthus prove short-lived if – heaven forbid – the Australian economy picks up and credit demand begins to grow again.This is why bank analysts are not jumping in to simply assume increased payouts or specials or any other form ofcapital management. They were mildly surprised by ANZ’s extensive lift in payout and by Westpac’s special. Theywere not completely surprised, because they suspect an element of “pandering” to shareholders and their yielddemands at this time.

On the other side of the coin, there’s also an element of “pandering” to the great unwashed and ranting politiciansin reversing earlier mortgage repricing policy (that is, keeping some of the RBA rate cut back to offset high offshorefunding costs), to a new competitive policy (cutting SVRs by even more than the RBA rate cut). All up, the banksare trying to avoid the usual negative attention they really do not wish to draw.

This is important when we return to the subject of yield. An increased payout ratio implies a higher percentage ofearnings paid out, not a higher absolute cash payment. Were bank earnings to be lower in FY14, absolute dividendpayouts would also be lower. Yields may still look hefty, but only if share prices fall to account for reducedearnings.


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Which is not to suggest the banks are all about to lose money. Earnings growth is subdued at present, not negative.But if there is one point bank analysts largely agree on, it’s that the first half of FY13 (or the six months to March)may prove a sweet spot for the banks. Credit Suisse sums up the view:

“For the sector the result suggests the optimisation of bank earnings is now reaching its limit: bad debt charges areas feasibly low as they can get for a couple of the major banks, margin expansion and the pace of productivityimprovements is fading, and capital management initiatives have now been announced”.

NAB still has scope to increase its dividend, assuming UK bad debts continue to run off quickly. CBA is expected toannounce some form of improved capital return when the time comes. Thereafter, we can assume furtherimprovement in capital return initiatives are less likely. We can also assume the franking credit pool will begin torun down. Over the past six months, the banks have made very little money out of “normal” banking. They havemade money from reduced bad debt costs, from improved trading profits in a more risk tolerant financialmarketplace, from reduced funding costs, and from operational cost cutting. For everything outside of “normal”banking, things cannot get much better, as far as analysts are concerned.

Which brings us to the obvious question: are the banks overvalued? Here, broker opinion is divided. Let us firstperuse the following table:

The first thing we notice is that the eight FNArena database brokers are collectively ascribing a total of eleven Buy(or equivalent) ratings on the Big Four, thirteen Hold ratings and eight Sell ratings. On a simple Buy-to-Sell basisthe conclusion should be that the brokers remain slightly bullish. Among post-season reports are comments such asthese:

“We see bank stocks as fully valued on a PE [price/earnings] basis, slightly above fair value on a book multiplebasis, and approaching full value on a dividend yield basis. The key risk to our view here is that share pricemomentum could see valuations become even more stretched.” – Credit Suisse.

“The major banks are currently trading on 2.3x NTA [net tangible assets] which is a 4% premium to our sustainabletarget price/NTA multiple of 2.2x. We therefore see valuations as full. However, we are hesitant to be too negativeon the sector given low relative earnings risk, potential for further capital management, and the relatively stableoutlook for long bond yields” – Goldman Sachs.

“[The] banks may be seen as ‘expensive’ but not out of kilter with historical ranges. The move to a lower 10% costof capital [reduced funding costs] has increased our price targets by ~15% and now sees them approximating fairvalue” – JP Morgan.

JP Morgan has raised the subject of target prices, and if we return to the table we see that, based on yesterday’sclosing prices, only ANZ is offering upside to target. CBA is well over target, NAB is a bit over, and Westpac is aboutright. Yet there are more Buy ratings than Sell ratings.

The problem for bank analysts is that by any traditional metric, be it price/earnings, price/book value,premium/discount to peers or whatever else, the banks are overvalued. But on a comparative yield basis, thepicture is not so clear. Yields do not now exceed 6% even out to FY14, but that’s still a solid premium over the bondrate, and a hefty premium over offshore bond rates. Australian banks are looking at low growth but they are, on acomparative basis, solid as rocks in the ocean of global banking. The conclusion from analysts therefore might beput as: “Everything I’ve ever learned or experienced to date tells me the banks are overvalued, but I am reluctantto stand between bank stocks and the market’s thirst for yield”.

As to preferences within the sector, among the Big Four, the picture is even cloudier. For example, UBS statesclearly: “Our concerns with CBA relate purely to value” and is far from alone in that opinion. On the other hand, JPMorgan upgraded its call on CBA to Overweight post update. Macquarie believes the business banks (ANZ, NAB) areoffering more potential ahead than the retail banks (CBA, WBC). Most believe CBA and NAB still have the capacityto surprise on capital management. Quite simply, different brokers have different views on different banks, as theyalways do.

As the Australian economy moves through cycles over time, fund managers typically respond to those cycles by


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being defensive in weak times and pro-risk in strong times. Given the Australian share market is heavily weightedtowards a limited number of sectors, a typical trend over time is to buy banks in weakness and resources instrength, switching between the two. While the resource sector currently has its own issues regarding the peak inthe mining boom, we have still witnessed the stuttering beginnings of a switch into cyclicals this past month. It’sbeen very stop-start, and quite volatile at times, but with bank valuations now looking stretched, and resourcesector companies now concentrating harder on offering yield, such activity is on the rise.

It could all reverse again tomorrow of course, with some bad news out of China/Europe/the US, but right now theoutlook for the bank sector appears to be one of “how much further can this really go?”

Technical limitations

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



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10 Australia

-Sales and consumer sentiment soft -Pressure on margins from discounting/costs -Online gaining traction

By Eva Brocklehurst

Department store retailers hold a mirror to householder sentiment in terms of the goods they sell - homewares,apparel and cosmetics. Sentiment picked up at the start of 2013 but appears to have softened at the end of theMarch quarter and consumers do not appear well disposed towards shopping. Is it the looming election? Is it thewarmer-than-usual autumn? On both counts, by the time Myer ((MYR)) has delivered the FY13 earnings report inSeptember, it will be better understood.

Myer reported soft sales growth in the March quarter, up just 0.5%. The start of the year was positive but then it allwent flat in March. This trend continued into April. Macquarie flags the fact that hard goods and homewaresdeclined by about the same amount that apparel and cosmetics gained - around 2%. Myer has a clean inventoryposition, unlike competitor Target ((WES)), and is prepared to time clearances in line with the traditional stocktakesales at the end of June.

Where the retailer differs from Target is inventory management. The warm autumn did not lead to an excess ofseasonal inventory. Nevertheless, the perceived need for Target to mark down items will put pressure on Myer todo the same. The company is resisting this somewhat, but will likely use the end financial year stocktake to flushout the bargain hunters. Myer may be confident in its inventory management systems but brokers are keenly awarethat any major discounting will pressure earnings, given the tough consumer environment.

Store numbers may have increased but it is the inability to materially grow sales that concerns JP Morgan. Thebroker is the more negative of those covering the stock on the FNArena database and has an Underweight rating.The lack of sales momentum is partly from heightened competition but, in the main, the consumer hasn't been thatwilling to part with dollars. Management is forgoing margin enhancement to pick up better top line growth and thecompany is expecting to implement a new order management system by October which it hopes will deliver realproductivity benefits and improve the experience for customers.

The cost of doing business is rising and is a considerable challenge for discretionary retailers. Gross profit growthhas been the focus of attempts to offset this challenge but remains modest, in JP Morgan's view, such that earningsdeclines are likely to have accelerated in the second half. Improvements in managing mark-downs should lead togross margin expansion. The broker concedes there is evidence this is happening, with mark-downs falling below10% of sales in the first half, from a peak of over 12%.

JP Morgan believes consolidation of overseas factories will also lead to incremental gross margin expansion overthe next few years. The falling Australian dollar does pose medium term risk to sourcing cost pressures but Myerhas hedge cover above parity for the next 12 months and, at present, less than 20% of product is directly sourced.Myer suggests sourcing cost pressures from a falling Australian dollar would largely be compensated for by benefitsof the consolidation, leading to an improved bargaining position.

Growth in online sales has been over 200% but that's off a very low base and JP Morgan suspects a significantproportion is replacement of in-store sales rather than incremental sales. Macquarie flagged the Myer One loyaltyprogram, which, while not necessarily bringing in new customers, is better targeting those the retailer already has,enabling more sales. Morgan Stanley is quite happy that gross margins will continue to move higher in the secondhalf, while the online offering is moving closer to break-even. The broker forecasts Myer will generate online salesof around $70 million in FY14, up from $40m in FY13. Break-even is seen around $50m. Following a period ofsignificant investment in online, Morgan Stanley finds it heartening that this will become a driver of profits. Still,the positive aspects are not outweighing the concerns over the contagious nature of competitor discounting.


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CIMB has moderated its rating to Neutral from Outperform and sees some risk that gross profit targets may not bemet in the second half. The stock is still one of the preferred exposures to a domestic cyclical recovery - when thathappens. The company has been open about the costs faced in the second half and the required gross profitexpansion needed to offset this. CIMB believes this margin will have to increase substantially. Hard to accomplishin what appears to be a softening trading environment. The company has confirmed a shift in the mix of sales awayform wholesale brands toward concessions which implies better margins. The private label penetration has alsobeen helped by the growth in concessions. Consumer confidence is just what's missing, in CIMB's view.

Credit Suisse was the most upbeat and has gone the other way to CIMB, upgrading the stock to Outperform fromNeutral because of recent share price weakness. The broker hailed the more positive autumn inventory story - nooverhang like Target - and noted stronger sales growth in cosmetics and clothing in the quarter. Refurbishmentimpacts were also lower than the broker expected. Myer has thee stores being refurbished over the next 12-18months and this impact will peak in the first half of FY14. Sales drag from this is estimated at two percentagepoints in FY14. Myer is a reasonably priced opportunity, in Credit Suisse's view. Moreover, the stock should benefitform improving consumer confidence after the federal election has passed. Interest rate reductions should also lifthousehold spending over time.

Finally, Myer is trading on 12.5 times the broker's earnings forecasts for FY13 and offers a good dividend yield. Inthis respect, on the database, the dividend yield is 6.9% for FY13 consensus estimates and 7.2% for FY14. For Citi,the clean inventory may place it in a better position but discounting is still likely to escalate. Sluggish conditionsare expected to continue and the broker finds underlying demand is even softer. The recent decline in the shareprice reflects the challenging nature of the retail sector and the company's low earnings growth profile. Citi targetsa price of $2.60 and view the fair value price/earnings ratio at 10.6 times FY14.

The consensus target price on the FNArena database is $2.90, having ratcheted down five cents over the past week,and suggests 10.1% upside to the last share price. Targets range from $2.46 (JP Morgan) to $3.31 (Macquarie). Insum, the database is balanced, presenting two Buy (or equivalent) ratings, four Hold and two Sell.



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11 Commodities

By Andrew Nelson

Last week was a slow, if not somewhat significant week on the uranium spot market. Slow because only three dealswere done, with just 300,000 pounds U3O8 changing hands. Significant because there is a new US Secretary ofEnergy, and more so because China confirmed at last week’s ninth Annual China Nuclear Energy Congress it hadofficially re-started its nuclear program .

Industry consultant TradeTech reports China quietly restarted its nuclear build program back in November 2012.The goal is to lift the country’s total installed nuclear generation capacity to around 60GW by 2020. China has 30reactors under construction right now, which represents about 40% of global nuclear power construction presently.

These plans will of course require significant uranium resources over the next 60 years, with demand pegged 39million pounds U3O8 by 2020. To ensure the demand is met, China’s CGNPC Uranium Resources Company will lookto invest in the development of domestic and overseas uranium resources, including projects that are alreadyunder development in Australia and Africa.

As part of a round table at the conference, Cameco President James Dobchuk confirmed that the current marketdoes not in any way support the production that is needed for future uranium supply.

The head of CGNPC, Mr. Zhou Zhenxing, agreed, but also noted today’s market price is not that significant, as hebelieves it there is enough upside for continuing development. However, he also concurs with Dobchuk that priceimprovement is needed to stimulate new production for the future.

Still, China’s pledge to maintain what is an ambitious nuclear program has certainly sparked some optimismamongst uranium producers and sellers. They were reluctant to lower offer prices before even though we’reheading into the summer season, a traditionally slow time in the uranium market.

TradeTech did have some interesting analysis that should prove insightful, if not useful, over the next few months.As noted earlier, summer is traditionally a slower period for uranium. However, TradeTech notes the summermonths are not nearly as predictable as conventional wisdom would suggest.

After taking a closer look at monthly spot transaction volumes over the summer months of the past five years, itturns out the June, July, and August period ran above average in 2009, and was very active in 2010. TradeTechsuspects an increasing number of sellers believe this could be the case in 2013 as well. There remains a growingexpectation for new demand to enter the market, with several utilities considering discretionary purchases at themoment.

This new found optimism was evident last week, even in the limited transactions and slim volumes were booked.Deals were conducted at or near the prevailing spot price, which meant by the end of the week there was nochange to TradeTech’s Weekly U3O8 Spot Price Indicator, which stayed put at US$40.75 per pound.

There was no activity in the term market. As such, TradeTech’s Mid-Term U3O8 Price Indicator remains at US$44.00per pound, while the Long-Term Indicator stayed put at US$57.00 per pound.



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12 Commodities

-Copper surplus ahead -Prices downgraded short term -Long term Chile losing market share -Long term pricesupgraded

By Eva Brocklehurst

Copper markets are moving to surplus. Producers have been ramping up and, as China draws down inventories fromShanghai warehouses, supply will outstrip demand. All this is straight forward. Price forecasts are beingdowngraded as a consequence - for the short term. Commonwealth Bank analysts are actually upgradinglonger-term price forecasts for copper. Moreover, the long-run sustainable price is also being raised. Why? Severeenergy shortages in Chile, the world's foremost copper producer.

Weaker demand and strong supply will result in a surplus of 520,000 tonnes in 2013 and 299,000 in 2014 and theanalysts don't believe weaker prices will be enough to signal a cut to output, as most project capital for the nexttwo years has been invested. Copper demand is likely to grow only 0.3% in 2013 and 4% in 2014 and underpinningthis forecast is the unwinding of China's copper financing trade and inventory draw down. A weaker financingbackdrop reflects tighter credit conditions. The analysts believe Chinese banks will reduce lending to high-riskentities which previously used copper as lending collateral.

The analysts draw comparisons with aluminum markets in that surpluses are expected over the next two years.Cancelled warrants have jumped, which likely reflects intentions to shift copper stock to low-cost warehouses.Copper premiums have lifted and the analysts find the copper forward curve is sloping up. Inventory financing islooking viable. What makes stored metal valuable is that it provides a return to metal and warehouse owners.Given the extent of financing in China, where inventory was used for credit collateral until financial conditionswere tightened, the volumes of copper available for inventory financing are substantial. Traders can realise spotprices plus an enlarged premium over 2013 and 2014. This inventory financing is opportunistic. It does not add todemand growth but simply provides a return to investors and warehouses.

Short term prices are forecast to be US339c/lb in 2013 and US310c/lb in 2014 in the light of the expected surpluses.This is a downgrade to the analysts' prior forecasts of 4.5% for 2013 and 17.9% for 2014. Despite lower prices, theanalysts expect the surplus to be sustained for three years, driven by robust supply growth of 4.6% year-on-year.

Three quarters of final copper demand is dependent on manufacturing and construction, and manufacturingremains an important indicator of copper demand and price momentum. The analysts point to recent falls in globalmanufacturing performance indicators, particularly in the US and Europe. This has accompanied the recent falls inthe copper price. Slight improvements in China and a bounce back in Japan have not been enough to drive theseglobal indicators higher. There are some better demand indications ahead and the usual lags of six to nine monthssuggests that world industrial output should stabilise, or improve modestly, over the rest of the year. Similarly,Chinese infrastructure growth is expected to modestly improve over the year.

So that's the next two years out of the way. What's ahead? The analysts have forecast a lifting of the copper pricefrom 2014 to 2016 as the surplus turns to deficit by 2016. Price support should also occur as Chile's energy costs rise.From 2018 to 2020 the prices should lift modestly, with expectation that cost growth in Chile's copper industrymoderates and the power companies manage to provide adequate energy. The analysts have upgraded theirforecasts 1.8% to US336c/lb for 2018, 6.6% to US344c/lb for 2019 and 8% to US346c/lb for 2020.

Chile accounted for nearly one third of world copper output in 2012 but insufficient power infrastructure, lengthyregulatory approvals and deeper mining along with depleted grades, has eroded competitiveness. This is likely toreduce Chile's share of world production to 23% by 2020. The analysts expect Chile to become a marginal producerof copper by 2020. Chile's average cost of copper production is expected to keep rising to 2017 and then moderateto 2020. The emphasis will shift towards Peru and Zambia, where significant growth in copper output should occur,


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aided by lower capital and operating intensity. It will be regulatory hurdles and political risk that will apply themost to these new contenders for Chile's copper crown.

Chile's electricity industry has changed significantly over the last 30 years. Hydro power has fallen from 77% ofelectricity production to 33%, because of recurring droughts. Fossil fuels now generate 61% of electricity. Theanalysts also note the country's long-term strategy on the power sector remains unclear. Nevertheless, adependency on fossil fuels means a commitment to imports as Chile doesn't have an abundance. The countryimports 74% of natural gas and 92% of coal requirements. The premium for electricity has potential to curbinvestment in Chile.

BHP Billiton ((BHP)) has stated that energy accounts for 20% of costs in Chile, about three times higher than the USor neighbouring Peru. The analysts also highlight the regulatory processes that have stymied two major projects -the Punta Alcalde coal-fired power station and the Alto Maipo hydroelectric facility. The delays these projects haveendured highlights the risk involved with utility projects in the country.

The analysts found that new projects in Australia, Zambia, Peru and the USA require the lowest copper prices asincentive to development. In Peru copper mines have costs that are spread across the curve but the higher-costprojects are those that are ramping up. By 2020 most of the projects should be in production and have cash costsplacing them in the lower half of the curve. The majority of Peru's projects also have low capital requirementsrelative to copper projects around the world. On the downside, regulatory approvals are subject to significantdelays with water permits being the most contentious.

Next on the list is Zambia. Here, the richness of the copper reserves is not a new discovery, but development wasimpeded by political uncertainty and lack of investment until early this century. In 2013 the mines have cash costsin the upper half of the curve but by 2020 they are expected to consolidate towards the middle range. Risks aretransport related, copper is transported by rail via other countries to the coast and this can be a challenge in aregion prone to tension.

Another impact on copper over the longer term is the maturing of developing economies. The analysts observethat, over the longer term, tertiary industry - services, education and knowledge - form an increasing proportion ofGDP growth. This is less copper intensive than manufacturing. Per capital copper consumption will continuegrowing in China and other developing economies over the medium term but further afield it will flatten as tertiaryindustry increases as a proportion of GDP.



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13 Commodities

- Gold investors bail out - Fabrication inventories high - Silver vulnerable - Goldminer share price impact assessed

By Greg Peel

It all happened in April, in the space of a few days. In the first quarter of 2013, the gold price was relatively strong,notes Macquarie, having fallen by only 3%. In late March gold broke down through US$1600/oz and quickly hit 1550before staging an attempted rebound. That rebound failed, and by April 15 gold hit 1360.

The sharpness of the fall took the world by surprise. Conspiracy theories abound, as they always do in the goldmarket, regarding shenanigans between the bullion banks and the Fed and a problem of a lack of physical metal.Leaving these theories aside, one might argue that gold fell because it was no longer rising. The metal traded over1900 in 2011 before consolidating back towards the 1600 mark in the ensuing period. In that time, the Fed hasstepped up QE, the ECB has threatened (although has yet to use) OMT and Bank of Japan has deluged the worldwith yen. It is such central bank activity upon which previously bullish (and almost universally so) forecasts werebuilt.

Yet there was no response from the gold price. Global monetary inflation failed to materialise. Indeed, CPIinflation readings kept falling. Tenuous holders of gold exchange traded funds, the instrument that opened the doorto easy retail gold investment in the mid-noughties, began to lose faith. The initial trickle soon became a flood.For whatever reason, it all came to a head last month.

GFMS data suggest net outflows from ETFs totalled 177t in the March quarter compared to net inflows of 53t seen inthe March quarter 2012. Outflows have accelerated since. For Morgan Stanley, the failure of the gold price toreturn to its highs and its recent price plunge suggest the bullish monetary easing story had already been priced in.

Back in March, the Macquarie analysts believed an investor sell-off would likely be countered by physical marketpurchases, especially in jewellery, which would “rebalance” the price. A breakdown of the GFMS March quarterdata, now available, provides an insight in to what was going on before the April price crash.

As noted, ETF positions fell by 230t year on year. Mine supply rose 23t and scrap supply fell 16t suggesting totalsupply rose by 7t. Subtract this amount from ETF outflows and 237t was offered for sale. To whom?

End-consumers (dental, electronics) bought only 4t more than last year. Jewellery fabrication accounted for 17tmore than last year. Central banks bought 109t, but this was 6t less than a year ago. Bar and coin investors weremore excited, buying 35t more than last year, with a 52% increase in Indian purchases the stand-out. But it appearsthe most significant buying came from “inventory changes”, at 120t, or net 195t more than last year.

Macquarie assumes that such a change implies inventory building by jewellery fabricators. This does not bode well,given de-stocking will always follow re-stocking at some point, however it appears jewellers de-stocked their owninventories of jewellery pieces given a 60t increase in jewellery sales from last year.

Then came the big price fall. Bear in mind that price volatility is driven not by physical market activity, but byComex futures market activity. On any given day, turnover in Comex gold futures exceeds the total amount ofphysical gold ever mined in the history of mankind. Comex positions close out at zero sum at the end of eachcontract, but virtually all are closed out before expiry to avoid physical delivery and ensure transactions are incash only. Over that one week in April, the winners and losers would have felt the gains and losses in their bankbalances, not in who had been stuck with the gold.

Macquarie’s conclusion, having sorted through the actual physical market data, is that a rebalance was “onlysomewhat apparent” in the March quarter. Early data between end-March and now have shown a big jump injewellery “consumption” (buy and wear, or stick in safe), particularly out of China. Macquarie estimates China


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“consumed” 83t in the month of April, having consumed 185t in all of the March quarter.

Those who remember the day after (in Australia) the night gold fell over US$100 might remember scenes on thenightly news of punters rushing into bullion vendors to snap up small bars and coins. “Gold fever” has been feltaround the world ever since the gold price bottomed out early in the twenty-first century following the greatcentral bank gold sell-down which followed the Long Term Capital Management hedge fund disaster, and much talkhas since been heard of gold “having” to reach US$2000/oz and beyond.

Those voices have now fallen silent, but for the zealous few. Alas, while those who rushed into to buy gold afterApril’s big drop-off would have spent time boasting how they picked up the equally sharp bounce, gold has sincereturned to retest the April lows.

The sudden fall in the gold price has also come as a shock to Australia’s many listed goldminers, particularly highercost producers somewhat later to the game, although all listed goldminers have been punished in the subsequentsell-off. The assumption now, in many quarters, is that the gold price will likely to continue to fall. The hedgeagainst inflation has proven redundant, and the safe haven of gold as a wealth store has lost its appeal as theglobal economy begins to show signs of improvement, with risk assets and yield now in greater favour (goldprovides no yield).

If the gold price does fall further, higher cost goldminers will find themselves in negative free cash flow positions.Credit Suisse has run some analysis on just what impact a lower gold price might have on Australia’s largergoldmining names.

In this example, Credit Suisse has held the exchange rate steady and left by-product prices (eg copper, silver)unchanged from current forecasts while dropping the gold price to US$1100/oz and doubling its discount rate forvaluation from 5% to 10% to accommodate a higher risk premium. Under such a scenario, CS calculates net presentvalues would reduce by varying amounts for various miners to levels below current prices (21 May) – 11% for PerseusMining ((PRU)), 21% for Alacer Gold ((AQG)), 49% for Evolution Mining ((EVN)), 50% for Regis Resources ((RRL)) and66% for Newcrest Mining ((NCM)). The analysts note that Evolution and Newcrest are heavily impacted by their debtpositions, which explains why, in the latter case, the country’s biggest goldminer with a percentage of lower costlegacy production still suffers the biggest fall in NPV.

Silver is often referred to as gold’s poor cousin but whereas gold is predominantly a currency proxy rather than a“commodity”, silver is split between a currency proxy and an industrial consumable. The fall in the silver pricefrom April has been no less spectacular than that of gold.

Standard Bank notes that the silver price broke through significant technical support at US$22/oz and is likely totrade into the 15-20 range of September 2009 to September 2010. Standard Bank was already holding a bearish viewon the metal but was still surprised by the severity of the price fall.

Since 2009, China has proven the growing source of demand for silver but above-ground inventories are nowestimated to be equivalent to 18 months of fabrication demand, up from 16 months at the start of 2012 and onlyfour months in 2009. Comex positions suggest speculators have become increasingly short silver, which sets themetal up for the odd short, sharp price rebound, but unlike the case in gold, silver ETF investors are yet to head forthe exits. Standard Bank notes gold ETF positions have been reduced by 17% but silver positions have increased 1%.

Every silver lining has a cloud.

Citi’s commodity analysts believe the sharpness of the fall in the silver price suggests a strong rebound may yet beexpected, but that any return to the US$27-28/oz level will attract renewed selling. Beyond that, silver priceshave, like gold, been rising for a decade and the demand-supply balance outlook does not bode well.

On the demand side, silver has suffered from the same consumption overcapacity as many base metals at a timewhen the use of silver in photography – once the metal’s primary source of consumption – has all but faded awaywith the increasing ubiquity of digital imaging. On the supply side, production of silver has not fallen off to meetweaker demand for the explicit reason that silver is a common by-product of gold production. As touched on in theCredit Suisse analysis above, gold producers sell their silver by-product to reduce the net cost of the production of


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the primary target, gold. As long as goldminers keep producing gold, so too will they produce silver, irrespective ofsilver demand.

The resultant excess demand must then be picked up by investors – those who choose silver as a safehaven/inflation hedge preference over gold – to prevent further price falls. Yet at this stage there is a greater riskthe ETF floodgates could open on silver, as they have on gold, rather than investors piling in further.



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14 Commodities

-Recent mine expansions risk impairments -Rising US dollar affects metals prices -China to ban low-grade coalimports? -Copper fundamentals may be improving

By Eva Brocklehurst

What goes up must come down. Goldman Sachs suggests that, if companies change strategy when prices rise, theyneed to do the same when prices fall. Miners seek to maximise net present value/discounted cash flow whenoptimising assets. The treatment of large volumes at lower grades delivers more output and can result in lowerunit costs, delivering benefits while commodity prices are high or rising.

Among the benefits of increasing production is additional free cash flow, earnings growth and, with lower gradecut-off, potential extension of the mine life. Along the way there are higher cash costs and additional capitalrequirements. What this scenario does not necessarily do is deliver better returns on investment capital. Whenprices of commodities fall, as Goldman forecasts for next year, the higher costs driven by inflation and expansioncome into play. In order to remain profitable companies may need to close high cost operations and retain apreference for treating higher grade material. Goldman highlights the potential for mine lives to be materiallyshortened and the carrying value for many assets to be impaired at a segment level, if the company cannotdemonstrate a profitable future.

The broker takes a look at which miners are most at risk. Those that have recently undertaken expansions are nowmore highly leveraged to volume and price than previously. Kingsgate Consolidated ((KCN)) is one example. TheChatree mine recently underwent expansion, doubling the plant size and lowering the head grade. The expansionwas justified as the company assumed higher gold prices and the operation looked significantly more valuable at anexpanded rate. As the gold price eases the resulting valuation is less favourable. Alacer Gold ((AQG)), Teranga Gold((TGZ)) and OZ Minerals ((OZL)) are also at high risk of impairments, in Goldman's view. Newcrest Mining ((NCM))may not be at risk at a consolidated level but the broker highlights the potential for impairment at the Telfermine. Telfer profits look to be in decline from FY15 and Goldman believes any impairment on this asset will impactsentiment on the stock.

A rising US dollar may be pressuring marginal producers of metals. Or is it? The US dollar continues to gain groundagainst most major currencies, particularly the yen and euro, and this should mean lower metal prices. The US hasbecome less important in recent years as both a consumer and producer of metals but this should mean pricesbecome more correlated with the currency's movements. Hence, marginal producers of base metals should beunder pressure from lower prices. In Macquarie's view, this expectation ignores China, where the renminbi is notfree floating but pegged to the US dollar. Against the renminbi the US dollar has been falling steadily and is down1.4% so far this year. China is not only the largest consumer of most metals but also a marginal producer of all basemetals, with the possible exception of tin.

What this means is that, as the US dollar and renminbi both rise, the cost of buying metals for Chinese consumersbecomes cheaper, increasing demand, but revenue for Chinese producers falls, curbing output. More demand andless supply typically means a higher price, offsetting some of the price falls caused by the currencies' rise. As longas this continues the impact of a stronger US dollar will be reduced.

Media reports are suggesting China will ban the import of low-grade coal, leading to expectations the domesticprice will bounce. Morgan Stanley has viewed the draft document and thinks it is unlikely to push up the domesticprice of coal. Instead, demand is so weak prices are not seen picking up any time soon. The definition of low-gradecoal in the document suggests current coal imports exceed the specification. If imposed, it is unlikely to have asignificant impact on volumes. Moreover, having just deregulated the coal market by removing pricing caps oncontract sales, Morgan Stanley believes the government would be unlikely to intervene in the domestic market.Weak coal prices are considered a result of poor demand. Based on power generation data it seems thermal coal is


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losing share to hydro. Having said that, the analysts believe coal prices are well supported at current levelsheading into the Chinese summer.

Morgan Stanley finds signs of an improvement in the fundamentals for copper. While acknowledging the bearishscenario over the past five months has been compelling, there is some evidence the key components are breakingdown. Most importantly is the sharp rise in cancelled warrants in the LME system, which signals improving demandand warehouse bottlenecks. the near tenfold increase in cancelled warrants is not only large in absolute terms butheavily concentrated in the three major warehouse locations that had the bulk of copper inflows over the pasteight months. These are Antwerp in Belgium, Johor in Malaysia and New Orleans in the US.

In the analysts view, queues are forming at these locations as the owners of the metal try to secure a timelydeparture, a signal of increased demand and restricted LME load-out rates. The new rates the LME hasimplemented have done little to address bottlenecks the analysts are now seeing, as supply interruptions in Indiaand at the Chilean ports tighten up available copper. One consumer, Luvata, has stated it has been forced toobtain material form alternative sources to the LME to satisfy near-term demand. Morgan Stanley also thinks thefeedstock market is becoming increasingly tight. Unexpected mine outages and a share fall in scrap availability isnarrowing the allowance for supply disruption in the forecasts for supply.

Last but not least there is a modest improvement in demand in China. Morgan Stanley's copper consumption leadingindex for China has been rising for five months on the back of rising white goods sales, increased power gridinvestment and strong automotive sales. As a result of the review, Morgan Stanley has decided to leave arelatively optimistic forecast unchanged at US$7,793/tonne or US$3.53/pound for 2013.



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15 Commodities

- Gold drilling in steep decline - Gold price much reduced - Most gold producers remain commercial

By Andrew Nelson

Metals prices are falling and the global economic recovery we were expecting, wide eyed, at the beginning of theyear just isn’t playing out. Since 2013 began, the US recovery has stumbled under the weight of sequestration cuts,the Japanese have launched a new and massive round of quantitative easing and the Chinese seem to have shiftedinto macroeconomic reverse, or at least neutral.

The more this plays out, the worse it seems to get for the mining industry, especially for explorers and thecompanies that provide exploration services.

All one need do is examine the trends for exploration activity over the past few years and the increasing burdenthat is being carried becomes more evident. Activity has been trending lower since the end of October all the wayback in 2011. Since the beginning of this year the bad times have started to intensify, with gold exploration activityhaving fallen 55% over the past year.

The latest State of the Market report from mining industry consulting firm IntierraRMG shows there were only 355drilling reports from global prospects in March 2013 across the entire exploration space. Gold exploration has grownespecially weak, with just 172 prospects reporting activity in March. This is well down from the 382 reports inMarch 2012.

IntierraRMG thinks we won’t see much of an improvement over the next few months, especially given the bottomhas been falling out of the gold market since mid-April. This has quickly translated into a significant drop inexploration funding.

There are only two pieces of good news to be taken from all of this. The first is that at least the past six months offalling metals prices followed on from what were historically high levels. The second silver lining is that at leastprices are still economical and the majority of gold miners are still generating free cash flow.

The report from IntierraRMG confirms gold is still priced well above the cash extraction cost, at least for mostminers. The report shows that even at the recent two-year low, 91% of the 235 gold mines tracked by the companywere still enjoying average cash operating costs lower than the heavy metal’s price.

That means 215 of the gold company’s tracked by IntierraRMG were running at average operating costs underUS$1,350/oz in 2012. These mines produced a combined 40.8Moz last year at an average operating cost of justUS$693/oz. These 215 companies accounted for 97% of the gold output from mines monitored by IntierraRMG.



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16 Commodities

By David Fessler, Investment U Senior Analyst

Something big is about to strike the mining industry. When it does, savvy investors have a grand opportunity ontheir hands.

It all started back in 1993 when the United States and Russia signed a historic agreement creating what’s called the“Megatons to Megawatts” (MTM) program.

The program’s goal is turn the deadly highly enriched uranium inside Russian nuclear weapons into the fuel forAmerican power plants.

When the program comes to an end in December, it will have converted 500 metric tons of highly enriched uranium(about 20,000 nuclear warheads’ worth) into fuel for America’s nuclear reactors.

On March 4, 2012, Russians re-elected Vladimir Putin for a third term. Given Putin’s disdain for the West, it’sdoubtful the MTM program will continue.

It will leave a big hole in the world’s supply of enriched uranium. It will also leave Russia in the uranium catbirdseat. As the supply from dismantled warheads wanes, worldwide uranium prices could double from current levels.

Ready to Spike

Take a look at the graph below…

The spot price for uranium soared to nearly $140 per pound in 2007. Then, almost as quickly as it soared, the priceplummeted to the $40 level in early 2009.

The green metal managed to claw back to $70 per pound in early 2011. But then a nuclear disaster shook thesector… Fukushima. Following an earthquake and a disastrous tsunami, the Japanese plant experienced a deadlymeltdown.

Next to Russia’s Chernobyl accident in 1986, Fukushima is the only incident to reach Level 7 on the InternationalNuclear Event scale.

Countries around the world reacted hastily.

- Japan shut down all 50 of its nuclear reactors. - Germany shut down 8 of its 17 reactors and resolved to phase outthe rest by 2022. - Switzerland decided on a slow phaseout starting in 2019 and extending through 2034.

And prior the Fukushima disaster Austria, Sweden, Italy and Belgium had plans to eliminate their nuclear facilities.

The sudden plunge in demand once again sent uranium prices to the $40 level. But prices won’t stay this low formuch longer.

No Other Choice

Japan’s initial reactor shutdowns and those planned by European countries will have little, if any, effect onlong-term uranium demand.

Right now, there are 435 nuclear power plants in operation around the globe. An additional 67 more are underconstruction. Incredibly, despite the Fukushima fallout, another 317 are proposed and could be on line in as few as15 years.


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A World Nuclear Association report from August 2011 (five months after Japan’s meltdown) had this to say aboutthe growth of nuclear power:

“[There are] 60 reactors being built around the world today. Another 150 or more are likely to come online duringthe next 10 years. Over 200 are further back in the pipeline.

“The global nuclear industry is clearly going forward strongly. Countries with established programs are seeking toreplace old reactors as well as expand capacity.

“An additional 25 countries are either considering or have already decided to make nuclear energy part of theirpower generation capacity. Most (over 80%) of the expansion in this century is likely to be in countries alreadyusing nuclear power.”

For uranium bulls, it’s great news. Demand is about to outstrip supply.

In 2011, the world’s reactors used 165 million pounds of uranium. At the same time, global production amounted tojust 143 million pounds.

The MTM program was there to fill the balance.

But that’s about to change…

When the deal with the Russians ends, 24 million pounds of uranium supply will instantly disappear. And it willhappen just as global demand begins to surge.

Annual production will need to increase as much as 136,000 tons by 2035 in order to keep up with demand. Not onlywill we need more mines, we’ll also need more processing facilities to turn raw uranium into a product suitable fornuclear fuel.

Bottom line… somebody’s going to get rich.

One of Many

While Kazakhstan has emerged as the world’s largest supplier of uranium, Canada is No. 2. The biggest supplier inCanada is Cameco Corporation (NYSE: CCJ). It’s one of many companies that will ride the back of the uranium bull.

Cameco mines are responsible for about 14% of global uranium production. It owns mines in Canada, the UnitedStates and Kazakhstan – which collectively hold 465 million pounds of proven and probable reserves.

The company’s flagship operation is the McArthur River Key Lake mine. Located in Saskatchewan’s AthabascaBasin, the mine is the largest high-grade uranium mine in the world.

Its average ore grade is 100 times greater than the world average.

Cameco also owns the world’s second largest deposit of high-grade uranium. Its Cigar Lake mine, also in theAthabasca Basin, is still under development. Production is on schedule to start by the end of June. Once the mine isrunning, it will produce 18 million pounds of uranium per year.

The company expects its total annual production to be 36 million pounds by 2018.

Cameco’s share price has seesawed between $16.41 and $23.23 over the past year. The stock is currently tradingabout $2 off its highs.

The mainstream media and the investing herd will soon get wind of the coming uranium shortage. Shares ofCameco, along with those of other uranium miners, could explode higher on the news.

As the program that kept the uranium bull in the pasture comes to an end, something big is about to stir the miningindustry.

Good investing,


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Dave

Reprinted with permission of the publisher. The above story can be read on the website www.investmentU.com.The direct link is: http://www.investmentu.com/2013/May/tiny-mining-sector-about-to-soar.html

Nothing published by Investment U should be considered personalized investment advice. Although our employeesmay answer your general customer service questions, they are not licensed under securities laws to address yourparticular investment situation. No communication by our employees to you should be deemed as personalizedinvestment advice. We expressly forbid our writers from having a financial interest in any security recommendedto our readers. All of our employees and agents must wait 24 hours after on-line publication or 72 hours after themailing of printed-only publication prior to following an initial recommendation. Any investments recommended byInvestment U should be made only after consulting with your investment advisor and only after reviewing theprospectus or financial statements of the company.

Views expressed are not by association FNArena's (see our disclaimer).



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17 Economics

- Shrinking US labour force - Demographic shift - Unemployment rate misleading - Inflation becomes a threat

By Andrew Nelson

The first few months of the year saw investors just about the world over pulling out the corks and cheering thevery positive start to 2013. It all began towards the latter end of 2012, when an increasing number of analystsstarted to extrapolate a fledgling US recovery into a global economic resurgence in 2013.

While investment markets continue on with an impressive advance, the US economy hasn’t. Add to that aslowdown in China and a Europe nowhere nearer to fixing its economic downturn. All of a sudden an increasingnumber of market participants are beginning to wonder just one thing: is the party over?

If we start with the premise that a US economic recovery is needed to drive the global recovery and follow thatwith a second premise, employment growth must drive a US recovery, then the answer is only maybe and here’swhy:

Analysts at CIBC World Markets point out that the US jobless rate finished last year at 7.8%. This was a significantimprovement on the 8.1% the market had been expecting. However, there was a fundamental problem with thisdecrease that wasn’t sufficiently factored in; the rate improved, at least in part, due to a significant exodus ofworkers from the labour force.

Baby boomers are retiring in increasing numbers and this is providing artificial support for employment statistics.

65% of the US population was working or looking for work when the jobless rate peaked in October 2009. Now we’reat 63.3%. Thus, there is a smaller pool of labourers, putting downward pressure on the jobless rate.

Around 1.8m individuals left the US labour pool in 2012. On a closer look, CIBC has noticed a significant shift indemographics. The bank points out that around two thirds of the exits were older workers. The problem is thatthese older workers comprise less than 20% of the total population. It’s unlikely we’ll see these folks back lookingfor work if and when employment activity picks back up.

What’s more, the US workforce continues to age and the prime 25-54 year old segment of the workforce isshrinking. With more comprehensive measure of US employment still showing around a 9% rate, there is still plentyof slack in the labour market, says CIBC. Ultimately, the bank suspects these trends will keep the participation ratefrom ever showing any recovery, let alone allowing the rate to climb back to pre-recession levels.

With demographics, instead of cyclical economics, now the major influence on the US labour market, CIBC sees thisdampening longer-term US growth. The main reason is that with slower trend growth, it won’t take much in theway of new jobs to spark possibly dangerous levels of inflation once the economy picks up and the hiring beginsagain.

CIBC points out that even were participation rate inside the 25-54 age group able to recover to pre-recessionlevels, the overall participation rate would keep falling given the demographic shift. Even were the rates to pickup right away. More likely, though, we’ll still need to see strong and sustained growth, which we probably won’tuntil 2014.

Thus, participation rates will continue to fall and the jobless rate will reach the Fed’s 6.5% unemployment targetby February 2015. This is well ahead of the mid-point of consensus. But CIBC doesn’t stop there. The bank isforecasting stronger economic growth and hiring than most over the next year and on these numbers, theunemployment rate should hit the 6.5% in October 2014.


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While it all sounds great, this would provide a double edged sword. A lower jobless rate could quickly push wageshigher and just as quickly stoke fears that inflation will quickly accelerate. That would likely encourage what hasbeen a forward-looking Fed to start nudging rates higher by the end of 2014, at least six months before themid-2015 date that most of the market expects.





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18 FYI

-Luxury brands to expand here -Foreign labels raise competitive stakes -Construction and engineering activitydeclines -Coal exports to rise in June quarter

By Eva Brocklehurst

Luxury goods spending in Australia is growing, which may come as a surprise given the subdued economy and theuncertainty ahead of the federal election. Citi asks why and finds there is scope for growth in luxury brands here,but it could be at the expense of the traditional luxury goods retailers - department stores. Citi estimates theluxury market can double in five years but David Jones ((DJS)), Oroton ((ORL)) and Myer ((MYR)) might lose share ifthey fail to invest in their stores.

Australian luxury goods spending per capita is less than half that of the US. The market is immature in Citi's view.Many global brands have only established a footprint here quite recently, although the demand is there. Tiffany'sactually has higher sales per capita in Australia compared with the US. Citi expects the number of global brandluxury stores will rise to 300 in the next five years from the current 130. In terms of the statistics, luxury goodshave grown at a multiple of three times GDP.

Sales are driven by the growth in high net worth individuals, and tourist spending. The definition of high net worthused by Citi is income over $150,000 per year. These individuals shop for premium goods (one step below luxury)and aspire to luxury. Those earning over $1m a year are clearly the target market for luxury brands. Luxury goodssales are expected to double to $4.4 billion in five years and the luxury goods retailers could take market sharefrom the department stores, the traditional purveyors of luxury brands.

Assuming 10 brands develop 7-10 stores each there is $400-500m in potential additional luxury sales in Citi's view.There are at least 15 major luxury brands that do not have their own Australian stores, yet. They include De Beers,Dolce & Gabbana, Lanvin, Saint Laurent, Alexander McQueen, Celine and Marc Jacobs. Citi expects sales to be lostfrom David Jones as these brands provide a better store experience in their flagship locations. Moreover, luxurygoods can take market share from other categories - trading up - and this will be a further negative for departmentstories unless they can capture more distribution points for these luxury brands.

Citi sees the need for Australian premium brands such as David Jones, Oroton and Sass & Bide (owned by Myer) toinvest more. They have to be prepared to compete with the newcomers on the full spectrum of retailing such asprice, range, service and in-store experience. Based on their existing strategies, Citi expects Australian retailerswill lose market share and has Sell ratings on the above three retailers.

Morgan Stanley has taken a closer look at the Australian apparel brands and, in the same vein, finds global brandsare appearing in increasing number and having an impact. While the store roll-outs have been slower thanexpected their competitive pricing is starting to re-set Australian benchmarks. The most exposed to this threat isPremier Investments' ((PMV)) Just Group. Morgan Stanley has downgraded PMV to a Sell rating. The broker finds 10incoming global brands are in direct competition with 80% of Just Group's business. Continued pricing pressures willlikely weigh on margins longer term. Moreover, the analysts note that four of Just Group's five apparel brands havelowered shelf prices on women's dresses compared with a year ago. These may not equate to final sale prices butthe quantum of change has meaningful implications.

Of the brands that are already here, Morgan Stanley includes Zara, Gap, Topshop, Hollister, Miss Selfridge andMichael Kors. H&M, Uniqlo and River Island are coming. Morgan Stanley expects sales from these foreign brands toexpand to $2.1 billion by 2018, representing 6.5% of the Australian apparel market. Incumbent retailers areresponding, the analysts note, but they remain significantly more expensive than the incoming labels. The pricepremiums are expected to reduce.


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The impact for those other than Just Group is greater for Myer than for David Jones, in Morgan Stanley's view.David Jones' private label doesn't overlap with this market whereas Myer's does. The analysts believe it willbecome more difficult for Myer to expand the private label offering as it competes at similar price points with theglobal brands. In contrast, David Jones has significant margin opportunity ahead. The retailer is already shifting themix to 10% of sales from private label, from the current 3.5%. Pacific Brands ((PBG)) is seen as evenly balanced interms of risks/rewards from the increased competition. The company is seeking to increase its direct-to-marketapproach and reduce the reliance on the powerful retailers but it may become more difficult in future for PacificBrands to establish its own retail network, in Morgan Stanley's opinion.

On to construction activity. Citi finds there's been a notable deterioration in non-residential and engineering work.Together these sectors represent 75% of construction work in this country. Non-residential is expected to fall 17%over the next three years and the analysts have reduced forecasts for spending, to contraction of 11% in FY13, 5% inFY14 and 1% in FY15. The recovery in construction is expected to take longer because of a multitude of factors,such as weak tenant demand, compression of developer returns, difficulty in obtaining finance and limited foreigninvestment.

Engineering construction is expected to contract 10% over FY14-15, driven by a weaker outlook for resource-relatedrail and port capex, lower telco spending under the Coalition's NBN plan, and lower power asset growth.Government asset sales and super fund investment will play an increasing role in funding infrastructure, but giventhe long lead times and allocation issues Citi believe it won't be until FY16 that the next wave of transport projectsramps up. Associated with this decline in construction activities, the broker has downgraded earnings expectationsfor building materials stocks by up to 5% for FY13-15. Contractor earnings forecasts have also been cut. The beststock to emerge from all of this downgrading is Downer EDI ((DOW)) and Citi's least favoured is Boral ((BLD)).

Coal majors in Australia have increased production by 16.4% in the March quarter. Deutsche Bank observes that allfour international big caps - BHP Billiton ((BHP)), Rio Tinto ((RIO)), Anglo American and Xstrata - have recordedsolid double digit growth for the quarter despite heavy rain. Volumes at the ports were up by 6.7% in the quarter.This result is made even more impressive by the fact that the Queensland rail network around Gladstone wasclosed in February because of floods. Of significance is the substantial increase in production relative to exports.Production is a useful leading indicator, in Deutsche Bank's view, and points towards strong export volumes in theJune quarter. The broker rates the two key coal conveyors, Asciano ((AIO)) and Aurizon ((AZJ)), as a Buy.



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19 FYI

By Andrew Nelson

Guide:

The Short Report draws upon data provided by the Australian Securities & Investment Commission (ASIC) tohighlight significant weekly and monthly moves in short positions registered on stocks listed on the AustralianSecurities Exchange (ASX).

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

Summary:

Period: Week to, and month to, May 15, 2013

Just four stocks saw their short positions increase by more than one percentage point (ppt) over the week to May15, with materials stocks and builders taking three of the four top spots. Just one stock, a biotech, saw its shortposition pull back by one ppt or more.

Eleven stocks moved more than two ppt over the month to the fifteenth of May. ASIC shorts data shows that therewere eight significant increases to short positions and just three decreases. Most of the action was still in resourcesand resources related sectors, with the flow through from the recent reporting season still being felt.

The Top 20 most shorted list was mostly unchanged except for a few very minor position swaps. There was onechange to the composition of the list, with UGL ((UGL)) falling off the list from the number twenty spot to bereplaced by GUD Holdings ((GUD)) in the same position.

Weekly Short Increases

Shorts in Boart Longyear ((BLY)) increased to 6.55% from 2.29%.

Macquarie cut its earnings forecasts for Boart Longyear last week, with FY13-14 earnings down by 22% and 24%respectively. The broker said the move was to better reflect a more challenging global outlook. The broker said itexpects sentiment will stay negative in the near term, but with the stock trading at four-year lows and pricing inearnings downgrades and balance sheet risk, Macquarie thought the Outperform recommendation was still the rightone. The FNArena Sentiment Indicator shows sentiment for the stock is positive.

Shorts in OZ Minerals ((OZL)) increased to 8.05% from 2.27%.

After a visit to Prominent Hill and Carrapateena, Deutsche Bank was still of the view the asset potential for OZMinerals is yet to be defined. With the broker noting operational issues in 2013 and no clear path to earningsgrowth, the stock is no longer a preferred copper play. Deutsche Bank expects the company to meet revised copperand gold production guidance in 2013, but is cautious and assumes grades will stay low. JP Morgan also reviewedforecasts following the visit to Prominent Hill. Earnings downgrades were made, but the broker retained theOverweight call based on the expected rise in medium-term copper prices. The broker also expects a medium-termturnaround in operations. Sentiment for the stock is positive.

Shorts in Macquarie Atlas Roads ((MQA)) increased to 4.99% from 1.23%.

Macquarie downgraded its call to Neutral from Outperform a couple of weeks back after having reviewedassumptions around the Eiffarie refinancing. Macquarie said the value of the stock is becoming stretched and the


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recent rally has investors facing dividend downgrades in 2013 and 2014. Better dividend income is expected fromthe Eiffarie refinancing in 2015, thus patience is required. 2013 and 2014 earnings forecasts were lowered,reflecting higher fees. Macquarie said the underlying asset is weak but steady, while the debt environment is at itsmost favourable. The broker also said currency moves represent a potential for material change to the stock'svaluation. Sentiment for the stock is neutral.

Shorts in Boral ((BLD)) increased to 5.28% from 1.02%.

BA-Merrill Lynch downgraded its recommendation to Neutral from Buy and JP Morgan upgraded to Neutral fromUnderweight a couple of weeks back. BA-Merrill Lynch noted Boral has been cutting headcount costs, but has stillfailed to stem the fall in earning. The Australian market has quite simply disappointed against the broker'sexpectations hence the downgrade, with earnings forecasts cut by 34% and 25% in FY13-14. An Underperform ratingmight have been on the cards but for the obvious housing recovery in the US and growth opportunities in Asianplasterboard, the broker pointed out.

JP Morgan noted Boral has started to have some serious issues with the weather after what was a fairly issue free1H. The 3Q report unwound all of the good weather upside that was accumulated, with 3Q earnings falling $19mshort of management’s expectations. The FY net profit guidance was pegged at $90-$105m, although stripping outthe chaff shows an underlying net profit of just $19m. JP Morgan's FY13 net profit forecast was cut by 27%, withFY14-15 down around 10%. That being said, the broker still expects net profit to double in 2014 on the back ofannounced cost savings, the reversal of some one-offs and hopefully a still ongoing recovery in the US. Sentimentfor the stock is positive.

Weekly Short Decreases

Shorts in Pharmaxis ((PXS)) decreased to 3.08% from 4.11%.

CIMB reported earlier this month the company's phase 3 trials for Bronchitol in patients with bronchiectasis did notmeet its primary endpoint. Very disappointing, which the broker notes must have been obvious given the negativeshare price reaction to the news. The broker dropped coverage on Pharmaxis, saying more informal coverage willbe sufficient at this point. Deutsche Bank noted the same issues and said at the end of April it is concerned thatcompetitor Vertex is progressing cystic fibrosis treatment quite rapidly and the opportunity for Pharmaxis may besignificantly diminished by the time its product is ready for market. Sentiment is neutral.

Monthly Short Increases

Shorts in Boart Longyear ((BLY)) increased to 6.55% from 3.08%.

See above

Shorts in Troy Resources ((TRY)) increased to 4.94% from 1.99%.

The Bidder's Statement and Target's Statement for the takeover of Azimuth Resources ((AZH)) were mailed out toboth sets of shareholders a couple of weeks back.

Shorts in Drillsearch ((DLS)) increased to 4.10% from 1.16%.

JP Morgan initiated coverage of Drillsearch two weeks back with an Overweight recommendation, noting the stockoffers exposure to the Cooper Basin, particularly conventional oil. The wet gas is becoming more valuable in thebroker's view, thanks to east coast gas market dynamics. Drillsearch was said to be less leveraged than its Cooper-focused peers to the success of Cooper unconventional exploration, which JP Morgan liked. Potential stockcatalysts over the next 6-12 months include the ramp up of oil and wet gas production, and testing ofunconventional acreage. Sentiment is positive.

Shorts in NRW Holdings ((NWH)) increased to 7.72% from 4.84%.

Deutsche Bank said a couple of weeks back the best way to summarise its decision to downgrade to Hold from Buy is“it's not the company's fault”. The analysts acknowledge NRW Holding is well managed with a strong project


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delivery and execution track record. Alas, the company is exposed to the slowing domestic iron ore sector andmining companies are focused on reducing costs, and they will continue to do so. Deutsche Bank predictedsignificant margin pressure will be the consequence. Earnings estimates for FY14 have were reined in, the pricetarget cut and DPS forecasts slashed. Sentiment is positive.

Shorts in Beadell Resources ((BDR)) increased to 5.22% from 2.54%.

Macquarie said last week it sees continued downside for the gold sector. That said, Beadell remained the broker’skey pick in the ASX space because of its high grade profile, low cash costs and cash flow. Macquarie increasedproduction forecasts to 226,000 ounces for 2013 at cash costs of US$486/oz. Sentiment is positive.

Shorts in Boral ((BLD)) increased to 5.28% from 2.83%.

See above

Shorts in OZ Minerals ((OZL)) increased to 8.05% from 5.69%.

See above

Shorts in ALS ((ALQ)) increased to 6.80% from 4.46%.

CIMB reported two weeks back it had reviewed the sector and thought ALS unlikely to surprise the market whenresults are furnished at the end of May. A slower-than-expected recovery in exploration activity led to a downgradeof FY14 earnings forecasts by 20%, which suggested an FY14 earnings contraction of 11% on FY13. Macquarie saidyesterday that after some strong 1H numbers a few months back, it expects to see signs of a 2H slowdown inMinerals that will likely more than offset any strength there was in the non-Minerals segment of the business.FY14-15 EPS forecasts were cut by 7% on the tougher outlook for both the Minerals and Coal testing businesses. Theprice target was lowered on the new earnings and also because of slightly lower global peer multiples. Sentimentfor the stock is negative.

Monthly Short Decreases

Shorts in Metcash ((MTS)) decreased to 8.46% from 11.31%.

UBS noted last week the company had bought Australian Truck and Auto Parts Group for $84m in cash, with UBSexpecting the deal to close by the end of the month. While there were few numbers announced, the broker expectsMetcash paid a slight premium. Still, the deal should be better than 2% EPS accretive in FY14 excluding whateversynergies can be created. The broker is waiting for more detail before it amends its numbers. The Neutral call wasmaintained, although UBS remained concerned about the structural pressures facing the company and thesustainability of the dividend. Sentiment for the stock is neutral.

Shorts in The Reject Shop ((TRS)) decreased to 5.93% from 8.64%.

Macquarie re-commenced coverage on the stock a couple of weeks back having noted that after the capital raising,the company is in a good position to grow new stores and market share, partly as a result of the administration ofRetail Adventures. The company expects to open 40 new stores in FY14. The broker said it sees FY15 as the firstperiod when the advantages of the accelerated store roll-out will become apparent. Sentiment for the stock isnegative.

Shorts in Kingsgate Consolidated ((KCN)) decreased to 5.97% from 8.32%.

Macquarie reported at the end of April that March quarter results were well below forecasts and the broker thoughthis would make FY13 production guidance difficult to achieve. Challenger's production levels were well belowexpectations and there were lower recoveries at Chatree. Macquarie went on to downgrade FY13 productionforecasts to 197,000 ounces from 202,000 ozs. March quarter production was also worse than BA-Merrill Lynchexpected and production forecasts were reduced for the next two years. This resulted in a significant downgrade toearnings forecasts and the valuation. Sentiment is negative.

Top 20 Largest Short Positions Rank Symbol Short Position Total Product %Short 1 JBH 17573401 98947309 17.76 2 FXJ


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398583949 2351955725 16.95 3 MYR 82763809 583594551 14.18 4 ILU 59017171 418700517 14.10 5 PDN 107884690837187808 12.89 6 MND 10966739 90940258 12.06 7 FLT 11253812 100418807 11.21 8 DJS 57818835 535002401 10.81 9WHC 105682883 1025635023 10.30 10 CSR 52025743 506000315 10.28 11 LYC 197708246 1960801292 10.08 12 ANN10894640 130841339 8.33 13 MTS 72452249 880704786 8.23 14 WSA 15798553 196843803 8.03 15 HVN 838449771062316784 7.89 16 COH 4452907 57040932 7.81 17 WTF 16345135 211736244 7.72 18 NWH 20933435 278888011 7.51 19CAB 8773418 120430683 7.29 20 GUD 5152699 71341319 7.22 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 & SecuritiesCommission (ASIC) and is provided by FNArena unqualified as a service to subscribers. FNArena would like to makeit 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 fundmanagers or others looking to profit from a fall in respective share prices. While all or part of certain shortpercentages may indeed imply such, there are also a myriad of other reasons why a short position might be heldwhich does not render that position “naked” given offsetting positions held elsewhere. Whatever balance ofpercentages truly is a “short” position would suggest there are negative views on a stock held by some in themarket 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 anotherposition 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 formpart of a short stock portfolio offsetting a long share price index (SPI) futures portfolio – a popular trade whichseeks to exploit windows of opportunity when the SPI price trades at an overextended discount to fair value. Shortpositions may be held as a hedge by a broking house providing dividend reinvestment plan (DRP) underwritingservices or other similar services. Short positions will occasionally need to be adopted by market makers in listedequity exchange traded fund products (EFT). All of the above are just some of the reasons why a short position maybe 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 wherenecessary. These delta hedges often form the other side of a client's long stock-long put option protection trade, orperhaps long stock-short call option (“buy-write”) position. In a clear example of how published short percentagescan be misleading, an options market maker may hold a short position below the implied delta hedge level andthat 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 inanother stock. Such positions look to exploit perceived imbalances in the valuations of two stocks and imply a “netneutral” market position.

Aside from all the above reasons as to why it would be a potential misconception to draw simply conclusions onshort percentages, there are even wider issues to consider. ASIC itself will admit that short position data is not anexact 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. Discrepanciescan also arise when short positions are held by a large investment banking operation offering multiple stock marketservices as well as proprietary trading activities. Such activity can introduce the possibility of either non-countingor 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. Thefigures 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 subscribersnot 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 anyof the information provided herein.


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20 FYI

By Tim Price

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporaryprosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists.”

- Ernest Hemingway.

“Recovery in sight, says departing Bank of England governor Mervyn King”

- The Daily Telegraph.

In one of the most powerful and memorable metaphors in finance, Charles Ellis, the founder of GreenwichAssociates, cited the work of Simon Ramo in a study of the strategy of one particular sport: ‘Extraordinary tennisfor the ordinary tennis player’. Ellis’ essay is titled ‘The loser’s game’, which in his view is what the ‘sport’ ofinvesting had become by the time he wrote it in 1975.

Whereas tennis is ‘won’ by professionals, the practice of investing is ‘lost’ by professionals and amateurs alike.Whereas professional sportspeople win their matches, investors tend to lose the equivalent of theirs throughunforced errors. Success in investing, in other words, comes not from over-reaching, in straining to make the shot,but simply through the avoidance of easy errors.

Ellis was also making the point that as far back as the 1970s, investment managers were not beating the market;rather, the market was beating them. This is a mathematical inevitability given the crowded nature of theinstitutional fund management marketplace and the impact of management fees on end investor returns. Ben W.Heineman, Jr. and Stephen Davis for the Yale School of Management asked in their report of October 2011, ‘Areinstitutional investors part of the problem or part of the solution ?’ By their analysis, in 1987, some 12 years afterEllis’ earlier piece, institutional investors accounted for the ownership of 46.6% of the top 1000 listed companies inthe US. By 2009 that figure had risen to 73%. That percentage is itself likely understated because it takes noaccount of the role of hedge funds. Also by 2009 the US institutional landscape contained more than 700,000pension funds; 8,600 mutual funds (almost all of whom were not mutual funds in the strict sense of the term, butrather for-profit entities); 7,900 insurance companies; 6,800 hedge funds; and more than 2,000 funds of funds (thehorror ! the horror !)

Following immediately on from this latter figure, it is worth observing that something has gone seriously awry inthe order of the universe when the number of listed equity funds in a given market comes to outnumber thenumber of listed equities in that same market – a fantastic example of a fund management industry happilyconsuming itself.

In what ways do institutional asset managers create a rod for their own backs ? The most widespread, and probablythe most damaging to the interests of end investors, is in benchmarking. Being assessed relative to theperformance of an equity or bond benchmark effectively guarantees (post the impact of fees) the institutionalmanager’s inability to outperform that benchmark – but does ensure that in bear markets, index-benchmarkedfunds are more or less guaranteed to lose money for their investors. In equity fund management the malign impactof benchmarking is bad enough; in bond fund management the malign impact of ‘market capitalisation’benchmarking is disastrous from the get-go. Since a capitalisation benchmark assigns the heaviest weightings in abond index to the largest bond markets by asset size, and since the largest bond markets by asset size representthe most heavily indebted issuers – whether sovereign or corporate – a bond-indexed manager is compelled to havethe highest exposure to the most heavily indebted issuers.

All things equal, therefore, it is likely that the bond index-tracking manager is by definition heavily exposed to


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objectively poor quality (because most heavily indebted) credits. Given that we are living through a once-in-a-generation crisis in the bond markets, chances are that this game will not end well for benchmarked managers.

Quite how this institutional insistence on benchmarking arose – whether versus indices or versus peer groups – is notprecisely clear. But it would seem to give the majority of asset managers regulatory cover for sheltering amongstthe consensus. And as SocGen’s Albert Edwards puts it,“The late Margaret Thatcher had a strong view aboutconsensus. She called it: ‘The process of abandoning all beliefs, principles, values and policies in search ofsomething in which no-one believes, but to which no-one objects.’” And the prevailing institutional imperative is togive customers what they think they want, or what can easily be sold, which most of the time is probably the samething. Which accounts for the thousands of me-too fund offerings clogging the ‘Managed Funds’ section of the FT,most of which would be completely superfluous in a properly efficient market.

James Montier, in his bible on behavioural finance, ‘Behavioural investing’, points out two recent discoveries byneuroscientists that have relevance to all investors: we are hard-wired for the short term, and we seem to behard-wired to herd. The first characteristic makes for an uncomfortable psychological journey whenever a portfolioincurs losses (in whole or in part); the second characteristic makes for an uncomfortable psychological journeywhenever a portfolio pursues a remotely contrarian tack. Once again, the power of conformity is acute.

A particularly intriguing experiment used by Montier relates to our tendency towards anchoring.

Feel free to follow it yourself. It goes as follows:

1. Please write down the last four digits of your telephone number.

2. Is the number of physicians in London higher or lower than this number?

3. What is your best guess as to the number of physicians in London?

In Montier’s words, anchoring is “our tendency to grab hold of irrelevant and often subliminal inputs in the face ofuncertainty.”

The idea of the experiment, then, is to see whether respondents were influenced by their (random and irrelevant)phone number as a gauge in trying to estimate the number of doctors in London. The results of the experiment canbe seen below:

IMAGE1

As the chart indicates, those respondents with telephone numbers above 7,000 suggested, on average, that therewere just over 8,000 doctors in London. Those with telephone numbers below 3,000 suggested 4,000 doctors. “Thisrepresents a very clear difference of opinion driven by the fact that investors are using their telephone numbers,albeit subconsciously, as inputs into their forecast.”

So our thesis goes as follows. In the absence of reliable knowledge about the future, investors have a tendency toanchor onto something – anything – to help them assess or predict future market returns. What better anchor to usefor future market returns than prior ones? This is where the story gets more intriguing still.

The chart above attempts to answer a rhetorical question: why do so many financial advisers advocate equity-centric portfolios? We think the reason is: because so many of them worked during the most recent financialperiod. On a discrete 20 year basis, the period 1980-1999 is the only period of the last 300 years in which annual,real returns from the UK market offered investors between 8% and 10% on average. Note that for much of thatthree -century period, annualised real returns ended up either side of zero.

We think the story gets more intriguing still. We would advocate the thesis that a good part of those returns wassomewhat illusory in nature. More specifically, given that they occurred during a once-in-a-century period ofextraordinary credit creation, those market returns were in large part borrowed from the future, in the same waythat governments have been funded, and their colossal bond markets serviced, by essentially loading the ultimatecost and the final reckoning onto the next generation.


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If this thesis is even half correct, investors piling into stocks now, at current highs, on the premise of recapturingsome of those 8% - 10% real annual returns, are being at least somewhat delusional. The credit bubble has burst.Messily. The stock market has not necessarily woken up to the fact. This does not detract from the sensible analysisof equity market opportunities. But for any investment, its most important characteristic is its starting valuation.Buy attractive equities at sufficiently undemanding multiples and you should rightly expect to do well. Buy – let uscall it the index – expensively, and after a grotesque bubble of credit and associated distortions throughout thecapital market structure, egged on by central banks who have long abandoned what limited policy mandates theypreviously pursued, and expect things to end in a train wreck. Winning the loser’s game is fine. Losing the loser’sgame is not something to which we aspire.

Tim Price Director of Investment PFP Wealth Management

Email: [email protected] Twitter: timfprice

Weblog: http://thepriceofeverything.typepad.com Group homepage: http://www.pfpg.co.uk

Bloomberg homepage: PFPG

Disclaimer: The views expressed are the author's, not FNArena's (see our disclaimer)





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21 Small Caps

- Composite demand on the rise - Quickstep offers superior technology - Jet fighter contract still in play

By Greg Peel

Back in 2009, the new US president decided the budget deficit needed to be addressed and as part of that processcancelled the production of further expensive F-22 stealth jet fighters for the defence force, preferring tocommission Lockheed Martin’s more conventional, less costly, but no less modern F-35 joint strike fighter. The USorder at that stage was for 3000 JSFs but pre-orders were also made by US allies, including 100 earmarked forAustralia.

The skin and other components of a JSF were intended to be constructed not of steel or aluminium, but ofcomposite material. Composites include fibreglass, Kevlar and carbon fibre mixed with polyester or epoxy resins,for example, which boast much higher strength-for-weight ratios than metals. The downside is that while metalsare readily shaped and welded, composite parts need to be moulded using high pressure and high temperaturevacuum autoclaves. The process is technologically complex, and expensive until economies of scale are introduced.

Up until recently, the use of composite materials has been limited to the realms of formula one racers or high-costsupercars, Sydney-to-Hobart yachts and so forth, as well as in defence and high-tech applications. Last decadebrought composites more into commercial focus, due to rising metal prices on the one hand and a burgeoning“green” push on the other. Light weight means lower fuel consumption, hence today’s new hybrid and electric carsand new airliners such as the Airbus A380 and Boeing 787 Dreamliner exploit composite components. Later this yearBMW will release its new i3 and i8 models which will become the first mass-produced composite vehicles.

Despite composite materials having been around for decades, when Lockheed Martin came to sign upmanufacturing contractors for its composite components it was forced to travel far and wide to find companieswith the right capabilities in the complex composite space. The company found itself in Fremantle, WesternAustralia, where it tacitly signed up small Australian manufacturer Quickstep Holdings ((QHL)). Not unsurprisingly,Quickstep was located in one of Australia’s well known yachting centres, yet the company had already drawninterest from the likes of Airbus and Boeing due to its own proprietary Resin Spray Transmission (RST) technology.(See: Quickstep Has The Right Stuff, from 2009).

On news of the Lockheed deal, QHL shares jumped to over 60c from under 20c in the space of six months. But alas,in the ensuing period the US government became ever more obsessed about government spending, thedevelopment path has hit some turbulence, and the whole JSF program has been under a cloud. The Australiangovernment, too, has become obsessed with spending cuts and defence has not been immune. The future of the JSFprogram has wallowed in uncertainty in the interim, and QHL’s share price has quietly drifted back to today’s 15c.

The market may have lost interest in JSFs, and composites, and Quickstep, but Quickstep did not lose interest infurther developing its technologies and preparing for what is expected to be a boom in composite use inconstruction, particularly in auto and aerospace, in the years to come. The bad news may have been that theextent of the JSF contract had become less certain, but Quickstep was nevertheless able to secure governmentgrants not just in Australia, but also in the US and Germany. The good news is Quickstep has not wasted itsopportunities, such that the JSF is now only one contract among many that should ultimately cement the companyas a globally respected composites manufacturer.

State One Stockbroking has been following Quickstep for some time and has long held a positive view on the stockgiven its upside potential, while acknowledging shorter term development risk. State One believes a major shift tothe use of lighter weight composites in the global auto industry will be driven by legislated efficiency and pollutiontargets for vehicles in leading economies. Use in the aerospace sector will continue to trend upward, with airlinesnot needing legislation to encourage lower fuel consumption, but the broker suggests auto demand will prove the


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primary driver of Quickstep’s potential.

Manchester University forecasts demand for carbon fibre production will increase from 53ktpa in 2012 globally to220-340ktpa by 2020 and 1500-1800ktpa by 2023. State One expects such a demand increase to ultimately impact onmetal prices, including steel. Quickstep’s proprietary processes offer “substantial” advantages, suggests State One,over existing autoclave and other composite technologies.

The company is nearing completion of a new world class aerospace factory at Bankstown in Sydney, which is set toservice auto applications as well as commercial and military aircraft contracts. The factory will have the capacityto manufacture upward of $100mpa of composite panels and the company has to date secured aerospace contractsin excess of $800m, with further contracts under negotiation. Traditional autoclave services currently provideQuickstep with a modest income, but it is the company’s high-tech proprietary processes that will take Quickstepinto blue sky. The company is expected to become cashflow positive by late next year. State One is forecastingsales revenue to increase from $500,000 in FY12 to $178m by FY20. Bankstown is expected to hit full capacity inFY15.

Contracts signed to date include a deal with helicopter manufacturer Sikorsky. Quickstep has beefed up itstechnical support network, with offices in the US, Germany and Geelong, Victoria. State One believes the companyis presently in discussion with eight different Original Equipment Manufacturers, with part runs of 1000-2000expected to flow once the RST facility at Bankstown is up and running. The good news is that Quickstep’s majorcapex outlays have run down as contract commitments have run up, meaning the company can expand withoutdilutionary equity raisings. Quickstep has also received grants from the Australian, US and German governments.

Back to the JSF. It was this potential contract which put Quickstep on the radar in the first place.

Less than a year after opening the Bankstown facility, Quickstep has produced the first bismaleimide and graphiteepoxy parts for JSF contractor Northrup Grumman and proven, on a test basis, the facility is equipped and qualifiedto execute required processes for the JSF program, which include fuselage and other part manufacture. So pleasedwas Northrup that the company last week issued a press statement to say how pleased it was. Additional parts willbe produced under direct contract to Lockheed Martin.

The US government is expected to order 60 JSFs very shortly. As to just how many the US will ultimatelycommission remains unknown, and aside from US budget issues there have been some delays on the design front, asis usually the case with high-tech aircraft. The next orders are then expected from Singapore and South Korea, andJapan has already stuck its hand up. Israel, Norway and the Netherlands have also reaffirmed support for theproject. Australia still intends to order 100 planes to replace the Vietnam era F111s.

The JSF contract is not dead, and nor is Quickstep a one-trick pony. Unfortunately, on a share price basis, QHL’sfate has been inexorably linked to the JSF and media flow on the aircraft’s troubled development. State Onebelieves the JSF will ultimately be successful, despite a lot of scare-mongering in Australia and elsewhere.Moreover, Quickstep’s future is not “overly dependent” on the JSF, State One exclaims.

As noted, QHL is currently trading around the 15c mark. Applying a 10% discount rate out to FY20 and a PE multipleof 12 times, State One derives a net present value of 46c. A PE of 20x would suggest 75c. Such valuations are veryconservative, and State One notes that “it is possible to derive much higher valuations, but the lower end of theindicated range is virtually assured”.



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22 Weekly Analysis

By Rudi Filapek-Vandyck, Editor FNArena

There are no two ways about it: the most important event over the past week has been the collapse of theAustralian dollar with global hedge funds launching a coordinated attack at the same time as the greenback hasstaged a come-back.

Australia should thank George Soros and Stanley Druckenmiller because what the government and the Reserve Bankcouldn't achieve over the past year or so has now quickly turned into a self-fulfilling process.

The result is now that persistent doubts about the outlook for corporate profits in Australia have been relegated tothe sidelines. The Australian non-mining sector may well still be looking forward towards ongoing challenges andfurther weakness into calendar 2014, hence the impact from a sharply weaker Aussie dollar simply cannot beunderestimated. The share market clearly hasn't, judging by its recent strong performance.

Some economists have already likened the Aussie's US5c drop in less than a weeks' time to a 25 basis points cut bythe RBA. Further weakness thus translates into further relief without the RBA lifting one finger. Conclusion numberone is an easy one to make: AUD weakness will keep the RBA on the sidelines and might even translate into nomore cuts ahead.

The implication of this is that market leadership should switch to cyclicals and to domestic industrials for which thepersistently strong AUD has been a significant barrier in the years past: think local steel manufacturers, hotelowners, exporters and the tourism industry.

Usually, when the AUD weakens this is not good news for mining and energy companies. This message was againbrought home by an update on share market and AUD correlations by the team of quant analysts at Macquarie. Thereport shows that, on past experiences, share prices for the likes of Lynas ((LYC)), Regis Resources ((RRL)), Asciano((AIO)), Perseus Mining ((PRU)) and PanAust ((PNA)) should have tanked alongside the sharp drop in AUDUSD. So whyhaven't they this time?

It all relates back to what is causing AUD to rise and fall in the first place. If the Aussie dollar strengthens on theback of a rally in commodities prices, then share prices of mining and energy stocks rally too, despite the fact thata stronger AUD represents negative news. The market tends to focus on the good news behind the Aussie dollar'srise.

Similarly, when AUDUSD falls because commodity prices are plunging then the good news of a cheaper currencyshould not lead to rising share prices. It doesn't apply this time because of a marked difference in timing:commodity prices have already plunged taking share prices down sharply over the past three months. All that timethe Aussie dollar stoically remained above USD-parity. Now that weakness has kicked in, investors are taking theview that weaker commodity prices had been priced in, but not yet the positive impact from a weaker AUD. So thistime around it is different and a weaker AUD is good news for resources profits and share prices.

Exit the Macquarie quant analysis update on AUD sensitivities in the share market. Except for the fact the reporthighlights the obvious on the positive side: major exporters stand to benefit in a major fashion. On top of the tableshowing the highest positive correlations with a weakening AUD sit Treasury Wine Estate ((TWE)), ResMed ((RMD)),CSL ((CSL)), Woolworths ((WOW)) and SP Ausnet ((SPN)). The first three are no surprise, but numbers four and fivecertainly are.

Clearly there are more dynamics in play than simply price competitiveness and the translation of overseas profitsinto local dollars for Australian shareholders.

Before I continue, let's take a brief pause. The Aussie dollar has quickly lost about US5-6c, does this automatically


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imply more weakness is but a given?

No, it's not. In fact, in-house modeling at National Australia Bank and at RBS Morgans suggests fair value currentlysits around US98c and FX experts at CommBank suggest it won't be long before AUD surges back above USD-parity.The latter seems like a big call with investment heavyweights Soros and Druckenmiller, and a large army of follow-that-trend hedge funds, positioned for more weakness. Newsletter publisher Dennis Gartman recently commentedthat when such icons of successful trading go all-in it simply doesn't seem wise to move into the opposite direction.A piece of wisdom even the economists at NAB took into account when they updated their modeling: AUDUSD mayseem fairly priced at around US98c, it is more likely that further weakness remains in store.

Analysts at Goldman Sachs have now lowered their AUDUSD forecasts to 90c on a twelve months horizon. In theirview, "Poor commodity price dynamics in both the near and the medium term, sharp retracement in capitalinvestment plans by major Australian miners in the past fortnight, a ballooning federal budget deficit, poordomestic data flow and a cut in the cash rate by the RBA have all assisted the A$ lower in recent weeks. However,it is the combination of the US Fed edging closer to tapering QE, the exhaustion of attractive yield opportunities inAustralia (from an offshore investors perspective) and Australia’s extraordinarily high correlation with US bondsthat look set to chip away at the primary determinant for why the A$ remained at elevated levels – the seeminglyinsatiable appetite of foreign investors for Australian yield."

Traders and speculators in currencies more often than not use technical signals and patterns in their strategies, soinvestors may want to keep an eye on the following support and resistance levels (thanks to Gain Capital's ChrisTedder):

- On the way down: 0.9710 is the next key level of support, then 0.9665, then 0.9580 and then 0.9385 (low sinceSeptember 2010) - On the upside: resistance is located around 0.9870 (200day SMA) and then USD-parity

Probably the most important conclusion in the Goldman Sachs' update, at least for investors in the Australian sharemarket, is that "the declining A$ will not only provide a mechanical lift in our financial conditions index, it wouldlikely set off an earnings upgrade cycle for the Australian equity market".

Yet, most stockbrokers and analysts have been taken completely by surprise by events from the week past. Only amonth ago those same analysts at Goldman Sachs had raised their AUDUSD forecasts for the short term to 1.05 andso far not one of the stockbrokers that is monitored closely by FNArena has issued a dedicated research report onwhat the sharp decline in AUD actually means for listed companies, apart from said re-release by Macquarie quantanalysts. No doubt, this hiatus will be filled in the days ahead (one assumes).

A search through the in-house archive at FNArena has generated a good dozen of dedicated AUD reports by themajor stockbrokers since August last year, suggesting the currency hasn't genuinely been a major focus over thepast nine months. No surprise thus, most AUD-oriented research reports are pre-2013 and quite a few predictAUDUSD was to remain above parity for much longer. A case of complacency creeping in? Possibly. We allknew/assumed the Aussie dollar looked overvalued, but having resisted just about everyone's call for a weakerAUDUSD, maybe we had collectively given up on it ever actually happening?

Below are the most interesting conclusions taken from AUD-specific research reports issued since August last year:

- the impact of a weaker AUDUSD on profits of certain smaller mining companies can be nothing short ofspectacular, in particular smaller miners that are only marginally profitable in the present context. UBS last weekcalculated it only takes US5c to boost profits for Western Areas ((WSA)) by 159%, for Alumina Ltd ((AWC)) by 138%and for Perilya ((PEM)) by 125% - all else being equal. Other mining companies that should see a spectacular boostto their earnings per share include Grange Resources ((GRR)) at 76% impact, Whitehaven Coal ((WHC)) at 64%,Ivanhoe ((IVA)) at 44%, Mincor Resources ((MCR)) at 43%, Atlas Iron ((AGO)) and Mount Gibson ((MGX)) at 42% andPanAust ((PNA)) at 41%. Imagine what a further US5c fall could mean for those companies in the year ahead!

- BHP Billiton ((BHP)) and Rio Tinto ((RIO)) should receive a boost to their earnings per share of circa 6% and 5%respectively (all else being equal)

- Coca-Cola Amatil ((CCL)) is a net beneficiary of a stronger AUD with analysts at Morgan Stanley noting "the


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correlation for bottlers in the Coke system to movements in their local currency/USD share price is remarkablystrong". Traditionally, the Coca-Cola Amatil share price tends to be a beneficiary when AUD weakens but mostlikely because that's when commodity prices tend to be weak too (The company is a major beneficiary of weakerinput costs)

- Amongst retailers, The Reject Shop ((TRS)), Pacific Brands ((PBG)), and Premier Investments ((PMV)) are all majorbeneficiaries of a stronger AUDUSD because they all source product directly out of China. The current reversal intrend is thus a major negative. The opposite should apply to supermarkets and David Jones ((DJS))

- In the healthcare sector, ResMed has most exposure/leverage to AUDUSD while for CSL the dominant currencypair is USDCHF (Swiss Franc). Consequently, AUDEUR and AUDCHF are more important for CSL than AUDUSD

- Cochlear ((COH)) should benefit from a weaker AUDUSD as FX hedging programs expire in the years ahead

- Macquarie released an interesting report on AUD sensitivities in September last year, arguing there are companieslisted in Australia whose share price tends to respond positively when the Aussie dollar weakens while there is nonotable impact on their bottom line. These companies include Telstra ((TLS)), Ansell ((ANN)), DUET ((DUE)),Metcash ((MTS)), Spark Infrastructure ((SKI)), SP Ausnet, Tabcorp ((TAH)), Tatts ((TTS)), Invocare ((IVC)), SigmaPharmaceuticals ((SIP)), Singapore Telecom ((SGT)), Austbrokers ((AUB)), Prime Media Group ((PRT)) and Cabcharge((CAB)).

The confusion from the Macquarie report is probably caused by the reason as to why AUD is weakening. Is itbecause of a general retreat in risk appetite? This has often been the case in the years past and potentially explainsthe high correlation in the past for the many defensive havens on the Macquarie list.

- According to the same Macquarie report, major beneficiaries of an AUDUSD depreciation, both in terms of EPS andshare price risk, include CSL, Treasury Wine Estate, Sonic Health Care ((SHL)), Amcor ((AMC)), ResMed, Aristocrat((ALL)), Aurora Oil and Gas ((AUT)),Navitas ((NVT)), ARB Holdings ((ARP)) and Domino's Pizza ((DMP)).

- For energy companies such as Woodside Petroleum ((WPL)) any impact from AUDUSD is more muted than in thepast due to AUD denominated gas contracts

All in all, it appears a weaker Aussie dollar puts the local share market somewhat in a sweet spot as the impact is aclear positive for most stocks and sectors. At least until inflation roars its head forcing the RBA to refocus ontightening, but that's not a concern right now.

(This story was originally written on Monday, 20 May 2013. It was published on the day in the form of an email topaying subscribers).

DO YOU HAVE YOUR COPY YET?

At the very least, my latest e-Booklet "Making Risk Your Friend. Finding All-Weather Performers", which waspublished in January this year, managed to accurately capture the Zeitgeist.

All three categories of stocks mentioned in the booklet are responsible for the index gains post 2009 and thisremains the case throughout 2013.

This e-Booklet (58 pages) is offered as a free bonus to paid subscribers (excl one month subs). If you haven'treceived your copy as yet, send an email to [email protected]

(Do note that, in line with all my analyses, appearances and presentations, all of the above names and calculationsare provided for educational purposes only. Investors should always consult with their licensed investment advisorfirst, before making any decisions. All views are mine and not by association FNArena's - see disclaimer on thewebsite)

****

Rudi On Tour in 2013


58 of 59 24-May-13 2:18 PM

- I will present and contribute during the 2013 National Conference of the Australian Technical Analysts Association(ATAA) at the Novotel in Sydney's Brighton Beach, June 21-23

- I will present to members of AIA NSW North Shore at the Chatswood Club on Wednesday 11 September, 7.30-9pm


59 of 59 24-May-13 2:18 PM

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