Rbs - Round Up - 031209

This material has been produced by RBS sales and trading staff and should not be considered independent.

The Round Up 3 December 2009 Issue No. 231 The Round Up is a comprehensive daily note produced by the RBS Warrants team providing an overview of market movements along with quality ideas for warrant traders and investors.

In today’s issue Global Market Action

Scoreboard, commentary

Aussie Market Action

SPI Comment, Events & Dividends

UGL (UGLKZC)

MINI Trading Buy – Top sector pick

BXB (BXBKZG)

MINI Trading Buy – Recovery Story

TLS (TLSSZX)

SFI Investment Buy – Regulatory risk falling

Round Up Corner

Banks Update – ANZ,CBA,NAB,WBC

Equities Move

Last

% Move

Range

Volume

ASX 200

+43.4

4762.4

+0.9%

+43 to +43

$5.3 bn(A)

SPI - yesterday

+38.0

4765.0

+0.8%

+35 to +79

27,890(A)

Dow Jones

-19.4

10452.2

-0.2%

-50 to +42

Avg

S&P 500

+0.4

1109.2

+0.0%

-4 to +7

Avg

Nasdaq

+9.2

2185.0

+0.4%

+2 to +23

Avg

FTSE

+15.2

5327.4

+0.3%

-29 to +36

High

Move

Last

% Today

% Past Month

-1.65

76.72

-2.1%

-2.1%

Gold Spot

+18.90

1215.50

+1.6%

+14.4%

Nickel (LME)

+2.13

736.19

+0.3%

-9.9%

Aluminium (LME)

+2.38

96.42

+2.5%

+12.9%

Copper (LME)

+2.10

321.79

+0.7%

+8.6%

Zinc (LME)

+2.55

108.80

+2.4%

+10.6%

Silver

+0.12

19.22

+0.6%

+16.9%

Sugar

+0.38

22.47

+1.7%

-1.8%

Commodities

Oil-WTI spot

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

+0.02

+0.1%

13.97

15.09

+11.5 c

RIO (UK)

+82.0 p

+2.6%

£32.92

59.18

-1435.6 c

BLT (BHP UK)

+19.0 p

+1.0%

£19.420

34.91

-700.7 c

-5.5 p

-1.5%

£3.643

6.55

-9.2 c

BXB (UK)

American Depository Receipts (ADR’s) Move

%Move

Last

AUD Terms

Diff to Aus

BHP (US)

+0.53

+0.7%

77.78

42.02

+10.1 c

AWC (US)

+0.03

+0.5%

5.88

1.59

+1.8 c

TLS (US)

+0.07

+0.4%

16.06

3.47

-1.9 c

ANZ (US)

+0.01

+0.0%

20.50

22.15

+4.0 c

WBC (US)

-0.87

-0.8%

112.37

24.28

+1.3 c

NAB (US)

-0.02

-0.1%

26.53

28.67

-13.4 c

LGL (US)

+0.64

+1.9%

34.75

3.75

+2.5 c

RMD (US)

+0.87

+1.7%

52.00

5.62

+8.9 c

JHX (US)

+0.25

+0.7%

38.25

8.27

+2.6 c

PDN (CAN)

-0.03

-0.7%

4.03

4.14

-5.6 c

Overnight Commentary United States Commentary Heading into the bell, the Dow off c30pts on the back of weaker financials, selling across the energy space and comments from the Fed Beige Book that were good without being spectacular. S&P flat and the Nasdaq 0.3% higher. Financials- JP Morgan down 1.4%, one of the worst performers and larger pt takers on the Dow. Weakness followed a broker report suggesting a change in rules over derivatives could crimp earnings. That was enough to cast a shadow of the rest of the group, Morgan Stanley down 3%, Wells Fargo 2.2% lower. Financials - BofA trading down 2% (Dow's worst). With financials already under pressure, BofA was dealt an additional blow by a WSJ article reporting that the 2 Chief Exec candidates said group should consider breaking itself up. Eco - ADP Employment Change -169K vs -150K expected and a relative improvement on -203K in October. The Fed went for adjectives over superlatives with the Beige Book, saying the economy had expanded "modestly" on the back of an uptick in consumer spending across most of the Fed districts. Labour and commercial property remain "weak". Energy - Following the oil price lower, heavyweight energy plays conspired with the financials to keep the Dow in the red. Chevron and Exxon down 0.7% and 0.5% respectively but together accounting for c20% of the days fall. Elsewhere, Devon Energy down 2%, Baker Hughes 1.8% and Halliburton 1.7% lower. Resources - Alcoa up over 5% and currently the Dow's best after a solid showing from Aluminium on the LME. The clear standout in what was a mixed session for the resource stocks, now up 8% for the week so far.

United Kingdom & Europe Commentary The FTSE added 0.3% or 15pts as strength in miners outweighed some weakness in the banks. In European trading drugmakers outweighed weakness in banks with the FTSE Eurofirst gaining 0.5%, the CAC was also up 0.5% and the DAX eked out a gain of 0.1%. UK Banks - A cautious broker note on the sector and another note saying that analysts numbers for Barclays were too high weighed on the banks. RBS was off 2.1%, Lloyds fell 1.9%, Standard Chartered sank 0.6%, HSBC was 0.5% lower but Barclays recovered early losses to be up 0.5%. Euro Banks - A broker note saying they were still underweight financials due to regulatory risk saw the banks weaker. Deutsche Bank was off 1.4%, Commerzbank dropped 2.9%, SocGen fell 0.2% while BNP and CS were off 1.3% and 2.1% respectively after they downgraded EPS estimates following an investor day.

Commodites Commentary Miners - The sector again had a number of stocks near the top of the leaderboard with the sector following metal prices higher. BHP added 1%, Rio was up 2.55%, Anglo rose 0.3% while Lonmin was the best on the FTSE100 up 3.2%. Energy - Crude fell however with the energy majors holding back the market. Cairn Energy was the worst on the FTSE100 off 2.6%, BP was off 0.2%, Shell dropped 0.4%, BG Group was 0.75% lower but Tullow was up 1.3%. In Europe Statoil edged 0.2% lower, Repsol was also off 0.2% but Total was up 0.4%.

SPI Commentary The SPI traded up 40pts or 0.8% to 4765. Open at 4725 with a high of 4806 and a low of 4725. Volume 26,926. Overnight the SPI traded up 2 to 4771.

SPI Intraday

SPI Daily

*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS

Upcoming Economic Events for the Week Monday

AUS US

Tuesday

AUS US

Wednesday

AUS US

Friday

Chicago PMI, Milwaukee NAPM, Dallas Fed Manufacturing AIG/PWC manufacturing PMI, Building approvals, Real public final demand, RBA cash rate decision ISM, Construction spending, Pending home sales

AUS US

Thursday

TDMI inflation gauge, HIA new home sales, RBA private sector credit, Wages bill, small business profits, company profits, real business sales, real business inventories

ADP employment report Nominal retail trade Non farm productivity

AUS US

Non-farm payrolls, unemployment rate, average weekly hours, factory orders

*Dates are indicative only and may change

MINI Trading Buy: United Group (UGLKZC) – Top sector pick UGL remains RBS Research’s top sector pick. We forecast that growth in the Resources division will lead to rolling EPS upgrades in FY10 and beyond. IPL's confirmation of the A$683m Moranabah project delivery timetable is seen as a positive lead indicator for upgrades. RBS Research target price $16.00, Buy UGLKZC

Source: IRESS

Maintenance of the Moranbah schedule supportive of resources growth With guidance for a flat underlying FY10 NPAT, we still expect a return to double-digit growth in FY11 led by resourcerelated spend that has complimentary benefits for the Rail division. IPL’s confirmation that the Mornabah project schedule (UGL share A$683m) remains unchanged could act as a catalyst for potential consensus forecasts upgrades in FY11. Lower risks plus attractive returns and upside from cyclical recovery We continue to see risk mitigation and risk management in contract pricing as a core UGL competency. With only 8% of the order book effectively exposed to lump sum fixed-price projects, there is lower sector risk than for major peers. A portfolio of engineering and asset services offer attractive EPS growth prospects beyond FY10F and FY09 wins should fuel future earnings growth, supported by the robust order book of A$9.3bn.

RBS MINIs over UGL Security UGLKZC

ExDate 780.04

ExPrc

CP

ConvFac Long

1

Delta

Description 1

MINI Long

MINI Trading Buy: Brambles (BXBKZG) – Recovery Story BXB’s AGM trading update last week conmtained few surprises and highlighted that conditions remain soft in BXB's key markets. While conditions may remain tough in the short term, RBS Research maintain a long-term Buy on the back of BXB's leverage to economic recovery. Last week’s pullback to the previous key resitance level at $6.50 is a buying opportunity. Buy BXBKZG

Source: IRESS

BXB’s AGM trading update showed underlying group revenue down 3% on the pcp, with CHEP and Recall both recording 3% declines. Given the weak economic conditions through the period to October we think this was not a bad outcome. Outlook commentary suggests conditions remain weak with BXB yet to see a pickup in activity in its key US and European markets. CHEP With a 5% decline in revenue, the CHEP Americas business was slightly weaker than expected. A soft US market was the primary driver, with management now estimating pallet issues in the US will be 3% below FY09. CHEP EMEA declined 1% (+1% ex-autos), while CHEP Asia Pacific increased 2% (+4% exautos) reflecting the better economic environment in the region. Buy at the bottom for longer-term upside RBS retain long-term Buy rating. We think the BXB business will prove itself over time and see sentiment returning as a pickup in the economic environment feeds through to earnings growth. Executing on the US will be key. Target price $7.51. RBS MINIs over BXB Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

BXBKZG

382.1

Long

1

1

MINI Long

BXBKZP

981.09

Short

1

1

MINI Short

BXBKZR

911.27

Short

1

1

MINI Short

SFI Investment Buy: Telstra Corporation (TLSSZX) – Regulatory risk falling RBS Research have a Trading Buy on Telstra with an indicative close range of $3.60-3.65, which is 10x FY10F EPS of 36c. With the imminent threat of extensive reregulation removed, we see the catalyst as a likely nonbinding deal with the Government over NBN2 being announced before Christmas. Buy TLSSZX

Source: IRESS

Proposed legislation unlikely to return Last week the Telecommunications Legislation Amendment (Competition and Consumer Safeguards) Bill was removed from consideration by Parliament this year. This gives Telstra the opportunity to work out a broad agreement in the preChristmas timeframe set by the Government. Possible election in 2010 adds to the pressure The growing chance of an early election in 2010 increases the pressure for a broad deal to be agreed this year. In that case, the legislation would be unlikely to return in its current form but, assuming the Government was returned and all else being equal, we believe cash flow growth would be relatively secure over the next three years. Good options for long-term value We believe Telstra has a likely three-year free cash flow outlook as it completes its transformation, achieves incremental operating leverage and reduces capital expenditure. The scenario for an increase in 1H10F DPS to 15c is improving, in our view. RBS SFIs over TLS Security

ExDate

ExPrc

CP

ConvFac

Delta

Description

TLSSZX

183.83

Call

1

1

Self Funding Instalment

TLSSZZ

240.58

Call

1

1

Self Funding Instalment

RBS Round Up Corner: Banks Sector Update – ANZ,CBA,NAB,WBC Post the bank reporting season, CBA trading update and ANZ, NAB and WBC going ex dividend, the banks have underperformed. RBS Research believe banks will wait until they understand how businesses are performing post Christmas before poviding further upbeat commentary. This is likely to weigh on relative share price performance in the short term, however the BDD cycle seems to be peaking and any pullbacks in the banks into the end of the year should be used as a buying opportunity.

Sector performance Banks' PE relative (to All Ords) is back down to 86%, having underperformed the market over the last month. While this is above the long-run average, given short-term structural advantages, we believe the sector can trade at a premium. The banks are now trading at an average PE of 13.5x FY10F on IBES consensus. Investment view – RBS Research prefer ANZ and NAB to WBC and CBA As a result of a normalising earnings cycle, we believe relative valuation will again play a significant role in the relative performance of stocks in the sector. RBS believe ANZ and NAB still have the greater share price upside potential over the next six to 12 months, given their 1-2 PE point discounts.

For further information please do not hesitate to contact us on the details below

Contact Equities Structured Products & Warrants Toll free

1800 450 005

www.rbs.com.au/warrants

Ben Smoker

02 8259 2085

[email protected]

Ryan Corrigan

02 8259 2425

[email protected]

Elizabeth Tian

02 8259 2017

[email protected]

Tania Smyth

02 8259 2023

[email protected]

Robert Deutsch

02 8259 2065

[email protected]

Mark Tisdell

02 8259 6951

[email protected]

Trading Products Team

Investment Products Team

Disclaimer: The information contained in this report has been prepared by RBS Equities (Australia) Limited (“RBS”) (ABN 84 002 768 701) (AFS Licence No 240530) (“RBS Equities”) and has been taken from sources believed to be reliable. RBS Equities does not make representations that the information is accurate or complete and it should not be relied on as such. Any opinions, forecasts and estimates contained in this report are the views of RBS Equities at the date of issue and are subject to change without notice. RBS Equities and its affiliated companies may make markets in the securities discussed. RBS Equities, its affiliated companies and their employees from time to time may hold shares, options, rights and warrants on any issue contained in this report and may, as principal or agent, sell such securities. RBS Equities may have acted as manager or co-manager of a public offering of any such securities in the past three years. RBS Equities’ affiliates may provide, or have provided banking services or corporate finance to the companies referred to in this report. The knowledge of affiliates concerning such services may not be reflected in this report. This report does not constitute an offer or invitation to purchase any securities and should not be relied upon in connection with any contract or commitment. RBS Equities, in preparing this report, has not taken into account an individual client’s investment objectives, financial situation or particular needs. Before a client makes an investment decision, a client should, with or without RBS Equities’ assistance, consider whether any advice contained in this report is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any recommendation without first having consulted with your adviser for a personal securities recommendation. This information contained in this report is general advice only. RBS Equities, its officers, directors, employees and agents accept no liability for any loss or damage arising out of the use of all or any part of the information contained in this report. This Information is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. If you are located outside Australia and use this Information, you are responsible for compliance with applicable local laws and regulation. This report may not be taken or distributed, directly or indirectly into the United States, or to any U.S. person (as defined in Regulation S under the U.S. Securities Act of 1993, as amended. The warrants contained in this report are issued by RBS Group (Australia) Pty Limited (ABN 78 000 862 797, AFS Licence No. 247013). The Product Disclosure Statements relating to these warrants are available upon request from RBS Equities or on our website www.rbs.com.au/warrants © Copyright 2009. RBS Equities. A Participant of the ASX Group.

Explanation of Warrant Tables: Security – refers to the code ascribed to the warrant, ExDate – refers to the date on which the warrant expires or is reset, ExPrc – refers to the exercise price, or second instalment payment, CP – tells you whether the warrant is a call or a put, ConvFac – the conversion factor of the warrant which tells you how many warrants you need to exercise in order to take possession of 1 share, Delta – tells you how much the warrant will move for a 1c move in the underlying security, Description – Tells you the type of warrant. All charts taken from IRESS unless indicated otherwise