Rbs - Round Up - 051109

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

The Round Up 5 November 2009 Issue No. 212 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

DJS (DJSSZX)

SFI Investment Buy – Upgrade

QAN (QANKZJ)

MINI Trading Buy – Beneficiary of high AUD

Banks (NAB,ANZ,WBC)

Sector Update – Reporting wrap up

Round Up Corner

RBS Monthly Market Review - October

Equities Move ASX 200

Last +8.6

% Move 4540.1

Range +0.2%

Volume +9 to +9

$3.7 bn(L)

SPI - yesterday

+3.0

4521.0

+0.1%

-6 to +37

22,436(L)

Dow Jones

+31.1

9803.0

+0.3%

-5 to +156

Avg

S&P 500

+1.1

1046.5

+0.1%

-0 to +16

Avg

Nasdaq

-1.8

2055.5

-0.1%

-4 to +24

Avg

+70.7

5107.9

+1.4%

u.c to +84

Avg

FTSE

Commodities Move

Last

% Today

% Past Month

Oil-WTI spot

+0.6

80.2

+0.7%

+15.1%

Gold Spot

+7.8

1092.2

+0.7%

+8.9%

Nickel (LME)

+4.4

809.2

+0.5%

+3.7%

Aluminium (LME)

+0.8

85.8

+0.9%

+6.9%

Copper (LME)

+5.3

297.2

+1.8%

+11.8%

Zinc (LME)

+2.2

99.9

+2.3%

+18.9%

Silver

+0.2

17.4

+1.2%

+7.7%

Sugar

-0.4

23.0

-1.7%

-0.9%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

0.14

0.01

+13.7 c

15.00

-14.5 c

RIO (UK)

77.00

0.03

+28.6 c

52.13

-1130.3 c

BLT (BHP UK)

54.50

0.03

+17.1 c

31.04

-589.7 c

BXB (UK)

2.75

0.01

+3.9 c

7.16

-0.6 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

0.77

0.01

AWC (US)

-0.04

TLS (US)

0.28

ANZ (US)

0.36

WBC (US)

1.54

NAB (US) LGL (US)

AUD Terms

Diff to Aus

+67.4 c

37.02

+8.3 c

-0.01

+5.9 c

1.61

+1.3 c

0.02

+14.7 c

3.24

+1.1 c

0.02

+20.6 c

22.68

-5.2 c

0.01

+117.0 c

25.73

-6.3 c

0.25

0.01

+25.8 c

28.31

+15.6 c

0.53

0.02

+30.7 c

3.37

+5.9 c

RMD (US)

0.36

0.01

+49.4 c

5.42

+2.5 c

JHX (US)

1.09

0.03

+32.8 c

7.21

+5.7 c

PDN (CAN)

0.07

0.02

+4.0 c

4.12

-0.8 c

Overnight Commentary United States Commentary The US market opened cautiously ahead of the Fed comments on rates but as soon as the market became aware of their intention to keep rates "exceptionally low" investors bought the market. As expected the USD weakened on the back of the Fed's commentary which led support to commodities. Strong performances by Merck, McDonalds and United Tech drove the Dow higher. Economic - ISM non manufacturing came in at 50.6 vs 51.6 expected , a little disappointing but there was some comfort that the number was above 50 and expansionary. FOMC decision was as expected, with no rate change. More importantly the Fed said that they plan to keep interest rates at "exceptionally low" levels for an "extended period". Healthcare - Merck rallied 6.7% after they said that they expected annual earnings growth in the high single digits on a percentage basis until 2013. Elsewhere in the sector Aetna and Cigna rallied over 5% on speculation Republican victories in yesterday's elections will bolster opposition to legislation overhauling health care. Homebuilders - Pulte Homes rallied 4.5% after they announced that they had increased the cost savings from their Centex Corp acquisition by 25% whilst also reducing debt by $1.7bn in the 3Q. The sector was well supported with Lennar and Dr Horton both up over 3%. Sentiment - The VIX fell for the 3rd day in a row , drifting off 6%, it has now retreated 12% since reaching its highest level since July on Oct 30. Of the 378 companies in the S&P 500 that have published quarterly earnings since Oct 7, 84% exceeded estimates, according to Bloomberg data. Oil Services - Baker Hughes slipped 5% after announcing that 3Q profit plunged 87% as a result of continuing prices decreases, discounting and extra costs associated with their company reorganisation.

United Kingdom & Europe Commentary The FTSE climbed 1.4% or 71pts in a broad based rally with miners, banks and retailers all stronger. Banks helped the Euro bourses with carmakers also chipping in. The FTSE Eurofirst 300 was up 1.6%, the DAX added 1.7% and the CAC jumped 2.4%. UK Banks - Good news from SocGen and a re-evaluated outlook by investors saw the sector bounce back. RBS added 1.5%, Barclays was up 4.2%, HSBC climbed 1.4% but Lloyds fell 1.2% as the rights issue weighed. Euro Banks - SocGen jumped 4.6% after announcing it had doubled its 2008 3Q net profit. BNP, which reports tomorrow, was up 3.5%, Deutsche Bank added 2.3%, Commerzbank rose 4.4%, with Irish banks, Bank of Ireland and Allied Irish Banks both recovering strongly, soaring 24.6% and 19.2% respectively. Auto - Strong earnings from Renault's 44% owned Nissan saw the French carmaker up 4.1%. GM's decision not to sell Opel also boosted sentiment in the sector. Peugeot climbed 2.1%, VW was up 1.1%, Daimler added 3.1%, BMW rose 2.5% and Fiat ended 4.35% higher.

Travel - BA jumped 6.6% after a broker upgrade ahead of its results due Friday. Travel firm Thomas Cook also benefitted from an upgrade of its stock seeing it climb 7.4% whilst peer TuiTravel added 5.5%. Retail - Marks & Spencer, up 6%, was stronger after posting flat 1H results at the top end of consensus with tight management of costs and stock helping. Next was up 5.6% after reporting better than expected 3Q sales. Next also upgraded sales and profit guidance. Eco - The British services sector showed its strongest activity since the start of the credit crunch in October 2008. PMI Services were 56.9 vs 55.5 expected and up from 55.3 previously. UK consumer confidence, although slightly weaker than expected, hit its highest levels since April 2008. nationwide Cons Confidence was 72 vs 73 expected but up from 71 previously.

Commodiites Commentary Miners - A weaker $US ahead of the Fed's statement saw metal prices climb. BHP climbed 3.3%, Rio added 2.8%, Anglo rose 3%, Xstrata was up 5.9%, Vedanta jumped 5.3% and Antofagasta ended 5.4% higher. Energy - Most of the sector tracked crude prices higher. BP was up 0.2%, BG Group climbed 2.5%, Tullow soared 4.5% but Shell just edged down 0.3% after going ex. In Europe Total added 1.7%, Statoil climbed 2.4% and Repsol was up 1.1%.

SPI Commentary The SPI traded up 4pts or 0.09% to 4522. Open at 4532 with a high of 4555 and a low of 4512. Volume 26,014. Overnight the SPI traded up 23pts to 4544

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

AIG/PWC manufacturing PMI, TDMI inflation gauge, ABS existing house price

Tuesday

AUS

Wednesday

AUS US

Factory orders

Thursday

AUS

Trade balance

Friday

AUS

US

US

US

US

RBA cash rate decision ISM, pending home sales, construction spending AIG/CBA services PSI, nominal retail trade, real retail trade, building approvals, RBA Governor speans

ADP employment report, non-manufacturing ISM, FOMC funds rate decision AIG/HIA construction PCI, RBA Statement on Monetary Policy, Deputy Governor Battellino speaks Non-farm productivity, non-farm payrolls, unemployment rate, average hourly earnings

*Dates are indicative only and may change

SFI Investment Buy: David Jones (DJSSZX) - Upgrade RBS Research have upgraded DJS to a Buy, believing market forecasts do not sufficiently reflect the operational leverage DJS should enjoy as consumer spending rebounds through FY11F and FY12F. Shorter term we see positive catalysts in upgraded FY10 and 'aspirational through-the-cycle' operational guidance. Use the recent pullback to buy DJS for a move back up through $6. Play through DJSSZX

Source: IRESS

RBS Research believe DJS is likely to surprise the market in FY10F with an increase to its through-the-cycle gross margin guidance of 39.5-40.0% with upgraded FY10F guidance likely, from 0-5% to 5-10% underlying NPAT growth.. RBS research believe DJS can achieve a through-the-cycle sustainable gross margin of up to 41.0% (currently 39.6%) and a cash CODB of 27.5% (currently 28.1%).. DJS is present in only 16 of Australia’s top-30 shopping centres by turnover. Excluding those to be entered as part of the previously disclosed store-rollout programme, RBS Research have identified a further six that we believe have demographics attractive to DJS and that would be unlikely to significantly cannibalise the company’s existing store sales. RBS Research upgrade NPAT forecasts as follows: FY10 +1.0% to A$170.5m; FY11 +0.4% to A$193.3m; FY12 +6.9% to A$220.5m. RBS now sit 5.5% and 10.4% above FY11F and FY12F consensus Bloomberg EPS forecasts, respectively. Target price to A$6.40 Buy DJSSZX

RBS SFIs over DJS Security DJSSZX

ExDate 4-Feb-19

ExPrc

CP 169

ConvFac Call

1

Delta

Description 0

Rbs Feb19 169 I W

MINI Trading Buy: Qantas Airways (QANKZJ) – Load factor and yields improving QAN is leveraged to an economic recovery and is a big beneficiary of the appreciating AUD/USD. Comments at QAN’s AGM suggest management is confident it has passed the worst. Updated currency forecasts result in earnings upgrades for FY10-11F. Given strengthening economic conditions and higher currency, RBS Research maintain Buy recommendation with $3.35 target price. September traffic statistics also highlighted increased load factors and improvements to domestic yields. Use the recent pullback to buy QAN. Play thorugh QANKZJ

Source: IRESS

QAN management appears increasingly confident that the worst is behind the company. The next critical piece of information is to see yield improvement, which RBS Research believe may become evident in 2H10 as demand has stabilised and the worst of the discounting appears to have passed. QAN is also a beneficiary of a rising AUD/USD. With an estimated 39% of QAN’s cost base exposed to the USD, earnings are positively impacted. Given the spot price sits at $0.92, further earnings upside potential exists. On RBS estimates a 1c increase in the AUD equates to a A$14m increase in NPAT (4.3%). RBS Research has a Buy recommendation on QAN with a target price of $3.35. With the economic environment strengthening and currency movements positively impacting the cost base, we think there remains momentum behind the airlines. Buy QANKZJ

Sector Update: Banking Sector (NAB,ANZ,WBC) – Reporting wrap up All three banks, NAB, ANZ and WBC have now reported their results with headline results largely inline or better than market expectations. RBS Research have an overweight sector call on the banks. Play the bank dividends through RBS Self funding instalments which benefit from dividends, franking credits and interest deductibility. ANZSZW, NABSZW and WBCSZV are the products to use.

Source: IRESS

National Australia Bank (NAB) – NAB reported cash NPAT of A$3,841m, 3% above RBS forecasts and driven by lower than expected BDD’s. Dividend was 73cpswith a ex date of 13th November. The outlook was cautiously optimistic with indications that BDD’s are peaking. ANZ Banking Group (ANZ) - ANZ reported NPAT of A$3,350mln which was about A$400mln ahead of RBS research forecast driven by larger than expected reversal in credit intermediation charges and sustained markets performance in 2H09. Margins were strong, tier 1 ratio is strong and underlying profit growth is strong. BDD’s also look like being lower in FY10 compared to FY09. The stock goes ex dividend 56c on 5th November Westpac Banking Corp (WBC) - WBC's FY09 result was in-line with RBS Research expectations with a cash NPAT of A$4,464m (RBS A$4,458m). The dividend was ahead at A$1.16ps (RBS A$1.12ps). The key positive surprise was the outlook statement which was more bullish than previously reporting banks. The key negative was extent to which the result benefited from trading income in 2H09 and the relatively lower Tier 1 ratio (8.1%). With greater earnings upside potential and narrowing relative discounts, we believe NAB and ANZ (both Buy) have the most upside potential and they are RBS Research preferred recovery plays. RBS SFIs to trade bank reporting season Security ANZSZW

ExPrc

Stop Loss 10.633

11.67

CP

ConvFac Long

1

Delta

Description 1

Self Funding Instalment

NABSZW

13.6710

15.00

Long

1

1

Self Funding Instalment

WBCSZV

14.1220

15.50

Long

1

1

Self Funding Instalment

RBS Round Up Corner: RBS Monthly Market Review – October 2009 The Australian market looks fully valued at present, in RBS Research view. A 12-month forward PE of 16x for the market is pushing towards a standard deviation of 1.5 above its long-run mean. Other valuation metrics also look full. Therefore, for the market rally to be sustained, earnings growth is key from here. However, US broker revisions seem to be losing momentum, while Aussie broker revisions are flat. From a bottom-up perspective, we are looking for earnings growth of a modest 6.3% in 2010. Increasingly, the market is likely to look towards 2011 for support; we are looking for 28.6% EPS growth in the S&P ASX 200.

Australia's performance vs the world In local currency, the All Ordinaries (-1.9%) only just outperformed the US S&P 500 (-2.0%) and in line with the World MSCI ex Australia Index (-1.9%), but it underperformed the regional MSCI ex Japan Index (-0.4%). The best and worst performing sectors The best performers for the month were Consumer Staples (+1.4%), Utilities (+0.6%) and Telecommunication Services (+0.4). Most sectors were negative, with the worst being Property (-9.0%), Energy (-5.3%) and Healthcare (-4.1%). The top five and bottom five performing S&P/ASX 200 stocks The top five performers from the S&P/ASX 200 (price) Index for the month were Macquarie Media (+19.6%), Virgin Blue Holdings (+17.4%), Energy World Corporation (+16.7%), Flight Centre (+13.7%) and St Barbara (+13.0%). The bottom five performers were Babcock & Brown Infrastructure (-30.2%), Lynas Corporation (-28.1%), Elders (-22.9%), Paperlinx (18.5%) and Crane Group (-17.6%).

MINIs approaching stop loss Underlying

MINI Code

MINI Type

Strike

Stop Loss

Share Price

Approx. MINI Value

Share: Stop Loss

LEI

LEIKZJ

Long

$30.35

$33.37

$

33.98

$

3.63

1.8%

WDC

WDCKZH

Long

$10.60

$11.66

$

11.91

$

1.31

2.1%

CBA

CBAKZN

Long

$44.89

$49.36

$

51.45

$

6.56

4.1%

SUN

SUNKZL

Long

$7.11

$7.83

$

8.37

$

1.26

6.5%

QAN

QANKZJ

Long

$2.26

$2.49

$

2.67

$

0.41

6.7%

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]

Robbie Taylor

02 8259 2018

[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