Rbs - Round Up - 061109

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

The Round Up 6 November 2009 Issue No. 213 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

QBE (QBESZX)

SFI Investment Buy – Investor Update

Round Up Corner

RBS Monthly Market Review - October

Equities Move ASX 200

Last -32.1

SPI - yesterday

% Move 4508.0

Range -0.7%

Volume

-32 to -32.u.c

$3.7 bn(L)

-9.0

4512.0

-0.2%

-20 to +36

28,949(A)

Dow Jones

+204.6

10006.7

+2.1%

+6 to +211

Avg

S&P 500

+20.1

1066.6

+1.9%

+1 to +20

Avg

Nasdaq

+49.8

2105.3

+2.4%

+20 to +50

Avg

FTSE

+17.8

5125.6

+0.3%

-71 to +47

Avg

Commodities Move

Last

% Today

% Past Month

Oil-WTI spot

-0.6

79.8

-0.7%

+13.3%

Gold Spot

-1.2

1091.0

-0.1%

+7.3%

Nickel (LME)

-6.4

802.8

-0.8%

+1.4%

Aluminium (LME)

+0.0

85.9

+0.1%

+7.8%

Copper (LME)

-1.9

295.3

-0.6%

+10.4%

Zinc (LME)

-0.5

99.5

-0.5%

+18.9%

Silver

-0.1

17.4

-0.3%

+4.7%

Sugar

-0.8

22.2

-3.6%

-6.2%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

0.37

0.03

+14.0 c

15.40

-13.2 c

RIO (UK)

11.00

0.00

+28.7 c

52.35

-1023.7 c

BLT (BHP UK)

-5.00

0.00

+17.0 c

30.97

-547.3 c

BXB (UK)

-8.75

-0.02

+3.8 c

7.01

+7.9 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

0.50

0.01

AWC (US)

-0.16

TLS (US)

-0.18

ANZ (US)

0.16

WBC (US)

2.43

AUD Terms

Diff to Aus

+67.7 c

37.16

+72.1 c

-0.03

+5.7 c

1.56

+3.2 c

-0.01

+14.5 c

3.19

+1.7 c

0.01

+20.6 c

22.67

+59.9 c

0.02

+119.5 c

26.25

+36.2 c

NAB (US)

0.32

0.01

+25.8 c

28.28

+11.1 c

LGL (US)

-0.82

-0.03

+29.8 c

3.27

-0.6 c

RMD (US)

0.63

0.01

+50.0 c

5.49

+8.9 c

JHX (US)

-0.40

-0.01

+32.3 c

7.08

+8.4 c

PDN (CAN)

0.07

0.02

+4.0 c

4.15

+6.2 c

Overnight Commentary United States Commentary Markets continued their push higher last night with investors basking in the comfort of strong employment data and a strong result and commentary from Cisco who pointed to the global recovery as the catalyst for their good results. Whilst sentiment is fickle at the moment, last nights data seemed to provide some optimism around tonight's payroll number. Economic data - Nonfarm productivity for 3Q came in at 9.5% vs 6.5% expected. Unit labour costs for the 3Q fell 5.2% vs expectations of a 4.2% fall. Initial jobless claims were 512k vs 522k expected and continuing claims were in line at 5750k. ICSC Chain store sales yoy (Oct) rose 2.1% vs the prior month which only saw an 0.1% increase. Retail - The sector rallied after the International Council of Shopping Centre said October same store sales rose 2.1% based on results from 32 chains, which was the best result since July 2008. Gap 3.7%, Polo Ralph Lauren Corp up 2.2%. Technology - Cisco squeezed 3% higher after posting a 19% decline in profits that was still above the markets expectations. The Chief Executive John Chambers provided upbeat remarks about the outlook for technology spending saying that a recovery "is well underway" and added that economic improvements were "gaining momentum" worldwide. He was expecting profits to growth next year. IBM also rallied 1.4% and was the biggest points adder to the Dow. USD - The USD staged a small rally last night across a basket of currencies which tempered enthusiasm for crude and other commodities. Currency traders were unable to get too carried away as the comments from the Fed regarding their expectations for low interest rates continued to echo around the market.

United Kingdom & Europe Commentary The FTSE climbed 0.4% or 18pts as heavyweight energy stocks were stronger, boosted by strong US eco sentiment. The FTSE Eurofirst 300 was up 0.6%, the DAX added 0.7% and the CAC climbed 1%. UK Banks - Standard Chartered was up 2.2% but the rest of the sector fell as investors again became wary. RBS was off 3.5%, Lloyds dropped 3.8%, HSBC sank 1.1% and Barclays ended down 1.4% Euro Banks - BNP was up 3.3% after posting better than expected 3Q earnings but Commerzbank sank 4.65% after announcing the need for increased provisions. Deutsche Bank was off 1% but SocGen added 0.7%. Retail - Belgian's Delhaize Group jumped 5.1% after reporting better than expected 3Q income. France's Carrefour was up 3.5%, Dutch grocer Ahold Kon jumped 4.5% and Metro added 3.3%. Tesco, the UK's biggest grocer, was up 2.4%. Eco - The BoE announced an increase to its quantitative easing measures of £25bn to £200bn. The ECB however took its first steps to reducing the emergency stimulus measures. British manufacturing data was stronger than expected but the British economy contracted again in Q3 making this the longest recession in 50 years.

Commodiites Commentary Miners - Strong British manufacturing data helped sentiment and with metal prices lower the sector was mixed. Rio climbed 0.4%, Anglo added 0.8% but Xstrata sank 0.2% and BHP fell 0.3%. Energy - Crude held above $80 during London trading helping the sector to good gains. BP was up 1%, Shell climbed 1.4%, BG Group added 0.3% and Tullow rose 1.9%. In Europe Total was up 1.2%, Statoil eked out a gain of 0.1% and Repsol added 1.4%.

SPI Commentary The SPI traded down 9pts or 0.2% to 4512. Open at 4545 with a high of 4557 and a low of 4501. Volume 32,650. Overnight the SPI traded up 59pts to 4571.

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

US Tuesday

AUS US

Wednesday

Thursday

AUS

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

US

Factory orders

AUS

Trade balance

US Friday

RBA cash rate decision

AUS US

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

SFI Investment Buy: QBE Insurance Group (QBESZX) – Investor Update We believe the recent pullback in QBE is a buying opportunity. QBE has reiterated its FY09 guidance for an insurance margin of 17-18%. Management has also said it has additional debt capacity for cA$1bn in acquisitions. RBS Research have a target price of $26.11. Buy QBESZX

Source: IRESS

• • • • •

QBE reaffirmed its full-year FY09 guidance for an insurance margin of 17-18%. QBE says it has cA$1bn in debt capacity available for acquisitions with gearing currently only c30%. Bolt-on acquisitions appear to remain the most attractive, while management has not ruled out further agency purchases. QBE has said US and UK insurance markets remain soft, although they expect rates to harden in 2H10 QBE’s track record in underwriting and acquisition execution remains excellent. The company has reconfirmed its FY09 guidance and has a strong balance sheet with cA$1bn of debt capacity available for acquisitions. At A$22.15 the stock continues to trade at a discount to RBS price target of A$26.11. We see value in QBE at these levels Use the pullback to buy through QBESZX

RBS SFIs over QBE Security QBESZX

ExDate 4-Feb-19

ExPrc

CP

1140.01

ConvFac Call

Delta

1

Description 1

Self Funding Instalment

RBS MINIs over QBE Security QBEKZF

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

1219

Long

1

1

MINI Long

QBEKZK

1124.7

Long

1

1

MINI Long

QBEKZL

1792.43

Long

1

1

MINI Long

QBEKZR

3147.08

Short

1

1

MINI Short

QBEKZS

3376.24

Short

1

1

MINI Short

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