Rbs - Round Up - 100809

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

The Round Up 10 August 2009 Issue No. 151 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

Aussie Market Action

SPI Comment, Events & Dividends

SLF (SLFSZX)

Self Funding Investment – property sector

Retail (JBH,DJS,HVN - KZP)

The Bear Cage – Stimulus spending to end

Reporting this week

Reporting Trading – COH,JBH,BHP,CBA,CPU,TLS,CCL,LEI

Round Up Corner

NEW MINIs listing today

Equities Move ASX 200

Last -26.9

SPI - yesterday

% Move 4299.4

Range

Volume

-0.6%

-51 to -11.u.c

$4.2 bn(L)

-29.0

4262.0

-0.7%

-58 to -17.u.c

23,626(L)

Dow Jones

+113.8

9370.1

+1.2%

+2 to +181

Low

S&P 500

+13.4

1010.5

+1.3%

+3 to +21

Avg

Nasdaq

+27.1

2000.3

+1.4%

+11 to +39

Avg

FTSE

+41.0

4731.6

+0.9%

-58 to +53

High

Commodities Move

Last

% Today

% Past Month

Oil-WTI spot

-1.01

70.93

-1.4%

+12.7%

Gold Spot

-8.30

954.95

-0.9%

+3.3%

Nickel (LME)

+0.91

887.10

+0.1%

+25.7%

Aluminium (LME)

+1.25

90.21

+1.4%

+25.1%

Copper (LME)

+5.60

278.55

+2.1%

+26.2%

Zinc (LME)

+2.21

84.92

+2.7%

+21.4%

Silver

+0.06

14.62

+0.4%

+11.4%

Sugar

+1.01

20.81

+5.1%

+22.7%

Dual Listed Companies (DLC’s) Move NWS (US)

%Move +0.67

Last +5.4%

AUD Terms 13.05

Diff to Aus

15.66

+76.2 c

RIO (UK)

-73.5 p

-2.9%

£24.22

48.47

-1209.7 c

BLT (BHP UK)

+15.0 p

+1.0%

£15.890

31.81

-619.2 c

-4.0 p

-1.3%

£3.010

6.03

+2.5 c

BXB (UK)

American Depository Receipts (ADR’s) Move BHP (US)

%Move +0.36

Last +0.6%

AUD Terms 64.43

Diff to Aus

38.66

+66.3 c

AWC (US)

-0.06

-1.0%

6.06

1.82

+4.8 c

TLS (US)

+0.07

+0.5%

14.96

3.59

+7.1 c

ANZ (US)

+0.18

+1.1%

16.48

19.78

+39.8 c

WBC (US)

+0.01

+0.0%

96.50

23.16

+33.3 c

NAB (US)

+0.25

+1.2%

21.80

26.16

+66.3 c

LGL (US)

-0.64

-2.8%

22.32

2.68

-0.1 c

RMD (US)

+3.26

+7.8%

45.25

5.43

+18.1 c

JHX (US)

+0.10

+0.5%

21.00

5.04

+4.1 c

PDN (CAN)

+0.04

+1.0%

4.15

4.60

+1.8 c

Overnight Commentary United States Commentary Better jobs data and Payroll numbers saw industrials lead a good day out for US markets. The Dow closed up 114 pts or 1.2%, and S&P 500 back above the 1,000pt level. Financials, Industrials and Techs all lead the way, as commodities managed a positive move in spite of USD strengthening. Eco - The official unemployment rate came in lower than expected and previous, at 9.4% vs 9.6% exp'd, and from 9.5% in June. NonFarm Payrolls were also better than forecast at -247k vs -325k exp'd, and improved from -443k, as were Manufacturing Payrolls at -52k vs -100k exp'd and better than the previous -131k. June Consumer Credit however fell $10.3bn vs -$5.0bn exp'd, worse than the $5.4bn fall in May. Industrials - The first unemployment rate decrease since April 2008 bolstered speculation of a recovering economy sending industrials higher, with the USD following. Walt Disney rose 5.2%, AmEx gained 4.4% and GE up 2.7%. Buffet - Berkshire Hathaway returned to profitability in the second quarter on gains from derivatives tied to world equity markets. The result ended six consecutive quarters of declining profit at Berkshire that included a first-quarter loss of $1.5bn. Berkshire also benefited from preferred shares and debt in companies such as Goldman Sachs and General Electric. Homebuilders - DR Horton led the homebuilding sector, adding 7.8%, after to was added to a conviction Buy list by one broker, as many consider the signals in the housing market to be at or near the worst. Lennar also rose 7.7%, KB Homes up 7.3% and Pulte gained 6.4%. Media - CBS topped the S&P 500, up 26%, after reporting a profit above analysts estimates and a statement that said advertising sales were improving. Revenue for sales of advertisements sold closer to air date are 30 percen higher than one year ago.

United Kingdom & Europe Commentary The FTSE 100 hit a 10 month closing high, up 0.9% or 41 pts as the US economy showed further signs of improvement. The FTSE Eurofirst 300 added 1.3%, the DAX was 1.7% higher and the CAC climbed 1.2%. UK Banks - RBS fell 12.1% after the lender posted a 1 billion pound loss in the first half of the year, and warned of "poor" results to come. Lloyds was another faller, down 2.6%, while HSBC, Standard Chartered and Barclays advanced between 0.7% and 3.1%. Defensives - Vodafone was firmer, up 2.8%, in line with its European peers, while drugmakers AstraZeneca, GlaxoSmithKline and Shire rose between 2.3% and 2.6%.

Eco - British factory gate prices fell at their sharpest rate in almost eight years in July and input price inflation fell to its lowest in almost 23 years, suggesting consumer price inflation will ease rapidly

Resources Commentary Miners - Despite firmer metal prices the sector was generally weaker. Rio fell 3%, Xstrata was off 1%, Anglo fell 0.7% but BHP rose 1%. Energy - Crude climbed to a 6 week high which saw the oil majors support the index. BP was 2.1% higher, Shell climbed 1.2%, BG Group added 1.1% but Tullow was off 1.4%. Statoil rose 1.6%, Total was flat and Repsol ended the session 1.2% higher

SPI Commentary On Friday the SPI traded down 29pts or 0.7% to 4262. Open at 4266 with a high of 4266 and a low of 4233. Overnight the SPI trading up 41pts to 4303

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

Tuesday

AUS

Wednesday

AUS

Thursday

AUS

Friday

AUS

Owner occupied housing finance, investor housing finance

US

US

US

US

US

NAB Business confidence, NAB Business conditions Non-farm productivity WMI consumer sentiment, wage price index Wholesale inventories, trade balance AWOTE Fed funds rate decision, import prices, retail sales RBA Governor testifies on monetary policy Buisiness inventories, CPI, industrial production, Michigan consumer conf

*Dates are indicative only and may change

Upcoming Dividends ExDivDate

Security

Description

Div (c)

Yield

Frk(%)

PayDate

Self Funding Investment: SPDR S&P/ASX 200 Property Fund (SLFSZX) The listed property sector has been one of the biggest casualties of the global financial crisis due to their high levels of gearing, falling occupancy rates and downward property revaluations. As a result the S&P/ASX 200 property index fell ~79% from its 2007 peak. However, with property trusts now reducing debt and obtaining refinancing from the banks, the underperforming property trust sector looks worthy of investment. You can gain exposure to the S&P/ASX 200 listed property stocks through SLFSZX. SLF is an S&P/ASX 200 Listed Property exchange traded fund (ETF) which tracks the performance of the listed property stocks. Technicals

Source: IRESS

The chart above shows SLF over the past 18 months. After bottoming in March 2009, the ETF has developed a sustained medium term uptrend with higher lows and current resistance at $7.50. A breakout of $7.50 would be a bullish signal for a continued advance of the uptrend

SPDR S&P/ASX 200 Listed Property Fund (SLFSZX) SPDR S&P/ASX 200 Listed Property Fund (SLF) seeks to closely track, before fees and expenses, the returns and characteristics of the S&P/ASX 200 Listed Property Trust Index. The approach is designed to provide a portfolio with low portfolio turnover, accurate tracking, and low costs.* The Index comprises the leading listed property vehicles in Australia and represents diversified exposure to the Australian listed property market. Exposure is diversified geographically across Australia’s major population centres and by sector across a range of property types, including industrial, commercial, retail and hotel/tourism.* *Source: IRESS

The breakdown of the S&P/ASX 200 Listed Property Index is as follows: Security

Description

MktCap($)

MktWeight

WDC

Westfield Group

25,167,772,097

46.30%

SGP

Stockland

7,039,547,620

12.95%

GPT

GPT Group

4,096,636,126

7.54%

CFX

CFS Retail Property

3,553,926,494

6.54%

DXS

Dexus Property Group

3,384,606,240

6.23%

MGR

Mirvac Group

3,173,820,078

5.84%

CPA

Commonwealth Prop

1,634,763,680

3.01%

IOF

ING Office Fund

1,430,118,085

2.63%

GMG

Goodman Group

1,348,421,200

2.48%

MOF

Macquarie Office

1,016,127,900

1.87%

MCW

Macquarie Countrywid

717,642,730

1.32%

BWP

Bunnings Warehouse

580,178,793

1.07%

ABP

Abacus Property Grp.

384,546,012

0.71%

CHC

Charter Hall Group

325,218,125

0.60%

IIF

ING Industrial Fund

295,460,083

0.54%

AJA

Astro Jap Prop Trust

211,095,600

0.39%

SLF vs XJO (ex property trust) performance over the past 3 years

Source: IRESS

The chart above compares the returns from the S&P/ASX 200 – Ex-property and SLF. It can be seen that the listed property sector has been a big underperformer compared to the rest of the market and this underperformance has increased over the past month, despite property companies improving their balance sheets. Look for this underperformance to reverse as the listed property companies de-risk and sell underperforming assets.

Using SLFSZX to gain exposure to listed property index Take advantage of upside in the S&P/ASX 200 Listed Property Index through an RBS Self Funding Instalment, SLFSZX. Self Funding Instalments (SFIs) are a simple way to gain long term geared exposure to ASX-listed shares while receiving many of the major benefits of share ownership including exposure to share price movements, dividends and franking credits. KEY BENEFITS of the new RBS self funding instalments include: * NO PUT PROTECTION COST * Simple, transparent and Cost-effective * 1 for 1 movement with the underlying share (delta 1) * Gearing around 50% - Limited downside risk * No margin calls * Non-recourse loan - You can never lose more than your initial outlay * ATO product rulings - Perfectly suitable to be used in SMSF's * Listed - Can be sold at anytime * Can be exercised at any time - simply by paying back loan amount * RBS are the only product issuer in the market who can offer this product * A low interest rate of 7.46% per annum

Key details of SLFSZX Underlying

SFI Code

Instalment Payment

Stop Loss

Current Share Price

Approx. SFI Value

SLF

SLFSZX

$3.5267

$3.88

$7.38

$3.85

Reasons to buy SLF: * Listed property has significantly underperformed the rest of the market, particularly in the most recent rally * A major concern for the smaller property trusts has been refinancing debt, however banks are more likely to refinance the property trusts rather than taking the properties onto their own balance sheets and then having to manage them * Occupancy rates are still high, particularly in retail property which makes up a large proportion of the overall SLF portfolio (predominantly WDC) * Major property compmanies have undergone capital raisings to improve their balance sheets and de-risk * SLF offers an attractive yield with any franking credits an added bonus * SLF gives you exposure to the whole sector, which reduces the risk of being exposed to problems of any individual company.

STRATEGY – Using SLFSZX and WDCKZR to gain exposure to listed property ex-WDC For investors out there who are looking to gain exposure to a basket of listed property stocks without the 46% exposure to Westfield Group (WDC), a strategy to consider would be long SLFSZX and then short WDC thorugh WDCKZR MINI short. This strategy would give you upside exposure to all the stocks in SLF except WDC.

RBS warrants over SLF Security SLFSZX

ExPrc 4-Feb-19

Stop Loss 352.67

CP

ConvFac Call

1

Delta

Description 1

Self Funding Instalment

The Bear Cage: Retail Sector (JBHKZP,DJSKZP,HVNKZP) – Stimulus spending to end The retail sector has significantly outeprformed the market in the first half of CY2009 with sales holding up strong despite the deteriorating economic environment. During this period Australian unemployment has held up better than expected, government stimulus efforts have bolstered consumer spending and low interest rates have eased the pressure on loan repayments. However, with stimulus spending set to dry up and unemployment expected to rise over the coming 6-12 months, the recent rally in retailers may be set to end. The large volume of money and Government debt created over the past 12 months is also likley to lead to inflation which will put upward pressure on interest rates in the medium term. Play downside in retail stocks or cover existing long positions through RBS MINI shorts. Technicals – Big outperformance vs market

Source: IRESS

The chart above shows the relative performance of the major retailers and the S&P/ASX 200 since the beginning of 2009. JBH has been the standout performer followed by DJS and then HVN. All three have significantly outperformed the XJO

JB Hi Fi (JBHKZP) Since hitting a $17 peak in 2007 JBH retraced back to $7 in line with the overall market in 2008. However since November 2008 the stock has staged a big recovery and sales growth has continued despite the economic downturn. JBH is perhaps one of the key beneficiaries of the Governments cash handouts which were made as part of the stimulus package. In June JBH upgraded FY09 NPAT expectations and store growth guidance. However the upgrade is now more than priced into the current share price and JBH is approaching the big resistance level at $17. With stimulus spending likley to dry up and unemployment set to continue to rise, the stock looks fully priced. Play a pullback off $17 resistance in JBHKZP

Source: IRESS

• • • • • •

JBH upgraded FY09 NPAT expectations to cA$92m and upgraded to its store growth guidance, now anticipating 160 large-fit stores and 50 small-fit stores Sales/earnings growth rates will surely come under pressure in FY10F JBH now trading on over 18x P/E and a ~2% dividend yield While the company is likley to continue to underpin earnings growth through its store rollout, the stock looks fully priced RBS Research target price $15.35 Play short at $17 resistance through JBHKZP

RBS MINIs over JBH Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

JBHKZP

2499.82

2250

Short

1

1

MINI Short

Harvey Norman (HVNKZP) HVN released its FY09 sales last week which came in line with RBS Research expectations. However the concern going forward for HVN is the ability to continue to achieve sales and margin growth in FY10. The lack of further fiscal stimulus to assist sales in FY10F combined with an Irish business that remains in steep profit decline suggests a tough 1H10F and possibly FY10F is on the cards. RBS target price $3.50 with a HOLD recommendation. The stock has encountered resistance at the $3.50 level a number of times. Play HVN downside through HVNKZP

Source: IRESS

• • • •

While FY09 sales matched RBS Research expectations, we note they were supported by the Olympics, two fiscal stimuli and small business tax breaks in Australia. In the absence of further fiscal stimuli, we question whether a modest underlying improvement in Australia’s economy will be sufficient to leverage this higher market share during the next 12 months into strong profit growth. In addition, Ireland appears to be getting worse Any increase in unemployment is likley to have an impact on HVN particularly in the bigger ticket items space.

RBS MINIs over HVN Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

HVNKZP

499.96

450

Short

1

1

MINI Short

David Jones (DJSKZP) DJS 4Q09 sales result yesterday was a solid finish to a year of disappointing sales growth. Total 4Q09 sales growth of +0.6% (RBS: -1.4%) reflected a continuation of June’s mid-single-digit sales growth through July. The stock was down sharply however as the stock looks fully priced at current levels. The question remains whether May and June sales growth is fiscal-stimulus-led, which combined with the cycling of one-off positives in FY10F suggests caution on the outlook. RBS Research have a $4.65 target price on DJS and a HOLD recommendation. The recent move over $5 appears to be overdone and the stock is fully priced. Happy to remain short DJS

Source: IRESS

• • • • •

Although DJS upgraded guidance, the upgrade provides little insight into the drivern of the revised outlook (fiscal stimulus vs cost-out vs improved underlying consumer sales) RBS Research believe it is too soon to assess a recovery in discretionary retail, and David Jones in particular. Stronger than expected sales growth in May and June were likely due to fiscal stimulus spend. July sales are forecast to turn negative again The recent run in the share price looks overdone and the stock is now above RBS Research $4.65 target price. Play downside through DJSKZP

RBS MINIs over DJS Security DJSKZP

ExPrc

Stop Loss 699.95

630

CP

ConvFac Short

1

Delta

Description 1

MINI Short

Reporting Trading : Stocks Reporting This Week – Reporting season kicked off last week with results overall largely in line with expectation. This week some bigger names such as CBA, BHP and TLS are set to report. RBS Research are expecting company results to come in line or slightly ahead of expectations due to the long downgrade cycle over the past six months. RBS MINIs are a great way to trade company results this reporting season, from both a long or short view. Date 11 Aug 11 Aug 12 Aug 12 Aug 12 Aug 13 Aug 13 Aug 14 Aug

Code COH JBH BHP CBA CPU TLS CCL LEI

Company Cochlear Limited JB Hi Fi BHP Billiton Commonwealth Bank Computershare Telstra Corporation Coca Cola Amatil Leighton Holdings

Y/E Jun Jun Jun Jun Jun Jun Dec Jun

NPAT (pre abs) AUD AUD USD AUD USD AUD AUD AUD

137.4 92.3 10506 4104.4 291.3 3979 193.5 627.0

(Abs) 0.0 0.0 -4466 0.0 -6.1 0.0 0.0 -218.5

Div

EPS

2H div

170.0c 37.0c 82.0c 228.0c 23.0c 28.0c 19.0c 107.0c

241.0c 90.0c 188.8c 279.6c 52.2c 32.0c 60.2c 215.3c

90.0c 22.0c 41.0c 106.0c 14.0c 43.0c 47.0c

Long Product COHKZB BHPKZD CBAKZN CPUKZB TLSKZD CCLKZA LEIKZI

Short Product COHKZQ JBHKZP BHPKZR CBAKZT CPUKZP TLSKZP CCLKZP LEIKZP

Cochlear Limited (COH) • Slower Chinese sales, lower volume growth and currency are likely to adversely affect COH's FY09 result, which RBS Research expect to be towards the lower end of guidance range JB Hi Fi (JBH) • JBH has already upgraded on strong sales and margin. FY10 outlook (ex stimulus packages) likely to be the key driver and whether recent strong sales can continue BHP Billiton (BHP) • Reports in USD • While recent falls in commodity prices are likley to impact earnings, the change in costs will be a key focus as well as the management outlook for demand and prices Commonwealth Bank (CBA) • FY09 result is likely to show continued deterioration in economic conditions, albeit at a slower rate than peers given CBA's business mix and stronger domestic focus • Outlook for BDD’s will also be a focus and important for the sctor as a whole • The other focus will be the level of dividend paid out Computershare (CPU) • Reports in USD • Focus will be on volumes and market outlook

Telstra Corporation (TLS) • Expect the result to be at the low end of guidance, however a reliable and strong dividend will support the stock Coca Coal Amatil (CCL) • Strong summer should underpin double-digit 1H09 EPS growth and likely FY09 upgrades Leighton Holdings (LEI) • Expect surprise in the provision for firm guidance for FY10, with market attention likely to return to this forgotten favourite

RBS Round Up Corner NEW MINIs Listing Today

Security ANZKZV

ExPrc $

Stop Loss 25.50

$

CP

22.95

ConvFac Short

1

Delta

Description 1

MINI Short

BHPKZR

$

46.50

$

41.85

Short

1

1

MINI Short

BHPKZS

$

53.00

$

47.70

Short

1

1

MINI Short

CSRKZA

$

1.00

$

1.15

Long

1

1

MINI Long

CSRKZP

$

3.00

$

2.55

Short

1

1

MINI Short

LEIKZP

$

50.00

$

42.50

Short

1

1

MINI Short

NABKZT

$

31.12

$

28.01

Short

1

1

MINI Short

ORGKZP

$

20.00

$

18.00

Short

1

1

MINI Short

RIOKZS

$

80.00

$

72.00

Short

1

1

MINI Short

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