Rbs - Round Up - 101109

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

The Round Up 10 November 2009 Issue No. 214 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 +80.9

% Move 4674.9

Range

Volume

+1.8%

+81 to +81

$5.5 bn(A)

SPI - yesterday

+83.0

4684.0

+1.8%

+14 to +92

32,842(A)

Dow Jones

+203.8

10227.2

+2.0%

-3 to +205

Low

S&P 500

+23.8

1093.1

+2.2%

+3 to +24

Low

Nasdaq

+41.6

2154.1

+2.0%

+16 to +42

Low

FTSE

+92.5

5235.2

+1.8%

u.c to +97

Avg

Commodities Move

Last

% Today

% Past Month

Oil-WTI spot

+1.82

79.25

+2.4%

+10.9%

Gold Spot

+8.00

1103.10

+0.7%

+4.9%

Nickel (LME)

+3.45

787.40

+0.4%

-7.1%

Aluminium (LME)

+1.85

87.02

+2.2%

+2.4%

Copper (LME)

+2.15

295.60

+0.7%

+4.8%

Zinc (LME)

-0.64

96.79

-0.7%

+6.0%

Silver

+0.18

17.56

+1.0%

-1.1%

Sugar

-0.05

21.79

-0.2%

+5.4%

Dual Listed Companies (DLC’s) Move

%Move

Last

NWS (US)

+0.37

+2.6%

RIO (UK)

+125.0 p

BLT (BHP UK)

+72.0 p

BXB (UK)

+7.3 p

AUD Terms

Diff to Aus

14.52

15.62

+6.6 c

+4.3%

£30.42

54.79

-1095.7 c

+4.2%

£17.755

31.98

-563.0 c

+1.9%

£3.970

7.15

-2.9 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

+3.46

+5.1%

AWC (US)

+0.34

+5.8%

TLS (US)

+0.63

+4.3%

ANZ (US)

+0.92

+4.5%

WBC (US)

+5.25

+4.4%

NAB (US)

+1.58

+6.0%

LGL (US)

+1.11

+3.6%

RMD (US)

+1.72

JHX (US)

+2.27

PDN (CAN)

+0.19

AUD Terms 71.42

Diff to Aus

38.41

+79.6 c

6.17

1.66

+1.9 c

15.25

3.28

+5.0 c

21.33

22.94

+28.0 c

124.16

26.71

+42.7 c

27.78

29.88

+27.7 c

31.91

3.43

+2.2 c

+3.6%

49.15

5.29

-4.4 c

+6.9%

35.28

7.59

+17.9 c

+4.8%

4.17

4.24

+5.3 c

Overnight Commentary United States Commentary A promise from the G20 to maintain stimulus had defence on the back burner overnight. A big showing from the heavyweight cyclicals and financials has the Dow heading toward c13month highs, up 180pts.The S&P around 2% higher and the Nasdaq up 1.7%. Cyclicals - Anything leveraged to growth outperformed. Caterpillar up 4% and the biggest pt contributor, GE up 3.5%, Alcoa 3.2% higher, Boeing 3.1%, Dupont 3% and Intel heading toward a 2.5% gain. All of the aforementioned featuring in the Dow's top10. Financials - Comments from the Fed that fewer banks tightened lending standards in Q3, helped confirm liquidity continues to free-up. Amex and BofA both up over 4% and the Dow's best performers, Wells up 4%, Morgan Stanley put on 3.5%, Citi, US Bancorp and Regions all around 2-3% higher. Retail - Radioshack up 15%(S&P500's best) along the way hitting 2 year highs post a broker upgrade and mgmt flagging plans to sell iPhones in the US next year. Retail - Abercrombie&Fitch nearly 8% higher after two broker upgrades. One upgrade from "neutral" to "outperform" and the other, citing potential upside from international sales, saw the stock added to the brokers "Conviction Buy" list. FX - The DXY index down 0.7c hitting a new 15month low and the AUD nearly 2c higher and back flirting with the 93c level.

United Kingdom & Europe Commentary The FTSE, up 1.8% or 92pts, hit its highest close in more than 2 weeks with the continued stimulus packages pledged at the G20 helping investor sentiment. The FTSE Eurofirst 300 jumped 2%, the DAX was up 2.4% and the CAC ended 2.1% higher. UK Banks - The G20 pledge to continue support until recovery was assured helped the banks. RBS soared 6.3%, Lloyds was up 0.5% and Standard Chartered climbed 0.8%. Positive 3Q trading statements from HSBC and Barclays, up 1.3% and 1.9% respectively, also helped.

Euro Banks - The G20 news also helped banks on the continent. Deutsche Bank jumped 3.4%, Commerzbank soared 5.8%, BNP was up 2.8%, SocGen added 4.1$ and UniCredit ended 5.3% higher. Insurers - The bid for AXA Aust by the parent saw traders highlight the value of Prudential's Asian business. Prudential jumped 5.2%, Aviva climbed 3%, L&G added 4.3%, Standard Life rose 3.7% and Old Mutual ended 3.8% higher. Germany's Allianz, up 4.3%, beat forecasts which helped the sector on the continent. Hannover Re was up 1.8% with the stock also benefiting from a broker upgrade and Munich Re rose 1.1%. AXA SA, up 0.4%, launched a €2bn rights issue to fund an "aggressive" acquisition strategy. Eco - German Industrial Production surged 2.7% for the month vs 1% expected whilst the YoY number was -12.9% vs 14.4% expected. The Bank of France Business Sentiment climbed for the 8 consecutive month with the Bank saying the French economy will probably expand by 0.5% in Q4.

Commodiites Commentary Miners - The sector added the most points to the index with a weak $US helping metal prices. BHP climbed 4.2%, Rio was up 4.3%, Anglo also rose 4.3%, Xstrata added 5% and Randgold ended 4% higher with gold hitting fresh all time highs. Energy - Crude climbed 3% rising above $80 briefly which helped the majors. Shell was up 2.3%, BP climbed 1.9%, BG Group added 0.8% and Tullow ended 2.8% higher. In Europe Total climbed 2.1%, Statoil was up 2.9% and Repsol ended 1.3% higher.

SPI Commentary The SPI traded up 83pts or 1.8% to 4684. Open at 4615 with a low of 4615 and a high of 4693. Volume 31,306. Overnight the SPI closed up 78 to 4762.

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

RBA Gov Lowe speaks, ANZ job ads, investor home loans, owner occ housing finance

US Tuesday

AUS

RBA’s Broadbent speaks, NAB business confidence, NAB business conditions

US Wednesday

AUS US

Thursday

AUS

WMI consumer confidence Veterans’ Day holiday Employment and unemployment

US Friday

AUS US

Trade balance, import prices, Michigan cons confidence

*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

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