This material has been produced by RBS sales and trading staff and should not be considered independent.
The Round Up 14 September 2009 Issue No. 175 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
PDN (PDNKZJ)
Trading Update – Capital raising
WDC (WDCKZG)
MINI Investment Buy– Bottom of cycle?
CSR (CSRKZA)
MINI Trading Buy – A sweet trade
Round Up Corner
Reporting season wrap up
Equities Move
Last
% Move
Range
Volume
ASX 200
+25.3
4596.1
+0.6%
u.c to +38
$6.4 bn(H)
SPI - yesterday
+33.0
4598.0
+0.7%
+19 to +45
41,516(H)
Dow Jones
-22.1
9605.4
-0.2%
-56 to +22
Avg
S&P 500
-1.4
1042.7
-0.1%
-6 to +4
Avg
Nasdaq
-3.1
2080.9
-0.1%
-14 to +5
Avg
+23.8
5011.5
+0.5%
u.c to +51
Avg
FTSE
Commodities Move Oil-WTI spot
Last
% Today
% Past Month
-2.0
69.3
-3.7%
-0.2%
Gold Spot
+12.9
1005.2
+0.9%
+6.2%
Nickel (LME)
-45.3
767.3
-1.4%
-12.9%
Aluminium (LME)
-2.1
82.2
-0.5%
-4.4%
Copper (LME)
-7.5
282.8
-0.7%
+3.4%
Zinc (LME)
-5.3
83.5
-2.9%
+3.0%
Silver
+0.4
16.8
+0.5%
+16.9%
Sugar
-1.2
21.2
-2.7%
-3.2%
Dual Listed Companies (DLC’s) Move
%Move
Last
AUD Terms
Diff to Aus
NWS (US)
0.06
0.00
+13.7 c
15.88
-3.5 c
RIO (UK)
73.50
0.03
+26.2 c
50.57
-866.3 c
BLT (BHP UK)
49.50
0.03
+17.1 c
33.11
-519.0 c
BXB (UK)
-12.25
-0.03
+3.9 c
7.61
-14.1 c
American Depository Receipts (ADR’s) Move
%Move
Last
BHP (US)
0.47
0.01
AWC (US)
0.12
TLS (US)
0.00
ANZ (US)
0.00
WBC (US)
0.04
NAB (US) LGL (US)
AUD Terms
Diff to Aus
+66.6 c
38.54
0.02
+5.7 c
1.65
-2.3 c
0.00
+14.4 c
3.34
+1.7 c
0.00
+19.6 c
22.68
+0.4 c
0.00
+105.6 c
24.46
-6.4 c
0.15
0.01
+25.1 c
29.01
-3.4 c
0.46
0.02
+26.7 c
3.09
+6.6 c
RMD (US)
-0.24
-0.01
+45.9 c
5.31
-5.9 c
JHX (US)
-0.33
-0.01
+31.3 c
7.24
-9.1 c
PDN (CAN)
-0.11
-0.03
+4.3 c
4.59
+2.1 c
+24.2 c
Overnight Commentary United States Commentary The streak came to an end on Friday, despite yet another upside surprise from the confidence numbers. Selling in the banks and across the energy space did most of the damage, the Dow down 22pts, the S&P gave back 0.1%(first down day in 6) and the Nasdaq finished 0.2% lower. Eco - Wholesale Inventories for July -1.4% vs -1.0% expected. U.of Michigan Confidence 70.2 vs 67.5 expected and up 65.7 in August. The better than expected confidence number prompted a brief rally and push into positive territory, but both were short lived. Energy - In line with the big drop from oil, Chevron and Exxon weighed heavily, both down around 1%, the two biggest pt takers and together accounting for just shy of half the days fall. Financials - Profit taking proved too tempting heading into the weekend. After what was yet another solid week, investors chose to lock away some of the gains, BoNY down 2%, BofA down 1.5% so too Well Fargo and JP 's finished 1.2% lower. Transport - Fedex was one of few highlights, up over 6% and the S&P100's top performer after mgmt raised guidance for Q1 on better than expected international shipments and cost cutting. Gaming - MGM Mirage up over 5% after saying all holders that participate in the groups pending debt issue will receive a $50 bonus per $1,000 note. Wynn's nearly 4% higher post the greenlight from HK regulators to list the Macau operations in a $1bln IPO.
United Kingdom & Europe Commentary The FTSE closed 0.5% or 24pts higher as banks and miners were stronger on further hopes of economic recovery. The FTSE Eurofirst 300 rose 0.6%, the DAX added 0.5% and the CAC climbed 0.8%. Banks - Growing investor confidence generally gave the sector a boost on Friday. Barclays added 0.6%, Standard Chartered rose 0.3%, Commerzbank was up 1.3% and HSBC and BNP both eked out small gains. Financials - The sector was higher, boosted by a 9% rise in hedge fund manager Man Group after the company said it expected positive net inflows of client money for the industry as a whole by the end of 2009. Sector peers ICAP, 3i Group and London Stock Exchange rose 0.7% to 2%. Insurance - Britain's largest retailer Tesco, up 2%, continued its aggressive expansion into financial services, after the company announced a partnership with Belgian-based insurance group Fortis to provide motor and household insurance in Britain. L&G rose 1.2%, Prudential added 0.4%, Aviva climbed 2.2% but Standard Life fell 1.5%.
Resources Commentary Miners - Solid industrial output data from China boosted the demand outlook for metals and gold climbed to a new 18 month high as the US dollar sank to year lows. BHP rose 3%, Rio was up 2.9% and Anglo added 0.7%. Energy - Oil majors were lower as crude fell below $71. BG Group, BP, Shell and Tullow Oil shed between 0.5% and 2.9%. In Europe Total added 0.1%, Statoil climbed 0.6% and Repsol rose 1.5%.
SPI Commentary On Friday the SPI traded up 33pts or 0.7% to 4598. Overnight the SPI traded down 4pts to 4594.
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
Dwelling commencements, RBA Board Minutes
US Wednesday
PPI, retail sales, NY Fed Empire PMI, Business inventories
AUS US
Thursday
CPI, Current account balance, Industrial production
AUS
RBA Bulletin, customs imports
US Friday
NAHB survey, housing starts
AUS US
Philadelphia Fed Index
*Dates are indicative only and may change
Upcoming Dividends ExDivDate
Security
Description
Div (c)
Yield
Frk(%)
PayDate
14-Sep-09
BXB
Brambles Limited
12.5
3.86%
20
8-Oct-09
14-Sep-09
CSL
CSL Limited
40
2.05%
0
9-Oct-09
Trading Update: Paladin Energy (PDNKZJ) – Capital raising Last week PDN completed an institutional placement to raise A$419m. This represents ~15% of issued capital with an issue price of $4.60. The placement was well received by investors, however with the share price closing Friday below the issue price, we believe a buying opportunity has been presented. RBS Research expect the stock to rerate post issue as balance sheet concerns will be gone. RBS Research target price $5.61 with a BUY recommendation. Buy PDNKZJ
Source: IRESS
• • • •
PDN completed an institutional placement of ~15% of issued capital with a price of $4.60. PDN said that the funds will be used to advance M&A and other growth opportunities, progress Langer Heinrich Stage 3, expand exploration programs, and strengthen the balance sheet The raising will take PDN's net debt down to US$166m from US$520mln with gearing falling to 17% (previously 46%). RBS Research believe the placement should be well received by investors, and expect the stock to rerate post issue as balance sheet concerns are removed.
RBS MINIs over PDN Security
ExPrc
Stop Loss
CP
ConvFac
Delta
Description
PDNKZI
135.29
156
Long
1
1
MINI Long
PDNKZJ
310.22
356
Long
1
1
MINI Long
MINI Investment Buy: Westfield Group (WDCKZG) – Bottom of devaluation cycle? Post result, WDC has maintained FY09 operating EPS guidance of 94-97cps, despite a cut in the FY10+ payout policy to 70-75%. With WDC arguably at the bottom of a challenging earnings and property devaluation cycle, RBS Research are more confident of a sector re-rating and upgrade to Buy. RBS target price $14.16. WDC is trading in an uptrending channel. Buy WDCKZG below $12.
Source: IRESS
RBS Research expect the level of cap rate expansion for WDC to ease materially and the NOI decline across the UK and US portfolios to cease in the 2H09. RBS see ongoing rerating from here as evidence mounts of a stabilisation and slow improvement in property markets and move to a Buy with a longterm positive disposition on quality property companies such as WDC. WDC reported negative revaluations of A$2.9bn across the portfolio which were not unexpected. The cut in the dividend payout from 100% of operational earnings to 70-75% would no doubt have caught those expecting an equity raising by surprise but we see this and the deferred development schedule positioning WDC well to respond to any upturn in the broader property market.
RBS MINIs over WDC Security
ExPrc
Stop Loss
CP
ConvFac
Delta
Description
WDCKZG
650.83
716
Long
1
1
MINI Long
WDCKZR
1847.47
1662
Short
1
1
MINI Short
MINI Trading Buy: CSR Limited (CSRKZA) – A sweet trade Compared to the performance of sugar and other building materials stocks, CSR has been an underperformer of late. The sugar price has recently pulled back from multi decade highs, however RBS Research anticipate CSR has achieved FY10 average prices in excess of A$400/t, and an increasingly attractive hedge book over FY11+. Current signals also point to the earliest crushing season finish in 18 years. The divestment of CSR’s business is also in the pipeline which we believe will unlock value. The stock has pulled back to its uptrend line and looks to have found support at $1.90. Buy CSRKZA CSR Daily Chart
Source: IRESS
CSR is trading in a strong uptrending channel since hitting lows in March. The stock has recently pulled back to the lower end of the uptrend channel and appears to have found support at $1.90. Sugar price returns vs CSR returns
Source: IRESS
The chart above shows the returns on CSR vs the returns on sugar. It can be seen that there is a historical correlation with sugar and CSR, however this relationship has diverged in 2009 with sugar significantly outeprforming sugar.
CSR vs other builders and the S&P/ASX 200
Source: IRESS
The chart above compares recent returns of CSR and other building materials stocks. It can be seen that CSR has underperformed both JHX and BLD as well as the broader market. The reason for the divergence of sugar and CSR as shown on the previous page in 2008 was the weakness in building materials…. However this sector of the market has rallied, and CSR has been left behind. We believe that the underperformance of CSR in both sugar and building materials is set to converge with CSR outperforming. CSR also has an aluminium business and has also underperformed AWC. The sugar story is sweet
• • • • •
Current sugar prices around 21.60USc/lb are just below 28-year highs, up ~45% over the past 12 months. With dry weather in India and excess rain in Brazil curbing production from the world’s two biggest growers, the ISO estimates global demand may outstrip supply by 8.4Mt in 2009/10 (5% of consumption). CSR indicated an expectation of a minimum achieved price of A$380/t. Yet with implied raw sugar prices subsequently averaging A$525/t, RBS research now anticipate FY10 realised prices of A$403/t. In addition CSR appears poised to benefit from drier weather conditions and mill upgrades to complete the sugar cane crush in late October, the earliest in 18 years. RBS target price $2.15 with a buy recommendation
RBS MINIs over CSR Security
ExPrc
Stop Loss
CP
ConvFac
Delta
Description
CSRKZA
100.69
Long
1
1
MINI Long
CSRKZP
299.35
Short
1
1
MINI Short
RBS Round Up Corner: Reporting Season Wrap Up Reporting season has generally been seen as successful due to the high degree of earnings surprise. However, this outcome masks a 19% decline on June 2008. Importantly the outlook commentary was generally positive which is a more important takeaway.
Reporting season saw a substantial degree of earnings surprise following a long broker downgrade cycle leading into reporting. The more sobering assessment was that actual NPAT results were down 19% on June 2008. RBS Research aggregate analysis of ASX 200 non-financial stocks demonstrates the earnings surprise evident was driven largely by better-than-expected results at the net interest and tax lines. Clearly, corporate Australia still has room to move on the expense front. In aggregate management outlook comments were very positive this season, reflecting the improvement in the macro environment over the past six months. However, they should also be judged in the context of the last reporting season, which reflected the very worst of the global financial crisis. Management has expressed a collective ‘sigh of relief’. The macroeconomic outlook has improved and we see the positive management outlook commentary as evidence of improving conditions at the coal face. Market valuations remain fair to full, but the upgrade cycle post reporting still has a little way to run.
MINIs approaching stop loss Underlying
MINI Code
MINI Type
Strike
Stop Loss
ANZ
ANZKZV
Short
$25.44
$22.91
Share Price $
Approx. MINI Value
Share: Stop Loss
22.68
$
2.76
1.0%
XJO
XJOKZX
Short
$4,882.58
$4,646.00
$ 4,596.10
$
2.86
1.1%
OSH
OSHKZS
Short
$7.49
$6.78
$
6.55
$
0.94
3.5%
NAB
NABKZQ
Short
$32.25
$30.47
$
29.04
$
3.21
4.9%
XJO
XJOKZW
Short
$5,087.71
$4,841.00
$ 4,596.10
$
4.92
5.3%
Share Price
SFI’s approaching stop loss Underlying
MINI Code
MINI Type
Strike
Stop Loss
AGK
AGKSZX
Long
$7.98
$9.06
$
13.49
Approx. MINI Value $
Share: Stop Loss
5.51
32.8%
TTS
TTSSZX
Long
$1.38
$1.64
$
2.56
$
1.18
35.9%
BSL
BSLSZW
Long
$1.76
$1.94
$
3.07
$
1.31
36.8%
WDC
WDCSZW
Long
$7.52
$8.25
$
13.06
$
5.54
36.8%
WBC
WBCSZV
Long
$14.03
$15.40
$
24.52
$
10.49
37.2%
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