Rbs - Round Up - 141009

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

The Round Up 14 October 2009 Issue No. 196 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

CSL (CSLKZG)

MINI Update – Getting back to buy zone

RMD (RMDKZD)

MINI Trading Buy – Acquisition of Narval

Banks (NAB,ANZ,WBC)

Sector Update – Pre-results form guide

Round Up Corner

Strategy – Acquisition candidates

Equities Move

Last

% Move

Range

Volume

ASX 200

+45.9

4785.7

+1.0%

u.c to +57

$4.6 bn(L)

SPI - yesterday

+35.0

4793.0

+0.7%

+12 to +50

16,251(L)

Dow Jones

-14.7

9871.1

-0.1%

-71 to +9

Low

S&P 500

-3.0

1073.2

-0.3%

-9 to -1

Low

Nasdaq

+0.8

2139.9

+0.0%

-11 to +7

Low

FTSE

-56.0

5154.2

-1.1%

-56 to +11

Avg

Commodities Move Oil-WTI spot

Last

% Today

% Past Month

+0.9

74.2

+1.2%

+7.0%

Gold Spot

+5.7

1062.8

+0.5%

+5.6%

Nickel (LME)

-29.8

820.5

-3.5%

+6.9%

Aluminium (LME)

-1.8

84.9

-2.1%

+3.2%

Copper (LME)

-6.3

277.7

-2.2%

-1.8%

Zinc (LME)

-3.1

90.6

-3.3%

+8.5%

Silver

+0.1

17.8

+0.4%

+6.1%

Sugar

+1.3

22.2

+6.3%

+4.8%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

0.24

0.02

+14.3 c

15.77

+12.8 c

RIO (UK)

-50.50

-0.02

+28.5 c

49.99

-1219.6 c

BLT (BHP UK)

-20.50

-0.01

+17.7 c

30.98

-725.7 c

BXB (UK)

-12.00

-0.03

+4.1 c

7.19

-12.2 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

-0.17

0.00

AWC (US)

-0.15

TLS (US)

0.02

ANZ (US)

0.23

WBC (US)

0.00

NAB (US) LGL (US)

AUD Terms

Diff to Aus

+68.7 c

37.94

-0.02

+6.8 c

1.86

-3.7 c

0.00

+14.5 c

3.21

+1.7 c

0.01

+22.3 c

24.57

-7.1 c

0.00

+118.5 c

26.17

-14.4 c

0.09

0.00

+28.2 c

31.13

-35.1 c

0.54

0.02

+29.1 c

3.21

+1.0 c

RMD (US)

0.66

0.01

+47.5 c

5.25

-10.4 c

JHX (US)

0.43

0.01

+35.6 c

7.86

+1.2 c

PDN (CAN)

0.01

0.00

+4.5 c

4.76

+0.2 c

-30.4 c

Overnight Commentary United States Commentary Another slow day of trading in the US, an understandable reluctance to place any big bets ahead of JP's tonight and the rest of the banking heavyweights later in the week. The Whitney downgrade to GS combine with a revenue miss from J&J kept a lid on proceedings, the Dow down 15pts, the S&P down 0.3% and the Nasdaq more or less flat. Financials - Goldman Sachs 1.5% lower on the Meredith cut to hold and recommendation to lock in profits. Elsewhere, BoNY down 3%, Morgan Stanley 1.8% and BofA 1.1% lower, cautious ahead of tonight's numbers. Healthcare - Johnson&Johnson down 2.5%, the Dow's worst and accounting for around 80% of days fall. Mgmt reported slowing sales of drugs and consumer items, which meant a 5.3% drop in revenues and numbers falling on the wrong side of consensus. Techs - After mkt, Intel posted a 3Q profit of 33cps ahead of consensus sitting at 27cps, revenue ahead and gross margins 58% vs 54.6% expected. Going forward, mgmt expect 4Q revenue of $9.7-$10.5bln vs forecasts for $9.5bln and have flagged expectations for a further improvement form marrgins. The stock halted in after market.

United Kingdom & Europe Commentary The FTSE fell 1.1% or 56pts with banks weighing whilst in Europe banks also weighed on the market and a poor consumer confidence number in Germany hurt sentiment. The FTSE Eurofirst 300 was off 1% with the DAX and the CAC both falling 1.2%. UK Banks - A downgrade of Goldman Sachs to neutral by an influential analyst saw the sector weaker. Barclays, Lloyds, RBS and Standard Chartered were off between 0.3% and 2.9%. HSBC was down 1.9% after its Saudi affiliate SABB reported a worse-thanexpected 19.8% fall in 3Q net profit. Euro Banks - Dexia fell 2.8% after the Belgian government announced plans to charge financial services companies in return for guaranteeing deposits and certain insurance products. Peer Fortis was off 2.1%, Commerzbank dropped 0.1% despite a broker upgrade, Swedbank fell 3% after completing a $2.2bn rights issue, the third one this year, and Deutsche Bank dropped 1.2% after talk of a rights issue. Eco - Germany’s ZEW index of economic sentiment fell slightly in October, to 56 from 57.7 in September, but analysts had forecast a rise to 58.3. Retail - The sector was hit with analysts saying weakness in sterling driving costs higher and an uninspiring presentation by M&S also hurt. M&S sank 4.3%, Next fell 2.9% while food retailers Tesco, WM Morrison and J Sainsbury were off between 1.4% and 1.7%.

Commodiites Commentary Miners - Metal prices were weaker seeing the sector come off. BHP fell 1.15%, Rio dropped 1.7%, Anglo fell 0.9% and Vedanta was off 0.2%. Lonmin climbed 1.9% after it was rumoured Xstrata, off 1.1%, would have another shot. The Lonmin move followed news that Xstrata sold its majority stake in a Chilean copper and gold mine for $465m cash. Energy - Despite a good performance from crude the oil majors gave back some of yesterdays gains. BP fell 1%, Shell was off 0.9%, BG Group dropped 0.3% and Tullow ended 2% lower. In Europe Total fell 0.7%, Statoil was 0.5% lower and Repsol dropped 1.2%.

SPI Commentary The SPI traded up 35pts or 0.74% to 4793. Open at 4771 with a low of 4771 and a high of 4808. Volume 18,567. Overnight the SPI traded down 13pts to 4780.

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

Columbus Day holiday NAB Business confidence, NAB Business conditions

US Wednesday

AUS US

Thursday

AUS US

Friday

WMI consumer confidence Import price, retail sales RBA Governor speaks, RBA bulletin Business inventories, FOMC minutes, CPI, NY Fed Empire PMI

AUS US

Philadelphia Fed index, industrial production, Michigan consumer sentiment

*Dates are indicative only and may change

MINI Update: CSL Limited (CSLKZG) – Getting back to buy zone CSL pulled back last week as the market shifted away from defensive names and those exposed to a rising AUD/USD. Look to buy CSL below $31. RBS Research have a buy recommendation on the stock with a $36.30 target price. CSL is likley to continue to benefit from Swine flu vaccine orders and the share buyback continues which will support falls in the share price. Buy CSLKZG

Source: IRESS

CSL is trading in a pennant formation evidenced by the formation of higher lows and lower highs. The stock pulled back from the top of its pennant last week. Look to buy below $31. WHO says it could take years to downgrade swine flu It could take years for the World Health Organisation to downgrade the H1N1 (swine) flu from a pandemic to seasonal-like virus, the UN agency said over the weekend. The WHO moved its six-point pandemic alert level to the top level in June 2009. We believe that should the pandemic continue for another 2 or 3 years, governments across the world are likely to either expand their vaccination process or continue to stockpile the vaccine. This would be a potential boon for global H1N1 makers, including CSL. RBS Research are currently assuming the vaccine orders are one offs but should the size of the order continue into FY11, this would increase EPS and valuation.

RBS MINIs over CSL Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

CSLKZG

2362.05

Long

1

1

MINI Long

CSLKZH

2069.14

Long

1

1

MINI Long

CSLKZQ

4406.25

Short

1

1

MINI Short

CSLKZV

4803.67

Short

1

1

MINI Short

CSLKZW

4011.05

Short

1

1

MINI Short

MINI Trading Buy: ResMed (RMDKZD) – Acquisition of Narval RMD announced this week the acquisition of Laboratoires Narval (LN) for €8m cash. LN is based in France and manufactures and distributes a mandibular repositioning device (MRD). RBS Research believe this helps RMD expand its offering into the mild end of the OSA market. RMD plans to commercialise the device in EU markets. RBS has a buy recommendation on RMD with a $5.65 target price. RMD has recently pulled back to its medium trem uptrend. Buy RMDKZD

Source: IRESS

RMD acquires Laboratoires Narval RBS Research believe the strategic rationale for the acquisition is related to the potential for RMD to expand its offering from moderate to severe OSA into the mild end of OSA. Hence, with this acquisition RMD is closer to becoming a company that caters to the entire spectrum of OSA. RMD said it plans to commercialise this device in selected European markets. LN already sells into France, Canada, Spain and the UK. RBS target price is unchanged at $5.65. We continue to believe RMD is a quality franchise, with a number of near- and medium-term growth drivers. Near-term catalysts include next week’s US Medtrade conference, which may see the release of new products for the US market.

RBS MINIs over Security RMDKZD

ExPrc

Stop Loss 377.97

CP

ConvFac Long

1

Delta

Description 1

MINI Long

Sector Update: Banking Sector (NAB,ANZ,WBC) – Pre-results form guide Bank reporting season is approaching. RBS Research believe this results season is likely to be dominated by talk of recovery. A faster domestic recovery than is generally expected will probably have significant positive implications for BDDs, margins and asset growth. Expect this to form the basis for cautiously optimistic outlook statements. RBS Research have an overweight sector call on the banks. Play the banking reporting season and associated dividends through RBS Self funding isntalments which benefit from dividends, franking credits and interest deductibility. ANZSZW, NABSZW and WBCSZV are the products to use.

Source: IRESS

Results season – NAB 28 Oct, ANZ 29 Oct, WBC 4 Nov NAB kicks off the banks’ reporting season on 28 October. RBS Research forecasts for the three reporting banks are: • • •

NAB, cash NPAT A$3,722m, FY09 dividend A$1.37 ANZ, cash NPAT A$2,963m, FY09 dividend 96c WBC, cash NPAT A$4,432m, FY09 dividend A$1.12.

We expect NAB to lead the banks in cash EPS growth (-8.3%), followed by ANZ (-14.4%) and WBC (-17.2%). RBS Research believe this result season is likely to provide confirmation of improvement in the form of both less stressed exposures and declining arrears, and possibly at least one CEO calling ‘the top’ of the BDD cycle. A faster recovery is likely to have significant implications for BDDs, margins and asset growth. Also expect outlook statements to be cautiously optimistic. However, recovery brings its own challenges, with concerns around funding growth in the current high-cost environment, the impact of higher interest rates on asset growth, and impending regulation following stabilisation in the US and the UK. 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

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

ANZSZW

10.633

11.67

Long

1

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: Acquisition Candidates As the global financial crisis continues to recede, RBS Research Strategy believe we are about to enter into an investment/M&A cycle in the market. Balance sheets are lowly geared, asset values are off their peaks and management will be starting to think of expansion rather than survival. We identify potential acquisition candidates.

Both corporate balance sheets and cash flows are strong Corporate cash flows remained robust in 2009 and we forecast growth will resume in 2010. Similarly, corporate Australia’s balance sheet is in good shape following 18 months of capital preservation and record equity issuance. Corporate Australia is therefore well placed to expand over the next 6-18 months.

MINIs approaching stop loss Underlying

MINI Code

MINI Type

Strike

Stop Loss

Share Price

Approx. MINI Value

Share: Stop Loss

XJO

XJOKZW

Short

$5,078.80

$4,833.00

$ 4,792.00

$

2.87

0.9%

ANZ

ANZKZW

Short

$27.89

$25.12

$

24.73

$

3.16

1.6%

QAN

QANKZQ

Short

$3.40

$3.05

$

2.97

$

0.43

2.7%

NCM

NCMKZT

Short

$41.86

$37.71

$

36.24

$

5.62

4.1%

NAB

NABKZR

Short

$36.69

$33.03

$

31.45

$

5.24

5.0%

SFI’s approaching stop loss Underlying

MINI Code

MINI Type

Strike

Stop Loss

Share Price

BXB

BXBSZW

Long

$4.50

$5.18

$

BSL

BSLSZW

Long

$1.77

$1.95

LLC

LLCSZV

Long

$6.01

$6.90

AGK

AGKSZX

Long

$8.02

LEI

LEISZV

Long

$20.62

Approx. MINI Value

Share: Stop Loss

7.09

$

2.59

26.9%

$

3.02

$

1.25

35.4%

$

10.69

$

4.69

35.5%

$8.81

$

14.12

$

6.10

37.6%

$22.64

$

36.41

$

15.79

37.8%

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