Rbs - Round Up - 151009

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

The Round Up 15 October 2009 Issue No. 197 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

NWS (NWSKZI)

MINI Trading Buy – Result a catalyst

Banks (NAB,ANZ,WBC)

Sector Update – Pre-results form guide

Round Up Corner

Strategy – Acquisition candidates

Equities Move ASX 200

Last +45.4

% Move 4831.1

Range +0.9%

Volume -5 to +54

$4.9 bn(A)

SPI - yesterday

+44.0

4837.0

+0.9%

-3 to +53

22,776(L)

Dow Jones

+144.8

10015.9

+1.5%

+2 to +157

Avg

S&P 500

+18.8

1092.0

+1.8%

+5 to +20

Avg

Nasdaq

+32.3

2172.2

+1.5%

+18 to +34

Avg

FTSE

+102.0

5256.1

+2.0%

u.c to +107

High

Commodities Move Oil-WTI spot Gold Spot Nickel (LME)

Last

% Today

% Past Month

+1.1

75.2

+1.4%

+9.2%

-1.5

1062.8

-0.1%

+6.0%

+17.8

838.2

+2.2%

+11.5%

Aluminium (LME)

-0.1

84.8

-0.1%

+3.8%

Copper (LME)

+3.7

281.3

+1.3%

+1.3%

Zinc (LME)

+0.4

91.0

+0.5%

+11.1%

Silver

+0.1

17.9

+0.4%

+7.8%

Sugar

-0.1

22.1

-0.4%

+0.4%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

0.34

0.02

+14.6 c

16.01

+0.8 c

RIO (UK)

150.00

0.05

+30.0 c

52.38

-1086.6 c

BLT (BHP UK)

76.50

0.04

+18.4 c

32.18

-622.3 c

BXB (UK)

10.50

0.03

+4.2 c

7.34

+13.9 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

2.43

0.04

AWC (US)

0.14

TLS (US)

0.03

ANZ (US)

0.89

WBC (US)

4.27

NAB (US) LGL (US) RMD (US) JHX (US) PDN (CAN)

AUD Terms

Diff to Aus

+71.1 c

38.90

0.02

+6.9 c

1.88

-0.8 c

0.00

+14.5 c

3.17

+0.7 c

0.04

+23.1 c

25.32

+52.0 c

0.04

+123.1 c

26.94

+14.4 c

1.26

0.04

+29.5 c

32.22

+30.5 c

0.67

0.02

+29.7 c

3.25

-7.6 c

-0.07

0.00

+47.5 c

5.20

-7.5 c

0.20

0.01

+35.8 c

7.83

+9.5 c

0.08

0.02

+4.6 c

4.88

+6.4 c

+50.5 c

Overnight Commentary United States Commentary A few more bears crossed the floor overnight, JP's exceeding expectations and a chance to react to Intel numbers had the Dow up thru 10K closing 144pts higher. Elsewhere, the S&P up 1.8% and the Nasdaq 1.5% higher. Financials - Banks a clear standout after a forecast beating set of numbers from JP's. Q3 EPS of $0.82 beat by $0.30, Revenue of $26.6bln (+3.9%) vs.$24.96bln and there was talk of a dividend lift in the not too distant future. The stock finished 3.3% higher, sneaking into the Dows' top5 and one of the larger pt contributors. Financials - Better than expected numbers from JP's, proving more than enough to prompt another round of buying across the banks. BofA topped the dow up over 5%, Morgan Stanley added 5.4%, US Bancorp just shy of 5% and Well finished 4.3% higher. Eco - Outside of Fed minutes, just the one data point overnight. Advanced Retail Sales for Sept -1.5% vs -2.1% expected, Less Autos +0.5% vs +0.2%. Bonds/FX - Wins from Intel and JP's, better than expected eco numbers meant yet another night where safety wasn't a priority. Yields up b/w 2-7bps across the 3 maturities and the DXY down a full cent, the Aussie trading 91.4c. Growth - Outside of the banks, growth featured heavily on the leaderboard. Dupont, Caterpillar, United Tech and 3M all finished around 3% higher and together accounted for roughly one-third of the Dow's gains.

United Kingdom & Europe Commentary The FTSE climbed 2% or 102pts in a broad based rally underpinned by strong corporate earnings and positive eco data. The FTSE Eurofirst 300 was up 2.1, the DAX added 2.4% and the CAC was 2.1% higher. UK Banks - A positive result from JP's helped the sector to some strong gains. HSBC rose 2.7%, Barclays soared 6.6%, RBS added 2.9% and Lloyds ended 3.7% higher. Euro Banks - The JP's result also had positive repercussions on the continent. Deutsche Bank rose 4.2%, Commerzbank added 3.3%, BNP also added 3.3%, SocGen jumped 4.7%, Credit Agricole was up 4.1% and UniCredit ended the day 2.4% higher. Eco - British jobless benefit rose by its smallest amount in almost 1-1/2 years in September, in a sign the worst of the job-shedding due to the recession may be over. Jobless claims change was 20.8k vs 24.5k expected and down from 24.4k previously. Tech - A strong result post market from Intel the previous night gave a good boost to the sector. German chipmaker Infineon was up 4%, ST Microelectronics added 2.6% and Nokia climbed 2.8%. Chemicals - BASF, up 7.4%, was one of the best overnight as the world's largest chemical maker reported better than expected 3Q results. Arkema, BASF’s French peer, rose 7.3%, Switzerland’s Clariant was up 7.3% and Germany’s Wacker Chemie gained 6.3%.

Commodiites Commentary Miners - An improved demand outlook, stronger metal prices and a weaker dollar saw the miners the best on the bourse overnight. Rio jumped 5.3% after strong output growth, BHP was up 4.3%, Anglo rose 6.3%, Xstrata added 7.7% and Vedanta was also up 7.7%. Energy - Crude moved to a 12 month high over the $75 per barrel mark. BP rose 2.2%, Shell climbed 2.4%, BG Group added 3.2%, Tullow was 3.6% higher and Cairn soared 8.6%. In Europe Total was up 3%, Statoil climbed 2.5% and Repsol rose 2.9%.

SPI Commentary The SPI traded up 44pts or 0.92% to 4837. Open at 4805 with a low of 4790 and a high of 4846. Volume 23,695. Overnight the SPI traded down 49pts to 4886.

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

US

Columbus Day holiday NAB Business confidence, NAB Business conditions

US

US

US

US

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

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. CSL reaffirmed its profit outlook yesterday at the AGM and the stock was up on the back of that, however they did warn of the impact of the rising AUD. 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: News Corporation (NWSKZI) – RBS Trading Buy RBS Research has moved to a trading buy on NWS with the 1Q10 result on 5 November as a key potential share price catalyst. While the 1Q10 result is likely to be weak, RBS expect positive outlook commentary, potentially raising FY10 guidance. Trade NWS into the result thorugh NWSKZI MINI Long with a target of $16.70

Source: IRESS

News Corp has made increasingly positive comments on the trading environment at recent investor conferences and has indicated the advertising environment is improving in many of its key markets. Its cable division also looks to be on track for another strong year, with cable operating profit expected to grow by c20% in FY10. RBS Research see guidance for FY10 operating profit growth of "high single digits" as conservative and see scope for this to be raised by NWS News Corp remains cheap on an EV/EBITDA multiple of 6.8x FY10F (associate-adjusted) and 5.8x FY11F. The stock is trading below its US entertainment peers (eg, Disney on 8.2x FY10F EBITDA on Reuters consensus forecasts) and even below its main US TV peer (CBS is on 7.7x FY10F EBITDA on Reuters consensus). .

RBS MINIs over NWS Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

NWSKZI

774.06

Long

1

1

MINI Long

NWSKZR

1986.01

Short

1

1

MINI Short

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

ANZ

ANZKZW

Short

$27.89

$25.12

$

24.68

$

3.21

1.8%

NCM

NCMKZT

Short

$41.86

$37.71

$

37.03

$

4.83

1.8%

QAN

QANKZQ

Short

$3.40

$3.05

$

2.98

$

0.42

2.3%

NAB

NABKZR

Short

$36.68

$33.03

$

31.56

$

5.12

4.7%

SUN

SUNKZP

Short

$10.69

$9.63

$

9.18

$

1.51

4.9%

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