Rbs - Round Up - 161109

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

The Round Up 16 November 2009 Issue No. 218 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

CBA (CBAVZG/CBAWZX)

Trading Update – 1Q10 Update

NWS (NWSKZI)

MINI Investment Buy – Leverage to growth

QBE (QBESZX)

SFI Investment Buy – Investor Update

Round Up Corner

RBS Model Portfolio – Recovery Bias

Equities

ASX 200

Move

Last

% Move

Range

Volume

-41.5

4706.4

-0.9%

-57 to -14.u.c

$5.0 bn(A)

SPI - yesterday

-36.0

4726.0

-0.8%

-57 to -21.u.c

27,801(A)

Dow Jones

+73.0

10270.5

+0.7%

-5 to +108

Low

S&P 500

+6.2

1093.5

+0.6%

-2 to +11

Low

Nasdaq

+18.9

2167.9

+0.9%

-3 to +23

Low

FTSE

+19.9

5296.4

+0.4%

-25 to +21

Low

Move

Last

% Today

% Past Month

-2.9

76.4

-0.8%

+3.0%

Gold Spot

+1.3

1118.7

+1.3%

+5.1%

Nickel (LME)

-33.5

727.9

-0.5%

-11.3%

Aluminium (LME)

-0.8

86.8

-0.1%

+2.3%

Copper (LME)

-0.7

294.9

+0.3%

+6.2%

Zinc (LME)

-0.5

97.4

+1.1%

+7.5%

Silver

-0.2

17.4

+1.3%

-2.0%

Sugar

-0.1

22.1

+0.1%

-0.5%

Commodities

Oil-WTI spot

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

0.33

0.02

+14.8 c

15.86

+14.2 c

RIO (UK)

33.00

0.01

+31.3 c

56.10

-1342.1 c

BLT (BHP UK)

18.50

0.01

+18.2 c

32.55

-645.7 c

BXB (UK)

-11.25

-0.03

+3.8 c

6.82

-13.8 c

American Depository Receipts (ADR’s) Move

%Move

Last

AUD Terms

Diff to Aus

BHP (US)

1.72

0.02

+73.3 c

39.25

+23.7 c

AWC (US)

0.09

0.01

+6.1 c

1.64

+0.4 c

TLS (US)

0.27

0.02

+15.3 c

3.28

-2.1 c

ANZ (US)

-0.11

-0.01

+20.8 c

22.27

-21.4 c

WBC (US)

2.03

0.02

+120.7 c

25.85

+3.0 c

NAB (US)

0.04

0.00

+27.4 c

29.35

+45.6 c

LGL (US)

0.89

0.03

+31.9 c

3.41

+5.1 c

RMD (US)

1.53

0.03

+50.5 c

5.41

+3.2 c

JHX (US)

0.10

0.00

+35.7 c

7.64

+6.6 c

PDN (CAN)

-0.02

0.00

+4.0 c

4.09

-3.4 c

Overnight Commentary United States Commentary A solid close to the week, a miss from the UoM confidence number offset by upside earnigns surprise from Walt Disney and a couple of the larger discretionary retailers. By the bell, the Dow off highs but 73pts higher, the S&P up 0.6% and the Nasdaq finished 0.9% higher. Media - Walt Disney just shy of 5% higher and the Dow's best after surprising with an 18% jump in profits for the 4Q. Despite another poor showing from the film division, net income for the period came in at 47cps vs consensus and the pcp of 40cps. Retail - Abercrombie & Fitch up nearly 11% and the S&P500's top performer after beating with quarterly numbers. Excluding one-offs profit came in at 30cps ahead of consensus at 20cps. Retail - JC Penney followed the A&F lead, finishing 9% higher after it also outstripped expectations with the latest quarterly update. Despite a 78% drop in 3Q earnings(did include 19cps charge) mgmt upgraded its profit and sales outlook which appeared to be of most interest to investors. Consumers - Mcdonalds just behind Walt Disney, up 2.3%(best pts adder) and together with the aforementioned, accounting for onethird of the Dows gains after mgmt flagged further plans for store rollouts. Eco - University of Michigan confidence for November, 66.0 vs 71.0 expected and down on 70.6 in the month prior. Growth - Although taking a back sit to Media and Retail names and despite the weaker confidence number, growth plays still featured among the Dows best. Dupont, Cisco, Microsoft and Boeing all in the top 10 and b/w1-2% higher.

United Kingdom & Europe Commentary The FTSE was up 0.4% or 20pts, a 14 month high, with gains in commodity stocks and heavyweight HSBC the main contributors. The FTSE Eurofirst 300 added 0.4%, The DAX was also up 0.4% but the CAC edged 0.1% lower. UK Banks - Index heavyweight HSBC climbed 1.2% on rumours it would increase its dividend. RBS rose 0.6% but Barclays fell 1.3%, Lloyds was off 0.2% and Standard Chartered ended 1.1% lower. Euro Banks - KBC jumped 4.5% after releasing unexpectedly strong 3Q numbers and said it is “within weeks” of reaching an agreement with the European Commission on its forced restructuring. Deutsche Bank added 0.4%, BNP rose 0.7%, SocGen also rose 0.7% but Commerzbank sank 2.6%. Eco - The eurozone emerged from recession in the third quarter of this year but GDP growth was slower than expected. Eurozone QoQ GDP growth was 0.4% vs 0.5% expected, Germany was 0.7% vs 0.8% expected and France was 0.3% vs 0.6% expected.

Real Estate - The sector was stronger ahead of anticipated stronger numbers from British Land on Tuesday. British Land added 2.8%, Hammerson climbed 2.3%, Land Securities also rose 2.3% and Liberty International jumped 3.9%.

Commodiites Commentary Miners - It was a mixed night for the metals but the sector was stronger thanks to the heavyweights. BHP climbed 1%, Rio rose 1.1%, Anglo added 1.9% but Xstrata fell 1.7% and Vedanta was off 2.5%. Energy - A broker upgrade to the 2010 oil price to $85 helped the sector. BP rose 0.5%, BG Group added 2.1%, Tullow climbed 1.1% but Shell was off 0.5%. In Europe Total rose 0.75%, Statoil eked out a gain of 0.1% but Repsol fell 0.8%.

SPI Commentary The SPI traded down 37pts or 0.78% to 4725. Open at 4736 with a high of 4740 with a low of 4705. Volume 22,515. Overnight the SPI traded up 28pts to 4754

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

US

US

US

US

Retail sales, NY Fed Empire PMI, Business Inventories RBA Governor Debelle speaks, Wage price index PPI, Industrial production, NAHB survey AWOTE, RBA Bulletin, RBA Governor Debelle speaks CPI, Housing starts

Philadelphia Fed Survey

*Dates are indicative only and may change

Trading Update: Commonwealth Bank (CBAVZG/CBAWZX) – 1Q10 update CBA reported its 1Q10 trading update last week after the other banks reported results. 1Q10 benefited from lower BDDs and strong revenue growth. Revenue growth is unlikely to be as strong for the remainder of FY10, but CBA will still be a key beneficiary of falling BDDs. RBS Research have a hold recommendation with $55.65 target price. Technically CBA is consolidating the past 10 months rally with resistance at $56. Trade upside via CBAVZG or downside via CBAWZX.

Source: IRESS

1Q10 update For the September quarter, CBA reported t unaudited cash earnings of ~A$1.4bn. The BDD charge was A$700m, lower than RBS Research full-year run rate of A$2.9bn, and compares to a cA$800m charge in 4Q09. The Tier-1 ratio is now 8.7% following the Pearls V hybrid issue, putting CBA ahead of WBC but behind ANZ and NAB. The outlook statement mirrored the cautious optimism of the other banks. The only area of concern is the pick-up in CBA housing arrears, which we believe stems from aggressive market share gains driven by first home owners in late 2008 and early 2009.

RBS Trading Warrants over CBA Security CBAVZF

ExDate

ExPrc

26-Nov-09

CP 5300

ConvFac Call

Delta

5

Description 0.1452

Trading Call Warrant

CBAVZG

26-Nov-09

5500

Call

5

0.0822

Trading Call Warrant

CBAVZH

17-Dec-09

4600

Call

5

0.1975

Trading Call Warrant

CBAVZI

17-Dec-09

5200

Call

5

0.1486

Trading Call Warrant

CBAVZJ

28-Jan-10

5000

Call

5

0.1609

Trading Call Warrant

CBAWZU

26-Nov-09

3600

Put

5

0

Trading Put Warrant

CBAWZV

26-Nov-09

4200

Put

5

0

Trading Put Warrant

CBAWZW

17-Dec-09

4500

Put

5

-0.0014

Trading Put Warrant

CBAWZX

17-Dec-09

5000

Put

5

-0.0259

Trading Put Warrant

CBAWZY

28-Jan-10

5500

Put

5

-0.0976

Trading Put Warrant

RBS MINIs over CBA Security

ExDate

CBAKZA

4008.49

ExPrc

CP

ConvFac Long

1

Delta

Description 1

MINI Long

CBAKZK

1862.95

Long

1

1

MINI Long

CBAKZN

4501.59

Long

1

1

MINI Long

CBAKZO

3544.92

Long

1

1

MINI Long

CBAKZQ

6283.82

Short

1

1

MINI Short

CBAKZR

6818.8

Short

1

1

MINI Short

MINI Investment Buy: News Corporation (NWSKZJ) – Strong leverage to growth NWS raised guidance for FY10 operating profit growth of 'high single to low double digit' which RBS research still believe is conservative. RBS Research have a +16% forecast which is underpinned by strong ongoing cable growth and an improving outlook in NWS’s key advertising markets. The stock remains cheap on an SOTP and peer multiple basis. Buy NWSKZJ

Source: IRESS

RBS forecast 16% operating profit growth in FY10 1Q10 operating profit was up 9% on the pcp and EPS of US$0.22 was ahead of Bloomberg consensus of US$0.18. The company raised its FY10 operating profit growth guidance from ‘high single digit’ to ‘high single to low double digit’. RBS Research still see the guidance as conservative and raise FY10F operating income growth to +16% (previously +11%) and EPS by 5% to US$0.85. Cable continues to outperform, TV imporving The cable division was again the standout in the period, with operating profit up 41%. We now forecast cable operating profit will grow 23% to US$2.05bn in FY10. Cable makes up half of operating income and underpins overall group earnings growth in FY10 and FY11. TV is showing encouraging signs, with NWS saying October pacings are flat on last year and November up ‘mid teens’. Newspapers were weak in the quarter, but the company said Australian newspaper trends are improving and newspaper operating profit should be down only marginally for the full year. Sky Italia and FIM were both weak, but should not detract significantly in the full year. Stock remains cheap News Corp trades on an EV/EBITDA of 6.0x CY2010F, below both US peers (Disney on 7.8x, Viacom 7.6x on Reuters estimates) and Australian domestic media stocks (TEN on 9.5x). RBSprice target of $19.92 RBS MINIs over NWS Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

NWSKZI

778.45

Long

1

1

MINI Long

NWSKZJ

1150.28

Long

1

1

MINI Long

NWSKZR

1981.63

Short

1

1

MINI Short

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 Model Portfolio – Recovery bias October saw the A$ rally, bond yields move higher, the RBA hike rakes and the equity rally abate toward month-end on the back of mixed economic data. Since then the market has recovered in November while the $A has remained strong. RBS Research believe the recovery story remains intact, although it won't be without its setbacks. RBS model portfolio retains a cyclical bias

Portfolio positioning Full market valuations mean that any bad news will see a significant market reaction, as was evidenced towards the end of October. A 12-month forward PE of 16.6x for the market is pushing towards a standard deviation of 1.5 above its longrun mean. Other valuation metrics also look full, which means we need earnings growth to sustain the market rally. Given modest expectations for 2010, the market may increasingly look to 2011 for guidance. Key portfolio positions • RBS Research key portfolio Overweight positions are Consumer Discretionary and Mining & Services, which reflect our recovery bias. We trim our overweight Banks call in the short term, but will be looking to re-establish that over the medium term. • Key Underweight positions are in defensive sectors such as Consumer Staples, Financials and Property.

MINIs approaching stop loss Underlying

MINI Code

MINI Type

Strike

Stop Loss

Share Price

Approx. MINI Value

Share: Stop Loss

RIO

RIOKZS

Short

$79.46

$71.57

$

69.52

$

9.94

2.9%

WES

WESKZU

Short

$32.21

$29.01

$

27.90

$

4.31

4.0%

CBA

CBAKZQ

Short

$62.84

$56.60

$

54.33

$

8.51

4.2%

BHP

BHPKZR

Short

$45.68

$41.15

$

39.01

$

6.67

5.5%

DJS

DJSKZP

Short

$6.78

$6.10

$

5.77

$

1.01

5.7%

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