Rbs - Round Up - 211009

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

The Round Up 21 October 2009 Issue No. 201 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

RIO (RIOKZF)

MINI Investment Buy – Setting up for 2010

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

Last

ASX 200

+53.4

SPI - yesterday Dow Jones

% Move

Range

Volume

4846.2

+1.1%

+15 to +79

$6.0 bn(A)

+36.0

4845.0

+0.7%

+33 to +70

26,588(A)

-50.7

10041.5

-0.5%

-99 to +6

Avg

S&P 500

-6.9

1091.1

-0.6%

-12 to +1

Low

Nasdaq

-12.9

2163.5

-0.6%

-25 to +5

Avg

FTSE

-38.1

5243.4

-0.7%

-38 to +17

Avg

Commodities Move Oil-WTI spot

Last

% Today

% Past Month

-0.5

79.1

-0.7%

+9.8%

Gold Spot

-8.3

1055.9

-0.8%

+5.0%

Nickel (LME)

-19.6

851.8

-2.2%

+10.0%

Aluminium (LME)

-1.4

85.2

-1.6%

-0.3%

Copper (LME)

-2.6

290.1

-0.9%

+4.0%

Zinc (LME)

+0.8

95.4

+0.9%

+11.5%

Silver

-0.3

17.5

-1.9%

+3.3%

Sugar

-0.5

23.0

-2.2%

+5.2%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

-0.10

-0.01

+14.8 c

16.09

-8.8 c

RIO (UK)

-21.00

-0.01

+29.5 c

52.37

-1442.6 c

BLT (BHP UK)

-21.50

-0.01

+18.3 c

32.41

-749.7 c

0.75

0.00

+4.0 c

7.10

-2.5 c

BXB (UK)

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

-0.45

-0.01

AWC (US)

-0.04

TLS (US)

-0.21

ANZ (US)

-0.42

WBC (US)

-2.29

NAB (US) LGL (US)

AUD Terms

Diff to Aus

+73.2 c

39.66

-0.01

+6.8 c

1.84

-4.9 c

-0.01

+14.4 c

3.13

+1.2 c

-0.02

+21.8 c

23.64

-15.1 c

-0.02

+120.9 c

26.22

-26.4 c

-0.39

-0.01

+28.5 c

30.92

-38.5 c

-0.13

0.00

+29.5 c

3.20

-2.9 c

-24.9 c

RMD (US)

0.04

0.00

+49.2 c

5.33

+3.2 c

JHX (US)

-1.09

-0.03

+34.5 c

7.48

-9.1 c

PDN (CAN)

0.41

0.09

+5.1 c

5.22

+41.8 c

Overnight Commentary United States Commentary A raft of reporting's overnights, a mix or of up and downside surprise, but the markets primary focus was on the economic data which fell shy of expectations. The Dow off lows but down 50pts, the S&P an Nasdaq both down 0.6%. Aerospace - Boeing down over 3% and the biggest pt taker post a broker downgrade to underweight. Lockheed Martin 6% lower(S&P100's worst) after its 2010 forecast trailed estimates, EPS for the quarter came in at $1.92 vs $1.83 but mgmt expectations for 2010 sales and profit trailed. Consumer - Coca-Cola down 1.3% after missing EPS by a penny. 3Q profit rose less than 1% with volumes a little sluggish across North America and Revenue actually fell 4.2% for the period. Chemicals/Diversified - Dupont down 2.2%(2nd biggest pt taker and in the Dow's bottom 3) .Sales for the 3Q fell shy of forecasts, prices slid for the first time since 2003 and Revenue for the period slipped 18% post drop in demand across Europe and the US. Industrials - For the second consecutive session, Caterpillar was the best of the Dow components, up over 3% after beating estimates with 3Q numbers. Headline numbers well ahead of consensus and mgmt narrowing the range for FY numbers. Eco - Another miss from Housing post yesterday NAHB disappointment. Housing Starts for September coming in at 590K vs 610K and down from 598K in the month prior, Permits 573K vs 595K. To be expected, another 3% fall from the Homebuilders. PPI -0.6% vs flat, Ex Food&Energy -0.1% vs +0.1%. Techs - Sandisk up 10% in late trading after revenue and EPS beat analyst forecasts. Yahoo up 3% after 3Q EPS came in at 15cps vs 13cps expected and EBITDA guidance exceeded marlet expectations.

United Kingdom & Europe Commentary The FTSE fell 0.7% or 38pts with banks leading the fall while investors were also bearish on negative US data. The FTSE Eurofirst 300 fell 0.5%, the CAC was also off 0.5% and the DAX dropped 0.7%. UK Banks - Barclays sank 4.8% after news that the Qatari Investment Authority (QIA) would sell 379.2mn shares worth £1.3bn. HSBC, RBS and Lloyds shed between 0.7% and 2.2%. Euro Banks - Swedbank was flat after being up 3% early despite reporting worse than expected 3Q results. The CEO said there would be fewer impaired loans in the second half. Among the majors, Deutsche Bank fell 1.2%, Commerzbank was off 1%, BNP dropped 0.25% but SocGen managed a gain of 0.5%. Retail - Sainsbury, up 5.4%, was again in demand on renewed bid speculation after the QIA sold its Barclays stake. Peers WM Morrisson and Tesco were up 0.3% and 1.2% respectively.

Eco - Britain's public finances suffered their worst six months on record between April and September. The Office for National Statistics said public sector net borrowings last month was £14.8bn, the biggest total ever recorded for a month of September. The year-to-date deficit swelled to £77.3bn, higher than in any comparable period since records began in 1946. Telecoms - A positive broker note citing consolidation saw European telecoms one of the strongest sectors. TeliaSonera climbed 2.4%, Dutch KPN advanced 1.4%, while Norway’s Telenor gained 2%. Telekom Austria , which was upgraded by 2 brokers, jumped 2.2%.

Commodiites Commentary Miners - Generally weaker metal prices saw the sector drift lower. BHP was 1.2% lower, Rio fell 0.7%, Anglo dropped 0.9%, Xstrata was off 2.4% and Vedanta sank 2.3%. Energy - Crude slipped back from a 12 month high leading the sector lower. BP fell 0.9%, Shell was 0.45% lower, Tullow dropped 0.1% but BG Group added 0.7%. In Europe Total fell 0.3%, Repsol was off 0.9% but Statoil gained 0.35%.

SPI Commentary The SPI traded up 36pts or 0.75% to 4845. Open at 4854 with a high of 4879 and a low of 4842. Volume 21,066. Overnight the SPI traded down 17pts to 4828.

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’s Lowe speaks

US Tuesday

AUS US

Wednesday

AUS

RBA Board minutes, Imports NAHB survey, PPI, housing starts New motor vehicle sales

US Thursday

AUS US

Friday

AUS US

Fed Beige Book Export prices, import prices Leading index, FHFA house price index, existing home sales

*Dates are indicative only and may change

MINI Investment Buy: Rio Tinto (RIOKZF) – Setting up for 2010 With commodity prices on the rise again and China iron ore imports reaching record levels, RIO looks well placed going into 2010. Last week’s production numbers show that RIO has a strong base for growth in 2010, particularly in iron ore and copper. RBS Research have a buy recommendation on RIO with a target price of $70.39. Buy RIOKZF

Source: IRESS

The chart above shows RIO in a strong medium term uptrend. Look to buy the stock on the back of any dips Production RIO’s production report was strong, with iron ore production in Western Australia perticularly strong. Coal production volumes were also strong from RIO’s North American operations. Aluminium volumes were in line however there is upside in the Aluminium division from cost savings and upside in copper from higher grade production. Buy RIOKZF

RBS MINIs over RIO Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

RIOKZC

2035.18

Long

1

1

MINI Long

RIOKZD

770.98

Long

1

1

MINI Long

RIOKZE

4053.87

Long

1

1

MINI Long

RIOKZF

3509.93

Long

1

1

MINI Long

RIOKZQ

7254.04

Short

1

1

MINI Short

RIOKZS

7959.14

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

Stop Loss

Share Price

Approx. MINI Value

Share: Stop Loss

MINI Code

MINI Type

Strike

SUN

SUNKZP

Short

$10.69

$9.63

$

9.45

$

1.24

1.9%

CBA

CBAKZQ

Short

$62.94

$56.70

$

54.98

$

7.96

3.1%

NCM

NCMKZT

Short

$41.84

$37.71

$

36.54

$

5.30

3.2%

SUN

SUNKZR

Short

$11.49

$9.77

$

9.45

$

2.04

3.4%

BHP

BHPKZR

Short

$45.76

$41.25

$

39.86

$

5.90

3.5%

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