Rbs - Round Up - 230909

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

The Round Up 23 September 2009 Issue No. 181 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

ORG (ORGKZC)

Trading Buy – breakout

WDC (WDCKZG)

MINI Investment Buy– Time to take some profit?

CWN (CWNKZG)

MINI Trading Buy – Value in Oz casinos

Round Up Corner

Portfolio Protection using MINIs

Equities Move ASX 200

Last -13.7

SPI - yesterday

% Move 4663.7

Range -0.3%

Volume -21 to +6

$4.4 bn(L)

-7.0

4687.0

-0.1%

-28 to +

18,402(L)

Dow Jones

+51.0

9829.9

+0.5%

-7 to +65

Low

S&P 500

+7.0

1071.7

+0.7%

+2 to +9

Avg

Nasdaq

+8.3

2146.3

+0.4%

-1 to +13

Avg

FTSE

+8.2

5142.6

+0.2%

u.c to +56

Low

Commodities Move

Last

% Today

% Past Month

Oil-WTI spot

+1.8

71.6

+2.6%

-3.2%

Gold Spot

+11.1

Nickel (LME)

+16.1

1014.8

+1.1%

+6.4%

801.4

+2.1%

-8.5%

Aluminium (LME)

+0.2

Copper (LME)

+3.8

84.2

+0.3%

-2.0%

283.5

+1.4%

-0.3%

Zinc (LME)

+1.2

87.1

+1.4%

+6.3%

Silver

+0.3

17.1

+1.6%

+20.9%

Sugar

+0.3

22.2

+1.3%

+1.4%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

Diff to Aus

NWS (US)

0.14

0.01

+14.4 c

16.50

-4.6 c

RIO (UK)

63.50

0.02

+27.1 c

50.73

-963.5 c

BLT (BHP UK)

17.00

0.01

+17.2 c

32.21

-579.5 c

BXB (UK)

6.50

0.02

+4.2 c

7.92

-5.4 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

1.39

0.02

AWC (US)

0.28

TLS (US)

0.18

ANZ (US)

0.64

WBC (US)

3.15

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

AUD Terms

Diff to Aus

+67.0 c

38.35

+35.2 c

0.05

+6.4 c

1.83

+1.2 c

0.01

+14.5 c

3.31

+3.2 c

0.03

+20.5 c

23.49

+16.1 c

0.03

+110.0 c

25.19

+23.3 c

0.65

0.03

+26.0 c

29.73

+26.3 c

0.77

0.03

+26.5 c

3.03

+3.1 c

-0.20

0.00

+45.3 c

5.19

-10.8 c

0.99

0.03

+33.0 c

7.55

+7.4 c

0.04

0.01

+4.3 c

4.56

+0.4 c

Overnight Commentary United States Commentary After a slight bump in the road, the Dow was back on track and back flirting with year highs overnight. In a return to last weeks form, the leaderboard was littered with growth proxies and financials and the USD was back under pressure. UK/Europe higher, the weaker dollar lending support to the commodities and corresponding stocks. Eco - Richmond Fed Manufacturing for Sept came in at 14 vs consensus at 16, but in line with the month prior. House Price Index for July +0.3% vs +0.5% expected. Financials - JP's finished the day 4.3% higher, leading the sector and topping the Dow post a 3Q earnings upgrade by another investment bank. Although the share price reaction was a little more subdued, Goldman's put on just shy of 2% after a similar upgrade. Elsewhere, Citi up 5%, Morgan Stanley and Regionals Financial added 4.3% and Wells finished 3.9% higher. Growth Proxies - Although outpaced by the investment banks, the economic barometers were back in the black. Caterpillar added another 3.6% bringing the gain for September to 25%, Alcoa up 2.3%, Microsoft 1.9% and HP finished 1.4% higher. Consensus view seems to be not only the worst is behind us, but also that genuine improvement has started to flow through. Retail - Macy's up over 5%, among the S&P500's best and along the way hitting 11 month highs after an upgrade from "hold" to "buy" and a doubling of price target at one of the larger US houses. The report cited expectations for revenue growth in 2010 and the overall improvement in the retail environment heading into next year. FX - DXY back in the red overnight, down 0.7c and along the way the greenback hitting fresh lows vs the euro and losing a full cent vs the AUD. In a continuation of last weeks theme, investors are showing renewed and growing confidence in the health of the global economy, seeking out higher yielding currencies.

United Kingdom & Europe Commentary The FTSE climbed 0.2% or 8pts as mining and energy stocks were lifted by firmer commodity prices. The FTSE Eurofirst 300 rose 0.5%, the DAX climbed 0.7% and the CAC was up 0.3%. Euro Banks - Discussions at UniCredit, the Italian bank, over how to strengthen its balance sheet were met with scepticism. Concerns that it would launch a rights issue for as much as €4bn, just a year after calling on shareholders for €3bn, left the shares 3.5% lower. Construction - HeidelbergCement, up 10.9%, led a rally of European construction and building materials stocks on Tuesday after announcing a placing. Priced at €37 a share, the issue would raise €2.3bn. Austrian brick-maker Wienerberger, which launched a surprise €336m rights issue a week ago, rose 3.5%.

Materials - The lift in base metals helped the industrial metal groups. ArcelorMittal rose 1.1% while German steel rival Salzgitter added 3.4%. Auto - A broker note said that after the end of various incentive schemes, it expected the “normal relationship between product activity and sales and profit performance to reassert itself” in 2010. Renault added 1.2%, Peugeot was up 1.8%, VW rose 1.2% while tyremakers Michelin and Continental were up 3.5% and 7.9% respectively. Homebuilders - Two of the UK’s largest housebuilders will unveil plans to raise £850m in fresh equity on Wednesday as pressure on the sector continues to force companies to shore up their balance sheets. Barratt Developments, the UK’s largest housebuilder with about 12% of the market, is set to raise an expected £700m through a placing and open offer, while smaller rival Redrow will ask for £150m. Barratt was flat and Redrow fell 0.6%.

SPI Commentary The SPI traded down 7pts or 0.15% to 4687. Open at 4673 with a high of 4694 and a low of 4666. Volume 18,305. The SPI traded up 19pts to 4706 in overnight trade.

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

New motor vehicle sales

US

US

US

US

US

Leading index GDP FHFA house price index, core CPI, current account balance, industrial production RBA Financial stability, HIA new home sales FOMC fund rate decision

Existing home sales, durable goods orders, new home sales, Michigan consumer confidence

*Dates are indicative only and may change

Upcoming Dividends ExDivDate

Security

Description

Div (c)

Yield

Frk(%)

PayDate

Trading Buy: Origin Energy (ORGKZC) – Breakout On Friday ORG made a strong move up and broke through resistance at $15.50. Given the stock’s recent underperformace, look for the stock to trade up to the next resistance level at $17.00 - $17.50. RBS Research target price is $17.25 with a BUY recommendation, on the blief that the stock presents compelling value at current levels. Play thorugh ORGKZC.

Source: IRESS

The chart above shows ORG’s $15.50 breakout on Friday from its ascending triangle pattern. Look for the stock to now trade up to $17.00 - $17.50 range where previous resistance was in April/May. With ORG’s result out of the way, there appear to be no negative catalysts on the horizon for ORG. Expect the stock to gain momentum over the coming 6 – 12 months as the LNG project moves forward and the stock continues to reflect the value in that project. ORG has guided for 15% NPAT growth in FY10 which is very achievable and the company is sitting on ~A$3.75bln cash. RBS Research price target $17.25 with BUY recommendation

RBS MINIs over ORG Security

ExPrc

Stop Loss

CP

ConvFac

Delta

Description

ORGKZC

1054.9

Long

1

1

MINI Long

ORGKZP

1968.8

Short

1

1

MINI Short

MINI Investment Buy: Westfield Group (WDCKZG) – Bottom of devaluation cycle? WDC has rallied to the top end of its uptrend channel from $12 and we would be happy to lock in some profits over $14. 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. Play thorugh WDCKZG

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: Crown Limited (CWNKZG) – There’s value in Australian Casinos Given the current valuations of casinos in Macau, CWN is looking cheap with its exposure to MPEL and the significant discount that the Australian casinos are trading at. RBS Research estimate that CWN’s Australian casinos are currently trading on an EV/EBITDA of 8.2x vs MPEL at 12x and other Macau casino assets indicating a multiple of 12.5x – 14.5x. We believe that valuations in Macau are well supported by investor demand and highlight the value in Australian casino assets for CWN. Buy CWNKZG

Source: IRESS

CWN has been in uptrend since hitting lows in November 2008. RBS Research have a buy recommendation on CWN with a target price of $9. CWN recently reported FY09 NPAT of A$242mln which was in line with expectations. The performance of Australian casinos was resilient and the current valuations are cheap relative to valuations being realised in Macau… where CWN has exposure through MPEL. CWN has a strong balance sheet and is RBS Research favoured pick in the gaming sector alongside TAH

RBS MINIs over CWN Security CWNKZG

ExPrc

Stop Loss 379.11

CP

ConvFac Long

1

Delta

Description 1

MINI Long

RBS Round Up Corner: Using Index MINI Shorts An Index MINI short is a listed derivative product issued by RBS over the SFE SPI 200 ™ futures contract (SPI). The SPI is the benchmark equity index futures contract in Australia which is based on the XJO. The XJO consists of over 90% of the total market capitalisation of all companies, unit trusts, stapled securities listed on the ASX and is comprised of the largest 200 ASX listed companies by market capitalisation (plus liquidity considerations). The SPI futures have a high degree of correlation to the XJO. Buying an Index MINI short gives you upside exposure to falls in the SPI and is a great way to hedge a stock portfolio or take a bearish trading view on the stock market The price of an Index MINI short tracks the price of the nearest month SPI futures contract. The value of an index MINI short is calculated by taking the strike price of the MINI short and subtracting the current SPI futures level and then dividing by 100. The Index MINI short will move 1c for every 1 point movement in the SPI, and will increase in value as the SPI falls and decrease in value as the SPI rises. Therefore, if you think that the Index level will go down you may decide to buy an Index MINI Short. Value of Index MINI Short = [Strike Price - Level of SPI Futures] / 100 The Strike Price is the amount that RBS funds on behalf of the Holder (in other words, it is the leverage incorporated into the Index MINI) and is the amount that a holder has to pay to RBS if they want to exercise the Index MINI. The strike price can be converted to a dollar amount by dividing by 100. Holders can choose from a range of Strike Prices, each of which provides a different level of leverage. Index MINI shorts trade between the hours of 10am to 4pm on trading days (although RBS will generally be quoting markets from 9:50am – 4pm) Let’s see how an Index MINI works with an example: Example: Trading a Index MINI Short - XJOKZX

Action

Units

SPI Futures

Strike Price

Index Mini Price

Stop Loss Level

BUY

1,000

4,400

4895.97

$4.96

4655

Index Future falls to 4300* SELL (same day) 1,000

4,300

4895.97

$5.95

4655

$1.00

20%

$0.94

19%

-$1.00

-20%

-$1.06

-21%

1,000

4,300

4890.32

$5.90

4655

Index Future rises to 4500 SELL (same day) 1,000

4,500

4895.97

$3.96

4655

SELL (2 weeks)

4655 SELL (2 weeks) 1,000 4,500 4890.32 $3.90 *If the index falls and the MINI position is closed out, tax will be payable on the profits from the MINI short

Profit / (Loss)

% Return

The first line in the table shows a position of 1,000 Index MINI Shorts purchased for a price of $3.23 where the Index was trading at 4400. The Strike Price of the Index MINI is 4895.97, with a Stop Loss Level at 4655. The second line shows the outcome of a decrease in the Level of the Index Futures to 4300, a 100 point drop. The Index MINI price has increased to $5.95, with the Strike Price and Stop Loss Levels remaining unchanged. The sale of 1,000 Index MINIs has realised a 20% profit if sold on the same day. If the holder sells their Index MINI Shorts two weeks after the date of purchase the Strike Price has decreased to 4890.32, to reflect the two weeks funding costs. The sale of 1,000 Index MINIs at $5.90 has realised a 19% profit. The next two lines demonstrate the P&L impact if the SPI index were to rise to 4500, a 100 point rise. If the SPI index level were to trade at or above the stop loss level of 4655, RBS will buy back the SPI futures underlying the index MINI shorts and the holder will get back the difference between the strike price and the price which RBS buys the SPI futures back at. A stop loss event will only occur if the SPI futures hit the stop loss level between 10am and 4pm on a trading day. If the SPI futures were to gap through the strike price, then the holder will have no further obligation to pay additional funds or margin… thus losses are limited to the initial capital outlay

Hedging a diversified portfolio of shares with Index MINIs The market value of 1 SPI Futures contract

= SPI Index level x 25

Example: SPI at 4,400

= 4,400 x 25 = $110,000 (value of 1 SPI contract)

The Multiplier for Index MINIs is 100. This means that the price of one Index MINI is equivalent to one hundredth of the level of the SPI. Now lets assume 2,500 MINIs (100 X 25) 2,500 MINIs 100 MINIs 1 MINI

= 1 SPI Future contract = 4,400 x 25 =4,400 x 1 = 44 X $1 = $40 worth of index exposure

If you owned a diversified portfolio of shares worth $1,000,000 and want to hedge against the downside with MINI shorts. The number of MINI shorts you must buy

= $1,000,000 / $44 ($ value of 1 Index MINI) = 22,727 MINI shorts needed to hedge portfolio

Note: The easy way to determine the index exposure of a MINI is to divide the spot index level by the MINI multiplier of 100. Example: Index level at 4,400

= 4,400 / 100 = $44 market exposure

So… the formula for calculating the number of MINI shorts needed to hedge a $ value portfolio is:

What are the benefits and features of Index MINI shorts? • • • • • • • •

Simpler than unlisted CFD’s - they are traded on, and supervised by the ASX. No maturity date thus minimising the concerns of rollovers or exercises. Leveraged participation in the movement of the Index on a one for one hundredth basis. (1c = 1 point) Funding Costs charged on a daily basis so that day-traders don’t pay intra-day. Limited recourse leverage and Stop Loss Levels protects Holder against losing more than initial Capital Outlay Most efficient way to hedge an existing portfolio by taking a short position over the overall Index. Do not have initial collateral requirements and do not involve margin payments Ability to lock in recent gains on a postfolio without realising capital gains tax

MINIs approaching stop loss MINI Type

Strike

Stop Loss

Share: Stop Loss

MINI Code

MQG

MQGKZX

Short

$64.78

$55.14

$

54.79

$

9.99

0.6%

WES

WESKZT

Short

$29.57

$26.65

$

26.19

$

3.38

1.8%

$

NAB

NABKZQ

Short

$32.23

$30.47

XJO

XJOKZW

Short

$5,093.43

$4,842.00

CCL

CCLKZP

Short

$11.78

$10.62

Share Price

Approx. MINI Value

Underlying

29.47

$

2.76

3.4%

$ 4,663.70

$

4.30

3.8%

$

$

1.58

4.1%

10.20

SFI’s approaching stop loss Underlying

MINI Code

MINI Type

Strike

Stop Loss

AGK

AGKSZX

Long

$7.99

$9.06

Share Price $

13.80

Approx. MINI Value $

Share: Stop Loss

5.81

34.3%

TTS

TTSSZX

Long

$1.38

$1.64

$

2.53

$

1.15

35.2%

WBC

WBCSZV

Long

$14.05

$15.40

$

24.65

$

10.60

37.5%

BSL

BSLSZW

Long

$1.76

$1.94

$

3.15

$

1.39

38.4%

LEI

LEISZV

Long

$20.53

$23.10

$

37.59

$

17.06

38.5%

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