Rbs - Round Up - 261009

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

The Round Up 26 October 2009 Issue No. 204 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 ASX 200

Last

% Move

Range

Volume

+46.6

4859.4

+1.0%

SPI - yesterday

+33.0

4852.0

Dow Jones

-109.1

9972.2

S&P 500

-13.3

1079.6

-1.2%

-17 to +3

Avg

Nasdaq

-10.8

2154.5

-0.5%

-16 to +25

High

FTSE

+35.2

5242.6

+0.7%

u.c to +92

Avg

u.c to +55

$6.7 bn(H)

+0.7%

+32 to +56

23,612(L)

-1.1%

-149 to +28

High

Commodities Move

Last

% Today

% Past Month

Oil-WTI spot

-0.69

80.50

-0.8%

+16.7%

Gold Spot

-4.70

1055.40

-0.4%

+4.7%

Nickel (LME)

-7.03

858.34

-0.8%

+6.3%

Aluminium (LME)

+0.29

87.88

+0.3%

+5.3%

Copper (LME)

+2.66

300.54

+0.9%

+8.5%

Zinc (LME)

+0.99

101.95

+1.0%

+19.8%

Silver

+0.03

17.69

+0.1%

+5.1%

Sugar

unch

22.48

unch

+4.3%

Dual Listed Companies (DLC’s) Move

%Move

Last

AUD Terms

NWS (US)

-0.47

-3.2%

14.42

RIO (UK)

+65.5 p

+2.2%

BLT (BHP UK)

+36.0 p

+2.0%

BXB (UK)

+16.0 p

+4.0%

£4.165

Diff to Aus

15.63

-45.7 c

£30.01

53.11

-1439.1 c

£18.320

32.43

-777.4 c

7.37

+9.2 c

American Depository Receipts (ADR’s) Move

%Move

Last

BHP (US)

-1.01

-1.4%

AWC (US)

-0.29

-4.2%

TLS (US)

-0.37

-2.5%

ANZ (US)

-0.55

-2.5%

WBC (US)

-0.28

-0.2%

NAB (US)

-0.65

-2.3%

LGL (US)

-0.35

-1.2%

RMD (US)

+0.01

JHX (US)

-0.21

PDN (CAN)

-0.37

AUD Terms 72.97

Diff to Aus

39.55

-64.6 c

6.66

1.81

-5.5 c

14.53

3.15

-4.0 c

21.60

23.42

-43.3 c

124.45

26.98

-31.6 c

28.15

30.52

-39.2 c

29.54

3.20

-2.7 c

+0.0%

49.67

5.38

-2.5 c

-4.4%

4.57

4.72

-9.9 c

-2.5%

14.53

3.15

-4.0 c

Overnight Commentary United States Commentary Despite reasonable numbers from some of the Dow bellwethers, there were some clear signs of nerves on Friday. Amex down despite a win and some profit taking across the growth space doing most of the damage. By the close, the Dow off lows but down 109pts, the S&P down 1.2% and the Nasdaq 0.5% lower. Financials - Amex down 5%, the Dow's worst performer and among the bigger pt takers despite 3Q profit and revenue exceeding expectations. Growth - In the absence of any economic leads outside of Home Sales, pain was felt across all the Dow's economic barometers. Dupont, Alcoa, Boeing, Caterpillar and IBM all down around 2% and together with Amex accounting for half the damage on the day. Eco - Existing Home Sales for September 5.57mln vs 5.35mln expected and up from a revised 5.09mln in the month prior. The news not enough to get the homebuilders moving, down 3% on the day. FX/Bonds - Despite the days flight to safety, bonds were sold off on concern around the timing of the Feds next move on rates, yields up 6.5, 8 and 6bps across the 2,10 and 30yr bonds. Currency moves did reflect the bearish end to the week, the DXY up 0.5c and the Aussie back down toward the 92c level. Techs - Mircosoft one of few highlights on Friday, up 5.4% after higher than expected Q1 numbers. For the period net income of 40cps compares with consensus at 32c. Cost control was also a highlight, down 6.9%.

United Kingdom & Europe Commentary The FTSE rose 0.7% or 35pts despite an unexpected fall in GDP as strong corporate earnings numbers in the US helped sentiment. The FTSE Eurofirst 300 dropped 0.6%, the DAX fell 0.4% and the CAC was off 0.3%. UK Banks - Lloyds put on 1.5% with the real estate arm of insurer Legal & General in talks to cherry-pick troubled assets from the bank in deals that could generate millions of pounds for the lender. HSBC rose 1.2%, while Standard Chartered, Barclays and RBS added between 0.7% and 3.5%. Euro Banks - Positive news from the UK banks lifted the sector on the continent. Deutsche Bank eked out a gain of 0.3%, Commerzbank was up 0.5%, BNP climbed 2.1% and SocGen added 1.6%.

Eco - Britain's economy unexpectedly contracted in 3Q this year, marking the longest recession on record. GDP fell 0.4% vs a predicted rise of 0.2%. The pound tumbled after the announcement with investors now believing there will be no interest rates rises for at least a year.

Commodiites Commentary Miners - Stronger metal prices and positive broker talk on China's growth helped the sector. BHP rose 2%, Rio was up 2.2%, Anglo jumped 4.2%, Xstrata added 3.7% and Vedanta ended 3.15% higher after a broker reiterated its overweight call. Energy - Despite crude falling slightly the sector held onto recent gains. Shell rose 1.2% despite a broker downgrade to hold, BP was flat, BG Group added 0.5% but Tullow fell 0.2%. In Europe the oil majors were weaker. Total was off 0.4%, Repsol fell 1.3% and Statoil ended 0.7% lower.

SPI Commentary The SPI traded up 42pt or 0.87% to 4861. Open at 4818 with a low of 4793 and a high of 4875. Volume 16,990. Overnight the SPI traded down 37pts to 4824.

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

Aus SOP PPI

US Tuesday

AUS

Wednesday

AUS US

US durable goods orders

Thursday

AUS

Aus HIA new home sales

Friday

AUS

US

US

US

US consumer confidence RBA Assistant Gov (Financial System) Edey speaks, Aus CPI,

US new home sales, US GDP

US personal income, US personal consumption, US core PCE deflator

*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

MINI Code

MINI Type

Strike

Stop Loss

Share Price

Approx. MINI Value

Share: Stop Loss

BHP

BHPKZR

Short

$45.76

$41.25

$

39.76

$

6.00

3.7%

SUN

SUNKZP

Short

$10.69

$9.63

$

9.24

$

1.45

4.2%

CBA

CBAKZQ

Short

$62.94

$56.70

$

54.22

$

8.72

4.6%

XJO

XJOKZS

Short

$5,323.81

$5,072.00

$ 4,815.40

$

5.08

5.3%

SUN

SUNKZR

Short

$11.49

$9.77

$

$

2.25

5.7%

9.24

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