This material has been produced by RBS sales and trading staff and should not be considered independent.
The Round Up 11 August 2009 Issue No. 152 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
Aussie Market Action
SPI Comment, Events & Dividends
BHP (BHPVZE/BHPVZV)
Trading Update – Trade tomorrows result
SUN (SUNKZM)
MINI Trading Buy – Value in insurance
SLF (SLFSZX)
Self Funding Investment – property sector
Round Up Corner
Reporting Season Trading – COH,JBH,BHP,CBA,CPU,TLS,CCL,LEI
Equities Move ASX 200
Last
% Move
Range
Volume
+4.7
4304.1
+0.1%
+1 to +49
$4.7 bn(A)
SPI - yesterday
+3.0
4265.0
+0.1%
-1 to +47
22,832(L)
Dow Jones
-32.1
9337.9
-0.3%
-80 to +2
Low
S&P 500
-3.4
1007.1
-0.3%
-9 to -0
Avg
Nasdaq
-8.0
1992.2
-0.4%
-21 to -1
Avg
FTSE
-9.4
4722.2
-0.2%
-43 to u.c
Low
Commodities Move
Last
% Today
% Past Month
Oil-WTI spot
-0.03
70.90
-0.0%
+18.2%
Gold Spot
-9.05
945.90
-0.9%
+3.5%
Nickel (LME)
+25.74
912.84
+2.9%
+39.7%
Aluminium (LME)
-2.39
87.82
-2.7%
+25.4%
Copper (LME)
-0.71
277.84
-0.3%
+26.1%
Zinc (LME)
-2.28
82.65
-2.7%
+24.0%
Silver
-0.24
14.38
-1.6%
+13.5%
Sugar
+1.19
22.00
+5.7%
+27.4%
Dual Listed Companies (DLC’s) Move
%Move
Last
AUD Terms
NWS (US)
+0.04
+0.3%
13.09
RIO (UK)
-78.5 p
-3.2%
BLT (BHP UK)
-38.5 p
-2.4%
BXB (UK)
+17.8 p
+5.9%
£3.188
Diff to Aus
15.63
+23.1 c
£23.43
46.10
-1245.1 c
£15.505
30.51
-725.3 c
6.27
+6.2 c
American Depository Receipts (ADR’s) Move
%Move
Last
BHP (US)
-1.90
-2.9%
AWC (US)
-0.10
-1.7%
TLS (US)
-0.04
-0.3%
ANZ (US)
-0.23
-1.4%
WBC (US)
-1.44
-1.5%
NAB (US)
-0.41
LGL (US)
-0.22
AUD Terms 62.53
Diff to Aus
37.33
-42.6 c
5.96
1.78
-2.1 c
14.92
3.56
-1.7 c
16.25
19.40
+11.4 c
95.06
22.70
+4.2 c
-1.9%
21.39
25.54
+8.2 c
-1.0%
22.10
2.64
-1.1 c
RMD (US)
-0.18
-0.4%
45.07
5.38
-0.8 c
JHX (US)
+0.24
+1.1%
21.24
5.07
+10.3 c
PDN (CAN)
-0.16
-3.9%
3.99
4.37
-18.5 c
Overnight Commentary United States Commentary US stocks fell overnight led by Industrials and Materials companies, on concerns that the S&P00 is trading at the highest level relative to earnings since 2004 and was in need a breather. A lack of specific data seemed to allow investor to step back and look at the nig picture. The Dow finished down 32 pts on average volume. Industrials - 3M lost 2.7%, Cisco fell 2.4% and Travelers Group slipped 2.2%, the three industrials taking 27 pts from the index between them. There was a lack of specific data and a lot of use of language such as "taking a breather" and "need for a pause". Resources - A softer night for metals after one broker said prices appeared "frothy" after surging this year, and another questioned if we have yet seen proof of growth outside of China this year. Alcoa gave up 2.4% and Caterpillar slipped 1.3% in line with the moves, and Steel stocks having a rough night, AK Steel off 4.7%. Retail - Best Buy Co. lost 5.2% after one broker cut its rating to neutral on the shares, citing competition in the electronics space, and the need to spend to maintain growth. Led the sector down c.2%, with Macy's off 4.7% and Radioshack down 3.8%. Homebuilders - The US homebuilders sector gave up much of its gains from the previous session. DR Horton down 5.4%, KB Homes fell 4.7%, and Lennar lost 4.5%.
United Kingdom & Europe Commentary The FTSE 100 fell 0.2% or 9pts with banks and miners lower as investors took profits from last weeks hefty gains. The FTSE Eurofirst fell 0.6%, the DAX was off 0.7% and the CAC ended 0.5% lower. UK Banks - Lloyds fell 4% after reports of a share issue and the possibility of it leaving the UK Govt's Asset Protection Scheme. RBS, off 3.6%, continued to fall after poor results Friday and Barclays was off 1.8%. Standard Chartered and HSBC however managed gains of 0.6% and 0.3% respectively. Euro Banks - Sentiment was hit after the Lloyds news but stocks generally gained ground. Deutsche Bank added 1.1%, Commerzbank rose 1.5%, Dexia jumped 5.6%, Natixis rose 3% but SocGen and BNP were off 1.35% and 0.5% respectively. Insurers - Friends Provident soared 7% after it said it had agreed to fresh talks with Resolution. Prudential rose 3% while Old Mutual, Standard Life and Legal & General were up between 0.6% and 1.6%. In Europe, Vienna Insurance was up 4.8% and Swiss Re climbed 1.2%. Auto - VW sank 7.5% and Daimler fell 3.7% after broker downgrades. Porsche dropped 2.1% but Renault and Peugeot were up 0.1% and 0.8% respectively.
Resources Commentary Miners - The sector was the biggest drag on the index with Rio shedding 3.2% after China stepped up espionage allegations. BHP fell 2.4%, Anglo was 2% lower, Vedanta dropped 1.9% and Xstrata was off 3.1% after the company said it was in talks that may see it sell a major stake in a South African project. Energy - Higher crude prices saw some of the majors gain ground. BP rose 1% and Tullow climbed 1.5% but Shell fell 0.4%, Total was off 1%, Statoil dropped 1.2% and Repsol was flat.
SPI Commentary The SPI traded up 3pts or 0.07% to 4265. Open at 4303 with a high of 4328 and a low of 4261. Volume 24,718. Ovenright the SPI trading down 1pt to 4264
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
Owner occupied housing finance, investor housing finance
US NAB Business confidence, NAB Business conditions
US Wednesday
Non-farm productivity
AUS
WMI consumer sentiment, wage price index
US Thursday
Wholesale inventories, trade balance
AUS
AWOTE
US Friday
Fed funds rate decision, import prices, retail sales
AUS
RBA Governor testifies on monetary policy
US
Buisiness inventories, CPI, industrial production, Michigan consumer conf
*Dates are indicative only and may change
Upcoming Dividends ExDivDate 11-Aug-09
Security
Description
Div (c) 13
Yield
Frk(%)
PayDate
AFI
Aust Foundation
4.06%
100
1-Sep-09
11-Aug-09
TAH
Tabcorp Holdings
11-Aug-09
WDC
Westfield Group
30
9.17%
100
18-Sep-09
47
7.84%
0
31-Aug-09
13-Aug-09
ARG
Argo Invest
13
4.07%
100
4-Sep-09
17-Aug-09
AXA
AXA Asia Pacific
9.25
4.25%
30.06
24-Sep-09
3-Sep-09
NWS
News Corp
6
0.9%
0
14-Oct-09
Trading Update: BHP Billiton (BHPVZE/BHPVZV) – Trade tomorrow’s result BHP Billiton is set to report its FY results tomorrow. Any surprise to the upside or downside is likley to see the share price move. Trade the BHP result through an RBS trading warrant. Trade long thorugh BHPVZE August $40 call, or short through BHPVZV August $36 put. RBS Research expectations for the BHP result are shown below: Date 12 Aug
Code BHP
Company BHP Billiton
Y/E Jun
USD
NPAT (pre abs)
(Abs)
Div
EPS
2H div
10506
-4466
82.0c
188.8c
41.0c
Source: IRESS
Technically, since hitting $20 in 2008 BHP has formed an uptrending channel and has recently traded to the top end of the channel and retraced. A worse than expected result could see the stock trade back down to the bottom end of its trading range near $32, while a better than expected result could see the stock crack through $40. The key focus of the result is likely to be around BHP’s cost control in the face of weaker commodity prices over 2008 and early 2009. Management outlook commentary will also be a focus.
RBS MINIs over BHP
Security
ExPrc
Stop Loss
CP
ConvFac
Delta
Description
BHPKZB
1867.63
2051
Long
1
1
MINI Long
BHPKZC
1539.07
1690
Long
1
1
MINI Long
BHPKZD
2490.93
2736
Long
1
1
MINI Long
BHPKZJ
3000
3300
Long
1
1
MINI Long
BHPKZR
4649.65
4185
Short
1
1
MINI Short
BHPKZS
5299.62
4770
Short
1
1
MINI Short
BHPKZY
4841.25
4575
Short
1
1
MINI Short
RBS Warrants over BHP Security
ExDate
ExPrice
BHPVZE
27-Aug-09
4000
CP
ConvFac Call
4
Delta
Description 0.06
Trading Call Warrant
BHPVZF
27-Aug-09
3600
Call
4
0.19
Trading Call Warrant
BHPVZG
24-Sep-09
3500
Call
4
0.18
Trading Call Warrant
BHPVZH
24-Sep-09
3400
Call
4
0.20
Trading Call Warrant
BHPVZI
29-Oct-09
4200
Call
4
0.07
Trading Call Warrant
BHPVZJ
40,115.00
3,200
Call
4
0.21
Trading Call Warrant
BHPVZK
26-Nov-09
3,800
Call
4
0.13
Trading Call Warrant
BHPVZL
26-Nov-09
4500
Call
4
0.05
Trading Call Warrant
BHPVZV
27-Aug-09
3600
Put
4
-0.06
Trading Put Warrant
BHPVZW
24-Sep-09
3800
Put
4
-0.13
Trading Put Warrant
BHPVZX
24-Sep-09
2800
Put
4
0.00
Trading Put Warrant
BHPVZY
29-Oct-09
3,400
Put
4
-0.06
Trading Put Warrant
BHPVZZ
29-Oct-09
3000
Put
4
-0.02
Trading Put Warrant
BHPWZP
26-Nov-09
2500
Put
4
0.00
Trading Put Warrant
BHPWZQ
26-Nov-09
3200
Put
4
-0.05
Trading Put Warrant
BHPWZR
17-Dec-09
4000
Put
4
-0.14
Trading Put Warrant
MINI Trading Update: Suncorp Metway (SUNKZM) – Value in insurance We have been bullish SUN since the stock broke through ressitance at $6.75. SUN has continued its rally since then thanks to talk of selling its banking assets, which RBS Research believe could unlock additional value for shareholders. SUNm announced its expected results on Friday with the key takeaway being that bad debts did not deteriorate further, which has positive implications for a potential divestment of SUN’s banking operations. While Insurance and Life were behind RBS Research expectations, the negative surprises were largely oneoff in nature. RBS Research believe there is further upside from here and retain Buy call with a new target price of $8.80. Buy SUNKZM
Source: IRESS
Early release of FY09 result • The key positive from the result was the narrowing of the bad debt guidance from 125-145bp to 125-135bp which has lifted banking NAPT expectations • Insurance suffered from the negative impact of marking-to-market the bond portfolio which was was greater than RBS Research had anticipated and the insurance margin guidance of 7.5-8% was also behind expectations. • The weakness in Life insurance was mainly due to the rapid unwinding of discount rate changes and is largely oneoff so not of particular concern. • The outlook for bad debts in Australia appears to be improving along with the macroeconomic situation. As a result, RBS Research have nudged up banking valuation multiple from 0.9x book value to 1.0x, which still only implies a PE of 6.4x in FY11F. • RBS price target increases from $7.38 to $8.80
RBS MINIs over SUN Security SUNKZL
ExPrc
Stop Loss 396.47
436
CP
ConvFac
Delta
Description
Long
1
1
MINI Long
SUNKZM
459.67
505
Long
1
1
MINI Long
SUNKZP
1094.16
985
Short
1
1
MINI Short
SUNKZQ
893.17
843
Short
1
1
MINI Short
Self Funding Investment: SPDR S&P/ASX 200 Property Fund (SLFSZX) The listed property sector has been one of the biggest casualties of the global financial crisis due to their high levels of gearing, falling occupancy rates and downward property revaluations. As a result the S&P/ASX 200 property index fell ~79% from its 2007 peak. However, with property trusts now reducing debt and obtaining refinancing from the banks, the underperforming property trust sector looks worthy of investment. You can gain exposure to the S&P/ASX 200 listed property stocks through SLFSZX. SLF is an S&P/ASX 200 Listed Property exchange traded fund (ETF) which tracks the performance of the listed property stocks. Technicals
Source: IRESS
The chart above shows SLF over the past 18 months. After bottoming in March 2009, the ETF has developed a sustained medium term uptrend with higher lows and current resistance at $7.50. A breakout of $7.50 would be a bullish signal for a continued advance of the uptrend
SPDR S&P/ASX 200 Listed Property Fund (SLFSZX) SPDR S&P/ASX 200 Listed Property Fund (SLF) seeks to closely track, before fees and expenses, the returns and characteristics of the S&P/ASX 200 Listed Property Trust Index. The approach is designed to provide a portfolio with low portfolio turnover, accurate tracking, and low costs.* The Index comprises the leading listed property vehicles in Australia and represents diversified exposure to the Australian listed property market. Exposure is diversified geographically across Australia’s major population centres and by sector across a range of property types, including industrial, commercial, retail and hotel/tourism.* *Source: IRESS
The breakdown of the S&P/ASX 200 Listed Property Index is as follows: Security
Description
MktCap($)
MktWeight
WDC
Westfield Group
25,167,772,097
46.30%
SGP
Stockland
7,039,547,620
12.95%
GPT
GPT Group
4,096,636,126
7.54%
CFX
CFS Retail Property
3,553,926,494
6.54%
DXS
Dexus Property Group
3,384,606,240
6.23%
MGR
Mirvac Group
3,173,820,078
5.84%
CPA
Commonwealth Prop
1,634,763,680
3.01%
IOF
ING Office Fund
1,430,118,085
2.63%
GMG
Goodman Group
1,348,421,200
2.48%
MOF
Macquarie Office
1,016,127,900
1.87%
MCW
Macquarie Countrywid
717,642,730
1.32%
BWP
Bunnings Warehouse
580,178,793
1.07%
ABP
Abacus Property Grp.
384,546,012
0.71%
CHC
Charter Hall Group
325,218,125
0.60%
IIF
ING Industrial Fund
295,460,083
0.54%
AJA
Astro Jap Prop Trust
211,095,600
0.39%
SLF vs XJO (ex property trust) performance over the past 3 years
Source: IRESS
The chart above compares the returns from the S&P/ASX 200 – Ex-property and SLF. It can be seen that the listed property sector has been a big underperformer compared to the rest of the market and this underperformance has increased over the past month, despite property companies improving their balance sheets. Look for this underperformance to reverse as the listed property companies de-risk and sell underperforming assets.
Using SLFSZX to gain exposure to listed property index Take advantage of upside in the S&P/ASX 200 Listed Property Index through an RBS Self Funding Instalment, SLFSZX. Self Funding Instalments (SFIs) are a simple way to gain long term geared exposure to ASX-listed shares while receiving many of the major benefits of share ownership including exposure to share price movements, dividends and franking credits. KEY BENEFITS of the new RBS self funding instalments include: * NO PUT PROTECTION COST * Simple, transparent and Cost-effective * 1 for 1 movement with the underlying share (delta 1) * Gearing around 50% - Limited downside risk * No margin calls * Non-recourse loan - You can never lose more than your initial outlay * ATO product rulings - Perfectly suitable to be used in SMSF's * Listed - Can be sold at anytime * Can be exercised at any time - simply by paying back loan amount * RBS are the only product issuer in the market who can offer this product * A low interest rate of 7.46% per annum
Key details of SLFSZX Underlying
SFI Code
Instalment Payment
Stop Loss
Current Share Price
Approx. SFI Value
SLF
SLFSZX
$3.5267
$3.88
$7.38
$3.85
Reasons to buy SLF: * Listed property has significantly underperformed the rest of the market, particularly in the most recent rally * A major concern for the smaller property trusts has been refinancing debt, however banks are more likely to refinance the property trusts rather than taking the properties onto their own balance sheets and then having to manage them * Occupancy rates are still high, particularly in retail property which makes up a large proportion of the overall SLF portfolio (predominantly WDC) * Major property compmanies have undergone capital raisings to improve their balance sheets and de-risk * SLF offers an attractive yield with any franking credits an added bonus * SLF gives you exposure to the whole sector, which reduces the risk of being exposed to problems of any individual company.
STRATEGY – Using SLFSZX and WDCKZR to gain exposure to listed property ex-WDC For investors out there who are looking to gain exposure to a basket of listed property stocks without the 46% exposure to Westfield Group (WDC), a strategy to consider would be long SLFSZX and then short WDC thorugh WDCKZR MINI short. This strategy would give you upside exposure to all the stocks in SLF except WDC.
RBS warrants over SLF Security SLFSZX
ExPrc 4-Feb-19
Stop Loss 352.67
CP
ConvFac Call
1
Delta
Description 1
Self Funding Instalment
RBS Round Up Corner: Stocks Reporting This Week – COH,JBH,BHP,CBA,CPU,TLS,CCL,LEI Reporting season kicked off last week with results overall largely in line with expectation. This week some bigger names such as CBA, BHP and TLS are set to report. RBS Research are expecting company results to come in line or slightly ahead of expectations due to the long downgrade cycle over the past six months. RBS MINIs are a great way to trade company results this reporting season, from both a long or short view. Date 11 Aug 11 Aug 12 Aug 12 Aug 12 Aug 13 Aug 13 Aug 14 Aug
Code COH JBH BHP CBA CPU TLS CCL LEI
Company
Y/E
Cochlear Limited JB Hi Fi BHP Billiton Comm Bank Computershare Telstra Corporation Coca Cola Amatil Leighton Holdings
Jun Jun Jun Jun Jun Jun Dec Jun
AUD AUD USD AUD USD AUD AUD AUD
NPAT (pre abs)
(Abs)
Div
EPS
2H div
Long Product
Short Product
137.4 92.3 10506 4104.4 291.3 3979 193.5 627.0
0.0 0.0 -4466 0.0 -6.1 0.0 0.0 -218.5
170.0c 37.0c 82.0c 228.0c 23.0c 28.0c 19.0c 107.0c
241.0c 90.0c 188.8c 279.6c 52.2c 32.0c 60.2c 215.3c
90.0c 22.0c 41.0c 106.0c
COHKZB
COHKZQ JBHKZP BHPKZR CBAKZT CPUKZP TLSKZP CCLKZP LEIKZP
14.0c 43.0c 47.0c
BHPKZD CBAKZN CPUKZB TLSKZD CCLKZA LEIKZI
Cochlear Limited (COH) • Slower Chinese sales, lower volume growth and currency are likely to adversely affect COH's FY09 result, which RBS Research expect to be towards the lower end of guidance range JB Hi Fi (JBH) • JBH has already upgraded on strong sales and margin. FY10 outlook (ex stimulus packages) likely to be the key driver and whether recent strong sales can continue BHP Billiton (BHP) • Reports in USD • While recent falls in commodity prices are likley to impact earnings, the change in costs will be a key focus as well as the management outlook for demand and prices Commonwealth Bank (CBA) • FY09 result is likely to show continued deterioration in economic conditions, albeit at a slower rate than peers given CBA's business mix and stronger domestic focus • Outlook for BDD’s will also be a focus and important for the sctor as a whole • The other focus will be the level of dividend paid out Computershare (CPU) • Reports in USD • Focus will be on volumes and market outlook
Telstra Corporation (TLS) • Expect the result to be at the low end of guidance, however a reliable and strong dividend will support the stock Coca Coal Amatil (CCL) • Strong summer should underpin double-digit 1H09 EPS growth and likely FY09 upgrades Leighton Holdings (LEI) • Expect surprise in the provision for firm guidance for FY10, with market attention likely to return to this forgotten favourite
NEW MINIs – ANZ, BHP, CSR, LEI, NAB, ORG, RIO Security
ExPrc
Stop Loss
CP
ConvFac
Delta
Description
ANZKZV
$
25.50
$
22.95
Short
1
1
MINI Short
BHPKZR
$
46.50
$
41.85
Short
1
1
MINI Short
BHPKZS
$
53.00
$
47.70
Short
1
1
MINI Short
CSRKZA
$
1.00
$
1.15
Long
1
1
MINI Long
CSRKZP
$
3.00
$
2.55
Short
1
1
MINI Short
LEIKZP
$
50.00
$
42.50
Short
1
1
MINI Short
NABKZT
$
31.12
$
28.01
Short
1
1
MINI Short
ORGKZP
$
20.00
$
18.00
Short
1
1
MINI Short
RIOKZS
$
80.00
$
72.00
Short
1
1
MINI Short
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