rbs - round up - 281009

8/14/2019 RBS - Round Up - 281009

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

The Round Up

28 October 2009

Issue No. 206

The Round Up is a comprehensive daily note produced by the RBS Warrants

team providing an overview of market movements along with quality ideas forwarrant 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

QAN (QANKZJ) MINI Trading Buy – Beneficiary of high AUD

Banks (NAB,ANZ,WBC) Sector Update – NAB result today

Round Up Corner Strategy – Acquisition candidates

Equities

Move Last % Move Range Volume

ASX 200 -76.8 4753.5 -1.6% -79 to -16.u.c $5.9 bn(A)

SPI - yesterday -76.0 4764.0 -1.6% -91 to -46.u.c 17,757(L)

Dow Jones +14.2 9882.2 +0.1% -30 to +80 High

S&P 500 -3.5 1063.4 -0.3% -6 to +6 Avg

Nasdaq -25.8 2116.1 -1.2% -31 to +7 Avg

FTSE +9.2 5201.0 +0.2% -10 to +39 High

Commodities

Move Last % Today % Past Month

Oil-WTI spot +0.7 79.3 +0.8% +20.1%

Gold Spot +0.7 1039.2 +0.1% +4.8%

Nickel (LME) -0.0 842.7 -0.0% +10.5%

Aluminium (LME) -0.6 88.4 -0.7% +9.4%

Copper (LME) -1.4 297.3 -0.5% +9.7%

Zinc (LME) -0.1 103.8 -0.1% +23.4%

Silver -0.4 16.7 -2.4% +3.8%

Sugar -0.2 22.1 -1.0% +2.4%

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Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus

NWS (US) -0.18 -0.01 +14.1 c 15.44 -28.3 c

RIO (UK) -100.50 -0.03 +28.7 c 51.39 -1362.9 c

BLT (BHP UK) -23.00 -0.01 +17.8 c 31.90 -694.7 c

BXB (UK) -2.75 -0.01 +4.1 c 7.33 +16.7 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus

BHP (US) -0.94 -0.01 +70.6 c 38.58 -26.9 c

AWC (US) -0.30 -0.05 +6.1 c 1.67 -5.0 c

TLS (US) 0.20 0.01 +14.8 c 3.24 +0.5 c

ANZ (US) 0.04 0.00 +21.7 c 23.67 -8.1 c

WBC (US) -1.39 -0.01 +123.5 c 27.01 -22.2 c

NAB (US) -0.13 0.00 +27.8 c 30.34 -36.2 c

LGL (US) -0.57 -0.02 +28.1 c 3.08 -1.5 c

RMD (US) -0.41 -0.01 +49.5 c 5.41 -7.4 c JHX (US) -1.21 -0.04 +31.9 c 6.97 -2.9 c

PDN (CAN) -0.18 -0.04 +4.3 c 4.44 -14.7 c

Overnight Commentary

United States Commentary

The small gain from the Dow masks what was otherwise a reasonable average session. Stripping out strength from the energy plays, itwould have been more red ink across the board. By the bell, the Dow up 14pts(although +20pts came from Chevron and Exxon), theS&P -0.3% and the Nasdaq finished 1.2% lower.

Steels - AK Steel and US Steel down 8.6% and 7.8% respectively (among the S&P's worst performers), after both missing the markwith 3Q numbers and offering 4Q outlooks below consensus.

Eco - US Consumer Confidence in October back below 50 at 47.7, lower than consensus at 53.5 and down on 53.1 in the month prior.Richmond Fed Manufacturing 7 vs 14 expected.

Gaming - Wynn's down 11% and the S&P500's worst performer after falling shy of the mark with 3Q numbers. Although the headlinenumber ex items came in ahead, conditions remain tough, consumers are still clamping down on spending and market share in Macaucontinues to head in the wrong direction. Elsewhere in the space IGT finished 6% lower.

Bonds - Bond yields down 9.9bps,10.4bps and 8.4bps across the 3 maturities after a record $44bln sale of two year notes drew thestrongest demand since the financial crisis. A bid to cover ratio of 3.63, the highest since August 2007 and the 2nd highest since atleast 1992.

Oils - Energy plays were the only highlight, Chevron and Exxon up 1.5% and 2.3% respectively and the only thing standing betweenthe Dow and a down day. A similar story on the S&P100, strength from the oil names hiding what would have otherwise been more redink.

United Kingdom & Europe Commentary

The FTSE eked out a gain of 0.2% or 9pts boosted by BP which reported better than expected but negativity surrounding the bankslimited gains. The FTSE Eurofirst 300 was up 0.3%, the DAX was off 0.1% and the CAC was flat.

UK Banks - The sector was again weaker on the fallout from the ING news. RBS sank 8.2% and Lloyds fell 6.2% on investors fearsthat they will have to sell assets. HSBC fell 0.8%, Barclays was off 3.6% and Standard Chartered dropped 2.1%.

Euro Banks - Following the ING announcement Belgium’s Dexia and KBC were off 5.8% and 4.7% respectively on fears of largecapital raisings. Deutsche Bank dropped 0.5%, Commerzbank sank 5.6% with traders also speculating that 3Q earnings will be weakwith BNP and SocGen down 1.7% and 3.3% respectively.

Materials - Norsk Hydro, Europe’s second- largest aluminium producer, fell 4% despite reporting better than expected 3Q profit. Thesurprise lift in profit was thanks to FX gains and underlying earnings were worse than expected.

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Eco - British retail sales volumes grew at their fastest pace in almost two years in October, a CBI survey indicated on Tuesday, withretailers more upbeat about future prospects than at any time since July 2007. Home Retail gained 2.7% also boosted by a brokerupgrade, Tesco, Sainsbury and Morrison 2%, 0.6% and 1.3% respectively.

Eco - The eurozone has reported the first year-on-year fall in bank lending to the private sector, strengthening the case for theEuropean Central Bank to maintain its ultra-loose interest rate policy. Loans to the private sector contracted at an annual rate of 0.3%in September, after a 0.1% rise in August.

Commodiites Commentary

Miners - Weaker metal prices saw the sector pull back. BHP was off 1.3%, Rio fell 3.4%, Anglo dropped 2.1%, Xstrata was also down2.1%, Vedanta sank 5.1% and Antofagasta was off 2%.

Energy - BP rose 4.8% after it reported a smaller than expected 50% decline in 3Q profits. Rivals Shell and BG Group were up 2.1%and 0.8% respectively. In Europe Total rose 1.8%, Statoil was up 1.7% and Repsol ended the day 0.8% higher.

SPI Commentary

The SPI traded down 76pts or 1.57% to 4764. Open at 4791 with a high of 4794 and a low of 4749. Volume 32,383. Overnight the SPItrading down 21pts to 4743.

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

US US consumer confidence

Wednesday AUS RBA Assistant Gov (Financial System) Edey speaks, Aus CPI,

US US durable goods orders

Thursday AUS Aus HIA new home sales

US US new home sales, US GDP

Friday AUS

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

*Dates are indicative only and may change

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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 goinginto 2010. Last week’s production numbers show that RIO has a strong base for growth in 2010, particularly in iron oreand 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

ProductionRIO’s production report was strong, with iron ore production in Western Australia perticularly strong. Coal productionvolumes were also strong from RIO’s North American operations. Aluminium volumes were in line however there isupside 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

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MINI Trading Buy:

Qantas Airways (QANKZJ) – Beneficiary of a higher AUD

QAN is leveraged to an economic recovery and is a big beneficiary of the appreciating AUD/USD. Comments at QAN’sAGM suggest management is confident it has passed the worst. Updated currency forecasts result in earnings upgradesfor FY10-11F. Given strengthening economic conditions and higher currency, RBS Research maintain Buy

recommendation with $3.35 target price. Use the recent pullback to buy QAN. Play thorugh QANKZJ

Source: IRESS

QAN management appears increasingly confident that the worst is behind the company. The next critical piece ofinformation is to see yield improvement, which RBS Research believe may become evident in 2H10 as demand hasstabilised and the worst of the discounting appears to have passed.

QAN is also a beneficiary of a rising AUD/USD. With an estimated 39% of QAN’s cost base exposed to the USD,earnings are positively impacted. Given the spot price sits at $0.92, further earnings upside potential exists. On RBSestimates a 1c increase in the AUD equates to a A$14m increase in NPAT (4.3%).

RBS Research has a Buy recommendation on QAN with a target price of $3.35. With the economic environmentstrengthening and currency movements positively impacting the cost base, we think there remains momentum behind theairlines.

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Sector Update:

Banking Sector (NAB,ANZ,WBC) – NAB result today

Bank reporting season is here with NAB reporting today. RBS Research believe this results season is likely to bedominated by talk of recovery. A faster domestic recovery than is generally expected will probably have significantpositive 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 andassociated dividends through RBS Self funding isntalments which benefit from dividends, franking credits and interestdeductibility. ANZSZW, NABSZW and WBCSZV are the products to use.

Source: IRESS

Results season – NAB 28 Oct, ANZ 29 Oct, WBC 4 NovNAB 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 stressedexposures and declining arrears, and possibly at least one CEO calling ‘the top’ of the BDD cycle. A faster recovery islikely 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 concernsaround funding growth in the current high-cost environment, the impact of higher interest rates on asset growth, andimpending 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 themost 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

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RBS Round Up Corner:

Acquisition Candidates

As the global financial crisis continues to recede, RBS Research Strategy believe we are about to enter into aninvestment/M&A cycle in the market. Balance sheets are lowly geared, asset values are off their peaks and managementwill be starting to think of expansion rather than survival. We identify potential acquisition candidates.

Both corporate balance sheets and cash flows are strongCorporate cash flows remained robust in 2009 and we forecast growth will resume in 2010. Similarly, corporateAustralia’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 PriceApprox. MINI

ValueShare:

Stop Loss

CBA CBAKZQ Short $62.91 $56.70 $ 55.71 $ 7.20 1.8%

WES WESKZU Short $32.25 $29.07 $ 28.38 $ 3.87 2.4%

WBC WBCKZP Short $31.59 $28.48 $ 27.42 $ 4.17 3.9%

SUN SUNKZP Short $10.68 $9.63 $ 9.26 $ 1.42 4.0%

BHP BHPKZR Short $45.74 $41.25 $ 39.13 $ 6.61 5.4%

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For further information please do not hesitate to contact us on the details below

Equities Structured Products & Warrants

Toll free 1800 450 005 www.rbs.com.au/warrants

Trading Products Team

Ben Smoker 02 8259 2085 [email protected]

Robbie Taylor 02 8259 2018 [email protected]

Ryan Corrigan 02 8259 2425 [email protected]

Investment Products Team

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]

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

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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

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