RBS - Round Up - 161109

8/14/2019 RBS - Round Up - 161109

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

The Round Up

16 November 2009

Issue No. 218

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

CBA (CBAVZG/CBAWZX) Trading Update – 1Q10 Update

NWS (NWSKZI) MINI Investment Buy – Leverage to growth

QBE (QBESZX) SFI Investment Buy – Investor Update

Round Up Corner RBS Model Portfolio – Recovery Bias

Equities

Move Last % Move Range Volume

ASX 200 -41.5 4706.4 -0.9% -57 to -14.u.c $5.0 bn(A)

SPI - yesterday -36.0 4726.0 -0.8% -57 to -21.u.c 27,801(A)

Dow Jones +73.0 10270.5 +0.7% -5 to +108 Low

S&P 500 +6.2 1093.5 +0.6% -2 to +11 Low

Nasdaq +18.9 2167.9 +0.9% -3 to +23 Low

FTSE +19.9 5296.4 +0.4% -25 to +21 Low

Commodities

Move Last % Today % Past Month

Oil-WTI spot -2.9 76.4 -0.8% +3.0%

Gold Spot +1.3 1118.7 +1.3% +5.1%

Nickel (LME) -33.5 727.9 -0.5% -11.3%

Aluminium (LME) -0.8 86.8 -0.1% +2.3%

Copper (LME) -0.7 294.9 +0.3% +6.2%

Zinc (LME) -0.5 97.4 +1.1% +7.5%

Silver -0.2 17.4 +1.3% -2.0%

Sugar -0.1 22.1 +0.1% -0.5%

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Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus

NWS (US) 0.33 0.02 +14.8 c 15.86 +14.2 c

RIO (UK) 33.00 0.01 +31.3 c 56.10 -1342.1 c

BLT (BHP UK) 18.50 0.01 +18.2 c 32.55 -645.7 c

BXB (UK) -11.25 -0.03 +3.8 c 6.82 -13.8 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus

BHP (US) 1.72 0.02 +73.3 c 39.25 +23.7 c

AWC (US) 0.09 0.01 +6.1 c 1.64 +0.4 c

TLS (US) 0.27 0.02 +15.3 c 3.28 -2.1 c

ANZ (US) -0.11 -0.01 +20.8 c 22.27 -21.4 c

WBC (US) 2.03 0.02 +120.7 c 25.85 +3.0 c

NAB (US) 0.04 0.00 +27.4 c 29.35 +45.6 c

LGL (US) 0.89 0.03 +31.9 c 3.41 +5.1 c

RMD (US) 1.53 0.03 +50.5 c 5.41 +3.2 cJHX (US) 0.10 0.00 +35.7 c 7.64 +6.6 c

PDN (CAN) -0.02 0.00 +4.0 c 4.09 -3.4 c

Overnight Commentary

United States Commentary

A solid close to the week, a miss from the UoM confidence number offset by upside earnigns surprise from Walt Disney and a couple ofthe larger discretionary retailers. By the bell, the Dow off highs but 73pts higher, the S&P up 0.6% and the Nasdaq finished 0.9%higher.

Media - Walt Disney just shy of 5% higher and the Dow's best after surprising with an 18% jump in profits for the 4Q. Despite another

poor showing from the film division, net income for the period came in at 47cps vs consensus and the pcp of 40cps.

Retail - Abercrombie & Fitch up nearly 11% and the S&P500's top performer after beating with quarterly numbers. Excluding one-offsprofit came in at 30cps ahead of consensus at 20cps.

Retail - JC Penney followed the A&F lead, finishing 9% higher after it also outstripped expectations with the latest quarterly update.Despite a 78% drop in 3Q earnings(did include 19cps charge) mgmt upgraded its profit and sales outlook which appeared to be of mostinterest to investors.

Consumers - Mcdonalds just behind Walt Disney, up 2.3%(best pts adder) and together with the aforementioned, accounting for one-third of the Dows gains after mgmt flagged further plans for store rollouts.

Eco - University of Michigan confidence for November, 66.0 vs 71.0 expected and down on 70.6 in the month prior.

Growth - Although taking a back sit to Media and Retail names and despite the weaker confidence number, growth plays still featuredamong the Dows best. Dupont, Cisco, Microsoft and Boeing all in the top 10 and b/w1-2% higher.

United Kingdom & Europe Commentary

The FTSE was up 0.4% or 20pts, a 14 month high, with gains in commodity stocks and heavyweight HSBC the main contributors. TheFTSE Eurofirst 300 added 0.4%, The DAX was also up 0.4% but the CAC edged 0.1% lower.

UK Banks - Index heavyweight HSBC climbed 1.2% on rumours it would increase its dividend. RBS rose 0.6% but Barclays fell 1.3%,Lloyds was off 0.2% and Standard Chartered ended 1.1% lower.

Euro Banks - KBC jumped 4.5% after releasing unexpectedly strong 3Q numbers and said it is “within weeks” of reaching anagreement with the European Commission on its forced restructuring. Deutsche Bank added 0.4%, BNP rose 0.7%, SocGen also rose0.7% but Commerzbank sank 2.6%.

Eco - The eurozone emerged from recession in the third quarter of this year but GDP growth was slower than expected. EurozoneQoQ GDP growth was 0.4% vs 0.5% expected, Germany was 0.7% vs 0.8% expected and France was 0.3% vs 0.6% expected.

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Real Estate - The sector was stronger ahead of anticipated stronger numbers from British Land on Tuesday. British Land added 2.8%,Hammerson climbed 2.3%, Land Securities also rose 2.3% and Liberty International jumped 3.9%.

Commodiites Commentary

Miners - It was a mixed night for the metals but the sector was stronger thanks to the heavyweights. BHP climbed 1%, Rio rose 1.1%,Anglo added 1.9% but Xstrata fell 1.7% and Vedanta was off 2.5%.

Energy - A broker upgrade to the 2010 oil price to $85 helped the sector. BP rose 0.5%, BG Group added 2.1%, Tullow climbed 1.1%but Shell was off 0.5%. In Europe Total rose 0.75%, Statoil eked out a gain of 0.1% but Repsol fell 0.8%.

SPI Commentary

The SPI traded down 37pts or 0.78% to 4725. Open at 4736 with a high of 4740 with a low of 4705. Volume 22,515. Overnight the SPItraded up 28pts to 4754

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 AUSUS

Tuesday AUS

US Retail sales, NY Fed Empire PMI, Business Inventories

Wednesday AUS RBA Governor Debelle speaks, Wage price index

US PPI, Industrial production, NAHB survey

Thursday AUS AWOTE, RBA Bulletin, RBA Governor Debelle speaks

US CPI, Housing starts

Friday AUS

US Philadelphia Fed Survey

*Dates are indicative only and may change

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Trading Update:

Commonwealth Bank (CBAVZG/CBAWZX) – 1Q10 update

CBA reported its 1Q10 trading update last week after the other banks reported results. 1Q10 benefited from lower BDDsand strong revenue growth. Revenue growth is unlikely to be as strong for the remainder of FY10, but CBA will still be akey beneficiary of falling BDDs. RBS Research have a hold recommendation with $55.65 target price. Technically CBA is

consolidating the past 10 months rally with resistance at $56. Trade upside via CBAVZG or downside via CBAWZX.

Source: IRESS

1Q10 updateFor the September quarter, CBA reported t unaudited cash earnings of ~A$1.4bn. The BDD charge was A$700m, lower than RBSResearch full-year run rate of A$2.9bn, and compares to a cA$800m charge in 4Q09. The Tier-1 ratio is now 8.7% following the PearlsV hybrid issue, putting CBA ahead of WBC but behind ANZ and NAB. The outlook statement mirrored the cautious optimism of theother banks. The only area of concern is the pick-up in CBA housing arrears, which we believe stems from aggressive market sharegains driven by first home owners in late 2008 and early 2009.

RBS Trading Warrants over CBA

Security ExDate ExPrc CP ConvFac Delta Description

CBAVZF 26-Nov-09 5300 Call 5 0.1452 Trading Call Warrant

CBAVZG 26-Nov-09 5500 Call 5 0.0822 Trading Call Warrant

CBAVZH 17-Dec-09 4600 Call 5 0.1975 Trading Call Warrant

CBAVZI 17-Dec-09 5200 Call 5 0.1486 Trading Call Warrant

CBAVZJ 28-Jan-10 5000 Call 5 0.1609 Trading Call Warrant

CBAWZU 26-Nov-09 3600 Put 5 0 Trading Put Warrant

CBAWZV 26-Nov-09 4200 Put 5 0 Trading Put Warrant

CBAWZW 17-Dec-09 4500 Put 5 -0.0014 Trading Put Warrant

CBAWZX 17-Dec-09 5000 Put 5 -0.0259 Trading Put Warrant

CBAWZY 28-Jan-10 5500 Put 5 -0.0976 Trading Put Warrant

RBS MINIs over CBA


CBAKZA 4008.49 Long 1 1 MINI Long

CBAKZK 1862.95 Long 1 1 MINI Long

CBAKZN 4501.59 Long 1 1 MINI Long

CBAKZO 3544.92 Long 1 1 MINI Long

CBAKZQ 6283.82 Short 1 1 MINI Short

CBAKZR 6818.8 Short 1 1 MINI Short

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MINI Investment Buy:

News Corporation (NWSKZJ) – Strong leverage to growth

NWS raised guidance for FY10 operating profit growth of 'high single to low double digit' which RBS research still believeis conservative. RBS Research have a +16% forecast which is underpinned by strong ongoing cable growth and animproving outlook in NWS’s key advertising markets. The stock remains cheap on an SOTP and peer multiple basis. Buy

NWSKZJ

Source: IRESS

RBS forecast 16% operating profit growth in FY101Q10 operating profit was up 9% on the pcp and EPS of US$0.22 was ahead of Bloomberg consensus of US$0.18. Thecompany raised its FY10 operating profit growth guidance from ‘high single digit’ to ‘high single to low double digit’. RBSResearch still see the guidance as conservative and raise FY10F operating income growth to +16% (previously +11%)and EPS by 5% to US$0.85.

Cable continues to outperform, TV imporvingThe cable division was again the standout in the period, with operating profit up 41%. We now forecast cable operatingprofit will grow 23% to US$2.05bn in FY10. Cable makes up half of operating income and underpins overall groupearnings growth in FY10 and FY11.

TV is showing encouraging signs, with NWS saying October pacings are flat on last year and November up ‘mid teens’.Newspapers were weak in the quarter, but the company said Australian newspaper trends are improving and newspaperoperating profit should be down only marginally for the full year. Sky Italia and FIM were both weak, but should not detractsignificantly in the full year.

Stock remains cheapNews Corp trades on an EV/EBITDA of 6.0x CY2010F, below both US peers (Disney on 7.8x, Viacom 7.6x on Reutersestimates) and Australian domestic media stocks (TEN on 9.5x). RBSprice target of $19.92

RBS MINIs over NWS

Security ExPrc Stop Loss CP ConvFac Delta Description

NWSKZI 778.45 Long 1 1 MINI Long

NWSKZJ 1150.28 Long 1 1 MINI Long

NWSKZR 1981.63 Short 1 1 MINI Short

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SFI Investment Buy:

QBE Insurance Group (QBESZX) – Investor Update

We believe the recent pullback in QBE is a buying opportunity. QBE has reiterated its FY09 guidance for an insurancemargin of 17-18%. Management has also said it has additional debt capacity for cA$1bn in acquisitions. RBS Researchhave a target price of $26.11. Buy QBESZX

Source: IRESS

• QBE reaffirmed its full-year FY09 guidance for an insurance margin of 17-18%.• QBE says it has cA$1bn in debt capacity available for acquisitions with gearing currently only c30%. Bolt-on

acquisitions appear to remain the most attractive, while management has not ruled out further agency purchases.• QBE has said US and UK insurance markets remain soft, although they expect rates to harden in 2H10• QBE’s track record in underwriting and acquisition execution remains excellent. The company has reconfirmed its

FY09 guidance and has a strong balance sheet with cA$1bn of debt capacity available for acquisitions. At A$22.15the stock continues to trade at a discount to RBS price target of A$26.11. We see value in QBE at these levels

• Use the pullback to buy through QBESZX

RBS SFIs over QBE


QBESZX 4-Feb-19 1140.01 Call 1 1 Self Funding Instalment

RBS MINIs over QBE

Security ExPrc Stop Loss CP ConvFac Delta Description

QBEKZF 1219 Long 1 1 MINI Long

QBEKZK 1124.7 Long 1 1 MINI Long

QBEKZL 1792.43 Long 1 1 MINI Long

QBEKZR 3147.08 Short 1 1 MINI Short

QBEKZS 3376.24 Short 1 1 MINI Short

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RBS Round Up Corner:

RBS Model Portfolio – Recovery bias

October saw the A$ rally, bond yields move higher, the RBA hike rakes and the equity rally abate toward month-end onthe back of mixed economic data. Since then the market has recovered in November while the $A has remained strong.RBS Research believe the recovery story remains intact, although it won't be without its setbacks. RBS model portfolio

retains a cyclical bias

Portfolio positioningFull market valuations mean that any bad news will see a significant market reaction, as was evidenced towards the endof October. A 12-month forward PE of 16.6x for the market is pushing towards a standard deviation of 1.5 above its long-run mean. Other valuation metrics also look full, which means we need earnings growth to sustain the market rally. Givenmodest expectations for 2010, the market may increasingly look to 2011 for guidance.

Key portfolio positions

• RBS Research key portfolio Overweight positions are Consumer Discretionary and Mining & Services, whichreflect our recovery bias. We trim our overweight Banks call in the short term, but will be looking to re-establish thatover the medium term.

• Key Underweight positions are in defensive sectors such as Consumer Staples, Financials and Property.

MINIs approaching stop loss

Underlying MINI Code MINI Type Strike Stop Loss Share PriceApprox. MINI

ValueShare:

Stop Loss

RIO RIOKZS Short $79.46 $71.57 $ 69.52 $ 9.94 2.9%

WES WESKZU Short $32.21 $29.01 $ 27.90 $ 4.31 4.0%

CBA CBAKZQ Short $62.84 $56.60 $ 54.33 $ 8.51 4.2%

BHP BHPKZR Short $45.68 $41.15 $ 39.01 $ 6.67 5.5%

DJS DJSKZP Short $6.78 $6.10 $ 5.77 $ 1.01 5.7%

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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/warrantsTrading 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

discussed. RBS Equities, its affiliated companies and their employees from time to time may hold shares, options, rights and warrants on any issue

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in preparing this report, has not taken into account an individual client’s investment objectives, financial situation or particular needs. Before a client

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appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on any recommendation

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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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RBS - Round Up - 161109