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The Round Up
24 August 2009
Issue No. 161
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
CSL (CSLVZO) Trading Update – Good result + Buyback
BSL (BSLKZI) MINI Trading Buy – Buy the dips
TLS (TLSSZX) Self Funding Buy – Future Fund Selldown
Round Up Corner Stocks reporting this week
Equities
Commodities
Overnight Commentary
United States Commentary
US stocks rallied on Friday, their fourth consecutive gain, sending the S&P 500 to it's highest levels since October as existing home
sales jumped above the 5m house level. Dow finishd up 155.9 pts and the S&P 500 gained 1.9% to 1,026, importantly the moves were
on solid volume and closed around their highs.
Eco - Existing Home Sales jumped to their highest level in almost two years, 5.24m vs 5.0m expected, and above the 4.89m in June.
Importantly breaking through the above the 5m homes level it has been flirting with all year. Month-on-month sales increased 7.2%,
better than the 2.1% increase forecast and last month's 3.6% improvement.
Industrials - Comments from Fed Chairman Bernanke that the prospects for a return to growth in the near term appear good, added to
feelings that the economy is stabilizing and helped give industrial names a boost. Merck rose 3.9%, Walt Disney gained 3.5%, Home
Depot up 3.1% and GE put on 2.9%.
Financials - Regions Financial gained 6.7% to top the S&P 100, Citi put on 4.9% and JP Morgan rose 2.9% as the financials were also
caught up in the positivity from both Fed officials and housing prices.
Resources - Oil hit its highest level this year and copper reaching 11-week highs on the back of better eco data in the US and across
Europe. Caterpillar topped the Dow gainers up 4%, Exxon rose 2%, and Chevron up 1.6%, the three adding over 30pts between them.
Treasuries - US Treasuries fell by between 10 and 13 basis points across the 2, 20 and 30 year maturities as Fed Reserve Chairman
Bernanle said the global economy is "beinning to emerge" from recession.
Airlines - British Airways topped the FTSE, up over 7% on what most put down to a short squeeze. Elsewhere, Easy Jet and Ryan Air
up 4.1% and 2.2%, both moves on heavy turnover.
Insurers - Legal & General up 5.6% and just behind BA on the FTSE leaderboard after one broker added the name to their high
conviction list. Most of the other sector constituents came along for the ride, Aviva up 5.5%, Friends Provident 4.3% and Old Mutual
finished 3.3% higher.
Eco - A better than expected result for German PMI, Manufacturing coming in at 49.0 vs 47.0 expected and July's 45.7, Services
54.1(up thru 50 signalling expansion) vs 48.6 expected and last months 48.1.
Financials - 2nd to the cyclicals but one of the standout sectors across broader Europe. BNP up 6%, Credit Agricole 5.2%, Allianz up
3.6% and Deutsche Banks finished 3.3% higher. All 4 featuring in their corresponding top10's.
Resources Commentary
Miners - Following a better night from the metals and a night punctuated by optimism around global growth, moves from the metal
plays were good without being spectacular. Rio up 2.7%, Billiton 1.8% higher and the UK Mining sector finished 2.6% higher.
Energy - Oil plays among the larger contributors to the FTSE's gains following the bounce from crude. Carin Energy, Royal Dutch and
BP up 4%, 3 % and 2% respectively, together accounting for c20% of the days gains.
SPI Commentary
The SPI traded down 71pts or 1.64% to 4250. Open at 4345 with a high of 4348 and a low of 4230. Volume 46,651. Overnight the SPI
traded up 69pts to 4320.
*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS
Upcoming Dividends
Source: IRESS
CSL has guided to FY10 NPAT of A$1,160m-1,260m in constant-currency terms. RBS have a FY10F NPAT forecast of
A$1169.0m, which implies a growth rate of 14.6% on the pcp.
RBS Research continue to believe CSL is a high-quality franchise. The next catalyst for the stock should be a 9
September US FDA decision whether to reimburse for HPV vaccination in boys.
Source: IRESS
RBS Research find the stock appealing at these levels given its earnings leverage to a steel market recovery and a
reasonable 0.97x P/B (FY10F). RBS maintain Buy recommendation and target price of $3.55
Source: IRESS
• Broadband ARPU increased 6.5% to A$57.70. MBB SIOs doubled to 1.05m, helping lift mobile ARPU 4.8% to
A$51.84.
• Sales of IP-based products also increased at double-digit rates. With the rate of PSTN erosion reducing in 2H09
(cf 1H09) the speed-driven revenue lines helped keep total revenue growth at 2.7%, a good rate given the
economic slowdown.
• Maintaining comparable revenue growth in FY10 may be harder as unemployment rises, the A$ strengthens and
Sensis sales face a tougher business environment.
• The company says achieving its FY10 targets ‘would give us significant excess free cashflow, and all the
flexibility that brings’. We think there is enough flexibility to contribute to NBN Co, on the right terms, and still pay
an extra 2cps in dividends fully franked.
• RBS Research valuation $4.85 with a target price of $4.30, which is 12.0x FY10F EPS of 35.6c.
• Key downside risks include further margin contraction, tougher regulation and lower access prices.
• Upside risks include faster sales recovery, better cost control and higher access prices. Regulatory issues may
be clearer when proposed legislation is tabled, we think by September.
Date Code Company Y/E NPAT (Abs) Div EPS 2H Long Short
(pre abs) div Product Product
24 Aug WOR WorleyParsons Jun AUD 409.2 0.0 86.0c 172.1c 48.0c WORKZD
25 Aug ALL Aristocrat Leisure Dec AUD 40.9 -5.0 5.0c 30.4c 36.0c ALLKZI
25 Aug FGL Foster's Group Jun AUD 739.8 -349.0 27.0c 38.4c 15.0c FGLKZD
25 Aug OSH Oil Search Dec USD 15.2 0.0 4.0c 8.4c 8.0c OSHKZD OSHKZR
25 Aug SUN Suncorp-Metway Jun AUD 462.0 -414.0 40.0c 41.0c SUNKZM SUNKZP
26 Aug AOE Arrow Energy Jun AUD -24.2 0.0 0.0c -3.3c AOEKZA
26 Aug CMJ Consolidated Media Jun AUD 85.8 0.0 16.5c 12.4c 6.0c CMJKZC
26 Aug HSP Healthscope Jun AUD 83.7 -11.5 21.5c 33.2c 11.0c HSPSZX
26 Aug WDC Westfield Group Dec AUD 1047 0.0 47.5c 97.3c 95.0c WDCKZG WDCKZR
27 Aug CWN Crown Jun AUD 247.0 -610.7 34.6c 34.6c 20.8c CWNKZG CWNKZP
27 Aug LGL Lihir Gold Dec USD 152.3 -186.5 0.0c 12.4c 0.0c LGLKZI LGLKZP
27 Aug TOL Toll Holdings Jun AUD 296.7 -28.8 20.0c 43.7c 8.5c TOLKZH TOLKZP
27 Aug TTS Tatts Group Jun AUD 292.7 0.0 20.8c 23.1c 10.6c TTSSZX
27 Aug WOW Woolworths Jun AUD 1781 0.0 99.5c 145.3c 51.5c WOWKZF WOWKZS
28 Aug SHL Sonic Healthcare Jun AUD 302.2 0.0 54.0c 83.6c 32.0c SHLSZX
*Figures in table based on RBS Research forecasts
Monday
Worley Parsons (WOR) - Watching for lagging margin compression after the fall in oil prices from its peak.
Tuesday
Aristocrat Leisure (ALL) - ALL has guided to 1H09 normalised NPAT of A$35m-45m, with Japan expected to be particularly weak in the period. Focus
will be on an update on ALL's business transformation strategy.
Fosters Group (FGL) - Downside risk to consensus on tough wine (domestic and UK/US) and increased beer competition. Cash flow likely to be the
highlight.
Suncorp Metway (SUN) - Key focus will be bad debt deterioration in the bank.
Wednesday
Arrow Energy (AOE) - Looking for consistent production/profitability from the established fields.
Healthscope (HSP) - Expect a good result driven by ongoing volume increases in pathology and demand growth in hospitals.
Westfield Group (WDC) - Focus will be on status of construction yields, and an update on tenancy at Strathfield and Sydney City.
Thursday
Crown Limited (CWN) - Expect Australian casino revenues to have remained relatively resilient in the six months to June (we forecast 5.6% growth in
2H09).
Lihir Gold (LGL) - (USD) Focus will be on Ivory Coast expansion and the Million Oz project.
Toll Holdings (TOL) - Expect 2H to be marginally down on the pcp, coming in slightly below original guidance.
Tattersalls (TTS) - Tatts should benefit from a strong run in jackpots from its lotteries business, as well as relatively defensive earnings from wagering
and gaming.
Woolworths Limited (WOW) - Strong sales and margin, particularly in Australian F&L. All eyes will be on international acquisition commentary.
Friday
Sonic Healthcare (SHL) - Expect a solid result driven by ongoing volume increases in domestic pathology and margin uplift generated from acquisition
synergies.
MINIs approaching stop loss
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
Trading Products Team
Ben Smoker 02 8259 2085 ben.smoker@rbs.com
Robbie Taylor 02 8259 2018 robbie.taylor@rbs.com
Ryan Corrigan 02 8259 2425 ryan.corrigan@rbs.com
Investment Products Team
Elizabeth Tian 02 8259 2017 elizabeth.tian@rbs.com
Tania Smyth 02 8259 2023 tania.smyth@rbs.com
Robert Deutsch 02 8259 2065 robert.deutsch@rbs.com
Mark Tisdell 02 8259 6951 mark.tisdell@rbs.com
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