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. This material has not been reviewed by Egoli.
| Global Market Action |
Scoreboard, Commentary |
| Aussie Market Action |
SPI Comment, Events & Dividends |
| TLS (TLSKZD) |
MINI Trading Buy - RBS trading buy |
| NAB (NABKZS) |
MINI Trading Update - More tax liability? |
| BLD (BLDKZQ) |
The Bear Cage - FY10 number too high? |
United States Commentary
Dow Jones index slipped 82.4 pts or 1.0% after consumer confidence unexpectedly slid and delinquencies on the least-risky mortgages more than doubled. A 0.8% fall by the S&P 500 still wasn't enough to limit the biggest quarterly advance since 1998, up 15.2%.
Eco - Consumer Confidence number fell to 49.3, showing a negative read on business conditions, vs 55.3 exp'd and 54.8 previous. The Chicago Purchasing Manager index came in inline with forecasts, although still showing a deteriorating environment, at 39.9, an improvement on prev 34.9. The Milwaukee Manufacturers index increased to a neutral reading of 50 for June, above the 45 forecast and 43 previous.
Resources - A weaker consumer confidence number and further softness in the commodities was enough for Caterpillar to give up 4.9%. On concerns that China's rate of imports of base metals, coal and iron ore are unsustainable.
Financials - Citigroup and JP Morgan fell 1.7% and 1.4% as government data showed an increase in the least risky prime mortgages 60 days or more past their due date, more than doubled in the first quarter from a year earlier, to 2.9 percent from 1.1 percent, sending a signal that government efforts to help homeowners failed to offset jobloss pressures.
Techs - Microsoft added 2.1% after a broker upgrade, and led a rally in the technology shares on comment that the sector would be among those that surprised in an economic rebound. Hewlett-Packard led the Dow gainers +3.6%.
Growth Proxies - Although the last day of a quarter can see stocks pushed around, it seemed that the generally muted Confidence, Manufacturing and Mortgage Delinquencies were enough to drag on the stocks most leveraged to economic growth. Outside of Caterpillar, American Express fell 3.2%, Procter & Gamble lost 2.2% and DuPont dropped 1.5%.
United Kingdom & Europe Commentary
The FTSE fell 1% or 45pts to end the record quarter on a muted note as oils weighed on the index and disappointing US data was weaker than expected. The FTSE Eurofirst 300 was 1.1% lower, the DAX dropped 1.6% and the CAC was off 1.7%
Eco - UK figures that revealed the British economy contracted at a much sharper pace than initially thought, falling by 2.4% in 1Q vs - 2.1% expected, revised down from a fall of 1.9%. The fastest rate in more than 50 years. YoY the figures are even worse with the decline of 4.9% vs -4.3% expected the worst since records began in 1948.
UK Banks - Investors locked in profits after the record quarter and recent strength. Lloyds, RBS, HSBC and Standard Chartered shed between 0.9% and 3%. However, Barclays was an exception, up 1.2%.
Euro Banks - Europe also saw profit taking and a negative reaction to the poor US data. Deutsche Bank was off 2.9%, Credit Agricole lost 3.9% and SocGen dropped 2.3%. Italian banks were higher following a broker upgrade, who sounded an optimistic note on asset quality in Italy’s banking sector. They upgraded Monte dei Paschi, up 4.5%, and Banco Populare, up 5.7%, to neutral from underweight.
Retail - Arcandor, the insolvent German retailer, rose as much as 11% before closing down 1.6% after it agreed a €50m loan with the German government, which would allow it to avoid having to close large parts of its mail-order subsidiary. Carrefour was down 3% as Europe’s largest retailer held an analysts’ day in Paris where it outlined a transformation programme aimed at improving its brand. It said it would close stores in southern Italy and focus on the more profitable north of the country.
Resources Commentary
Miners - Xstrata, off 2.2%, confirmed its $1bn estimate of synergies from its proposed merger with Anglo American, off 2.7%, after UK newspaper the Times had reported advisors as saying the figure could be much higher. BHP fell 0.5%, Rio was off 2.2%, Vedanta dropped 1.1% and Antofagasta was 1.8% lower.
Energy - Falling crude prices at under $70 a barrel helped send oil majors lower. BG Group, BP and Shell fell between 1% and 1.8%. BG Group also said it would pay Dallas-based Exco Resources Inc $1.3bn for an interest in shale gas resources, as oil and gas firms continue to snap up assets before an economic recovery drives prices higher.
SPI Commentary
The SPI traded up 48pts or 1.25% to 3900. Open at 3897 with a low of 3894 and a high of 3929. Volume 29,160. Overnight the SPI traded down 24pts to 3877.
Upcoming Economic Events
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Monday
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Tuesday
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AUS - HIA new home sales, RBA private sector credit
US - S&P/CS composite 20, Chicago PMI
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Wednesday
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AUS - AIG/PWC manufacturing PMI, nominal retail sales, building approvals
US - TCB consumer confidence, Milwaukee NAPM, ADP employment report
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Thursday
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AUS - Trade balance
US - Construction spending, vehicle sales, non-farm payrolls, average hourly earnings, unemployment rate
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Friday
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AUS - AIG/CBA services PSI
US - Factory orders, Independence day holiday
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*Dates are indicative only and may change
Upcoming Dividends
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ExDivDate
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Security
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Description
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Div (c)
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Yield
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Frk(%)
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PayDate
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MINI Trading Buy:
Telstra Corporation (TLSKZD) – RBS Short term trading buy
RBS currently have a short term trading buy on Telstra for the period through to Telstra's FY09 result due on 13 August. We consider the high-water mark of regulatory risk has been reached, and the trading case now rests on the relative reliability of FY09F earnings and dividend of 14cps, which offers a 9% yield. The recent pullback provides a good entry opportunity with the stock having made a higher low in May/June. Indicative close range is $3.55-3.62. Buy TLSKZD
Relative reliability of FY09 earnings and dividend
RBS Research expect Telstra’s 2H09 to show good wireless broadband growth and erosion to ULL to have slowed in 2H09, although the recessionary impact on revenue has probably increased in 2H09 on 1H09. Some incremental positive surprise may be in Next IP data product revenue, which appears to have held up well in the business and enterprise segment. We estimate 2H09 revenue growth is running below 3%, which would bring in annual growth at the low end of the 3-4% guidance range. Expect costs to remain relatively high in 2H09 due partly to transformation issues, but sufficiently under control to allow the company to deliver the low end of its target EBIT growth of 3- 5%. The cost issues are already expected by the market and so delivery of EBIT within guidance would be a net positive.
RBS Minis over TLS
| Security |
ExPrc |
Stop Loss |
CP |
ConvFac |
Delta |
Description |
| TLSKZC |
257.31 |
|
Long |
1 |
1 |
MINI Long |
| TLSKZD |
285.54 |
|
Long |
1 |
1 |
MINI Long |
| CSLSZX |
428.75 |
|
Short |
1 |
1 |
MINI Short |
| CSLVZM |
398.37
|
|
Short |
1 |
1 |
MINI Short |
RBS Warrants over TLS
| Security |
ExDate |
ExPrc |
CP |
ConvFac |
Delta |
Description |
| TLSIZM |
03-Dec-09 |
250 |
Call |
1 |
0 |
Rolling Instalment |
| TLSIZQ |
14-Jun-10 |
250 |
Call |
1 |
0 |
Rolling Instalment |
| TLSIZR |
14-Jun-10 |
225 |
Call |
1 |
0 |
Rolling Instalment |
| TLSIZW |
03-Dec-09 |
250 |
Call |
1 |
0 |
Rolling Instalment |
| TLSIZY |
03-Dec-09 |
345 |
Call |
1 |
0 |
Rolling Instalment |
| TLSIZZ |
03-Dec-09 |
300 |
Call |
1 |
0 |
Rolling Instalment |
| TLSJZA |
30-Jul-09 |
350 |
Call |
1 |
0 |
HOT Instalment |
| TLSJZB |
29-Oct-09 |
250 |
Call |
1 |
0 |
HOT Instalment |
| TLSSZX |
04-Feb-19 |
191.7 |
Call |
1 |
1 |
Self Funding Instalment |
MINI Trading Update:
Natinal Australia Bank (NABKZS) – Additional tax liability?
NAB may have an additional tax liability of A$367-615m depending of the determination by the ATO. The liability represents a 10-15bp drag on tier-1 capital. NAB also has earnings risks from the UK operations and its CDO exposures which are the main reason for RBS Research Sell recommendation. RBS research have a target price of $14.98 on NAB which is 33% below the current share price. Play downside thorugh NABKZS
- NAB has an ongoing dispute with the ATO over the tax deductability of various elements of its exchangeable capital units
- The current assessment is A$570m (post tax) or A$615m (pre tax). NAB has current objections against these assessments.
- An unfavourable tax ruling for SGB in May has led NAB to review its current assessment. NAB believes that under general deductability (similar to the SGB tax ruling), its liability would be A$367m (A$347m post tax). However, under section 4A of the tax code its liability would be as disclosed A$615m (A$570m post tax).
- NAB expects an ATO determination within FY09.
- The outcome is unlikely to have an impact on cash earnings but will have a capital impact due to the writedown of the tax asset (A$309m) as well as a reported profit impact for any amount not covered by the tax asset
- This is likely to 10-15bp impact on tier-1 capital, in the view of RBS Research
RBS warrants over NAB
| Security |
ExDate |
ExPrc |
CP |
ConvFac |
Delta |
Description |
| NABIZQ |
14-Jun-10 |
1300 |
Call |
1 |
0.000 |
Rolling Instalment |
| NABIZR |
3-Dec-09 |
1700 |
Call |
1 |
0.000 |
Rolling Instalment |
| NABIZW |
3-Dec-09 |
1400 |
Call |
1 |
0.000 |
Rolling Instalment |
| NABIZZ |
3-Dec-09 |
1850 |
Call |
1 |
0.000 |
Rolling Instalment |
| NABJZA |
30-Jul-09 |
2250 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZB |
30-Jul-09 |
2500 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZD |
29-Oct-09 |
1000 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZE |
29-Oct-09 |
1500 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZF |
29-Oct-09 |
1800 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZG |
28-Jan-10 |
1000 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZH |
28-Jan-10 |
1600 |
Call |
1 |
0.000 |
Hot Instalment |
| NABJZI |
28-Jan-10 |
2000 |
Call |
1 |
0.000 |
Hot Instalment |
| NABSZX |
4-Feb-19 |
958.27 |
Call |
1 |
0.000 |
Self Funding Instalment |
| NABWZA |
29-Oct-09 |
2600 |
Call |
4 |
0.063 |
Trading Call Warrant |
| NABWZB |
29-Oct-09 |
2500 |
Call |
4 |
0.081 |
Trading Call Warrant |
| NABVZL |
30-Jul-09 |
2200 |
Call |
4 |
0.153 |
Trading Call Warrant |
| NABVZM |
30-Jul-09 |
1900 |
Call |
4 |
0.246 |
Trading Call Warrant |
| NABVZN |
27-Aug-09 |
2100 |
Call |
4 |
0.186 |
Trading Call Warrant |
| NABVZO |
24-Sep-09 |
2300 |
Call |
4 |
0.119 |
Trading Call Warrant |
| NABVZV |
30-Jul-09 |
2100 |
Put |
4 |
-0.048 |
Trading Put Warrant |
| NABVZW |
27-Aug-09 |
1800 |
Put |
4 |
-0.006 |
Trading Put Warrant |
| NABVZX |
24-Sep-09 |
2000 |
Put |
4 |
-0.047 |
Trading Put Warrant |
| NABVZY |
24-Sep-09 |
2200 |
Put |
4 |
-0.102 |
Trading Put Warrant |
| NABVZZ |
29-Oct-09 |
1900 |
Put |
4 |
-0.039 |
Trading Put Warrant |
| NABWZP |
29-Oct-09 |
2400 |
Put |
4 |
-0.147 |
Trading Put Warrant |
RBS MINI’s over NAB
| Security |
ExPrc |
Stop Loss |
CP |
ConvFac |
Delta |
Description |
| NABKZL |
1350.56 |
|
Long |
1 |
1 |
MINI Long |
| NABKZM |
1189.93 |
|
Long |
1 |
1 |
MINI Long |
| NABKZP |
4012.39 |
|
Short |
1 |
1 |
MINI Short |
| NABKZQ |
3242.39 |
|
Short |
1 |
1 |
MINI Short |
| NABKZS |
2739.43 |
|
Short |
1 |
1 |
MINI Short |
The Bear Cage:
Boral Limited (BLDKZQ) – FY10 numbers too high?
The FHFA reported Fannie Mae and Freddie Mac modification of existing mortgage terms and conditions are up +43% QoQ to 31 March 2009 and that amongst these modifications, reductions in mortgage payments of >20% accounted for some 52% of volume (2% in pcp) in an attempt to dampen the impact of further foreclosures that are expected through the balance of CY09 and into CY10. Fannie Mae and Freddie Mac own or guarantee 56% of all mortgages outstanding but only 22% of all seriously delinquent loans.
Despite this, a recovery in new housing activity still seems a long way off and RBS continue to expect house price stability to be the meaningful catalyst for a national recovery in housing and note that whilst existing housing inventories are off their peak of nearly 11 months, at 9 months, they are still 33% above the long term average and average house prices are still continuing to fall. Go short BLD on a breakdown of $3.90 support through BLDKZQ
There is at least one quarter lead time between leading indicator improvement and a volume impact for each of the building materials plays (JHX, BLD) which should emphasise how difficult FY10 is likely to be for both companies and why consensus expectations for BLD in particular to achieve a flat yoy FY10 NPAT result look particularly at odds with construction fundamentals both in the US and in Australia
RBS MINI’s over BLD
| Security |
ExPrc |
Stop Loss |
CP |
ConvFac |
Delta |
Description |
| BLDKZD |
203.83 |
|
Long |
1 |
1 |
MINI Long |
| BLDKZQ |
558.71 |
|
Short |
1 |
1 |
MINI Short |
For Further Information on RBS Warrants and Structured Products
please do not hesitate to contact us! |
| Robbie Taylor |
Ben Smoker |
|
(02) 8259 2018
|
(02) 8259 2085 |
|
robbie.taylor@rbs.com
|
ben.smoker@rbs.com |
|
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| RBS Equities Australia Limited ABN 84 002 768 701 | AFS Licence 240530 | Participant of ASX Group |
|
The information contained in this report has been taken from sources believed to be reliable. RBS Equities Australia Limited (ABN 84 002 768 701, AFS Licence No. 240530) ('RBS Equities') does not represent that the information is accurate or complete and it should not be relied on as such. Any opinions expressed reflect RBS Equities' judgment at this date and are subject to change. RBS Equities and/or its affiliated companies may make markets in the securities discussed. Further RBS Equities and/or its affiliated companies and/or their employees from time to time may hold shares, options, rights and/or warrants on any issue included 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 the 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 whatsoever. RBS, 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's assistance, consider whether any advice contained in the 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 spoken to your adviser for a personal securities recommendation. For clients in the USA, RBS Incorporated does not accept responsibility for the contents of this report. This report is distributed in the U.S. solely to 'major institutional investors' as defined in Rule 15a-6 (US Securities Exchange Act 1934). Each US recipient by its acceptance hereof warrants that it: is a 'major institutional investor', as defined; understands the risks involved in dealing in the Securities or any related investments or instruments; and shall not distribute nor provide this report, or any part thereof, to any other person. Any US recipient wishing to effect a transaction in any security mentioned herein, or any related investment or instrument, should do so by contacting RBS Incorporated and not RBS Equities Australia Limited. For clients in the UK, RBS Equities (UK) Limited accepts responsibility for the contents of this research material. The warrants mentioned in this report are issued by RBS Australia Limited (ABN 78 000 862 797, AFS Licence No.247013).
The Product Disclosure Statement ("PDS") relating to these warrants is available upon request from RBS (1800 450 005) or on our website www.abnamro.com.au/warrants/circulars.asp. 2004 RBS Equities Australia Limited (ABN 84 002 768 701) A Participant of the ASX Group.
