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

The Round Up
1 February 2010
Issue No. 263
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
News Corp (NWSKZJ) MINI Trading Buy ‘Avatar’ Profits
Qantas (QANKZK) MINI Trading Buy – Guidance confirms recovery
Paladin (PDNKZK) MINI Trading Buy – Long-term value hidden by noise
Round Up Corner Reporting Season Looms

Equities

Move Last % Move Range Volume

ASX 200 -103.7 4569.6 -2.2% -107 to -17.u.c $7.3 bn(VH)

SPI - yesterday -47.0 4499.0 -1.0% -59 to +42 46,494(VH)
Dow Jones -53.1 10067.3 -0.5% -77 to +119 Very High
S&P 500 -10.7 1073.9 -1.0% -13 to +12 Very High
Nasdaq -31.7 2147.4 -1.5% -39 to +24 Very High
FTSE +42.8 5188.5 +0.8% u.c to +84 High

Commodities

Move Last % Today % Past Month

Oil-WTI spot -0.75 72.89 -1.0% -7.6%
Gold Spot -6.25 1080.85 -0.6% -1.5%
Nickel (LME) +7.21 836.16 +0.9% -3.5%
Aluminium (LME) -1.30 92.83 -1.4% -8.4%
Copper (LME) -6.93 304.96 -2.2% -7.1%
Zinc (LME) -1.95 95.03 -2.0% -16.6%
Silver -0.04 16.21 -0.2% -5.2%
Sugar +0.90 29.90 +3.1% +11.7%
Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus

NWS (US) +0.13 +0.9% 14.68 16.61 +10.2 c
RIO (UK) +45.5 p +1.5% £30.99 55.94 -1206.0 c
BLT (BHP UK) +23.5 p +1.3% £18.660 33.68 -571.7 c
BXB (UK) +10.0 p +2.8% £3.660 6.61 +5.7 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus

BHP (US) -2.40 -3.3% 69.37 39.25 -15.0 c
AWC (US) -0.25 -4.4% 5.47 1.55 +0.7 c
TLS (US) -0.40 -2.6% 14.75 3.34 -0.2 c
ANZ (US) -0.31 -1.6% 19.19 21.72 -1.4 c
WBC (US) -3.24 -3.0% 104.78 23.71 -213.6 c
NAB (US) -0.45 -1.9% 23.11 26.15 -21.9 c
LGL (US) -1.50 -5.8% 24.25 2.74 -2.6 c
RMD (US) -0.96 -1.8% 51.14 5.79 -0.3 c
JHX (US) -1.30 -3.8% 33.19 7.51 -2567.8 c
PDN (CAN) -0.02 -0.6% 3.43 3.63 -0.7 c

Overnight Commentary
United States Commentary
The Dow closed down 53pts in light trading on Friday despite better than expected GDP figures and solid numbers from
some heavyweights, as commentary was subdued and concerns over PIIGS still weighed. The S&P ended 1% lower and
the Nasdaq fell 1.5%.
Eco - 4Q GDP was 5.7% vs 4.8% expected which saw the US Dollar rally to a 5 month high as investors bet on a sooner
than expected rate hike. The GDP number was the fastest growth for 6 years. Uni of Michigan Confidence was ahead of
expectations 74.4 vs 73 expected and up from 72.8 previously.
Energy - Chevron fell 1.5% after reporting a 37% drop in profit for the fourth quarter. The company missed analysts
expectations due to a steep loss in its refining and marketing business, a segment the company said will continue to be
challenged by low demand for fuels. Exxon dropped 0.5% as crude slipped below $73, together they stripped 12pts off the
Dow.
Tech - Microsoft dropped 1% despite reporting a 60% jump in 2Q profit and topping analysts expectations as the outlook
for their enterprise business was poor. IBM sank 1.4% and together they stripped 18pts off the Dow.
Airlines - Honeywell Intl fell 1.2% after the aircraft engine maker posted a drop in 4Q earning saying that markets were still
weak as customers in the aerospace and building-equipment sectors continued to delay restocking thin inventories.
Boeing was the worst on the Dow off 2% and stripped 15 pts.
Retail - Amazon, off 0.5%, fell despite a very strong quarter where it expanded its share of U.S. retail during an otherwise
flat holiday season for stores. Mattel, off 1.6%, also fell despite reporting a jump in sales and a big improvement in
profitability. Wal-Mart was the best on the Dow up 0.8% after announcing an alliance with global buying agent Li & Fung.

United Kingdom & Europe Commentary

The FTSE bounced 0.8% today adding 43 points as investors returned to the market after a week long sell off. Banks and
miners added most of the points ending the January session -3.9%. The DAX +1.2 and the CAC +1.4%.
UK Banks - A good bounce in the banks today with investors once again seeing value within the sector. HSBC, Barclays
and Standard Chartered the better performers finishing +2.6%, +2.1% and +1.4% respectively adding a combined 16
points.
Commodites Commentary

SPI Commentary
The SPI traded down 105pts or 2.2% to 4546. Open at 4651 with a high of 4653 and a low of 4527. Volume 40,142. Overnight the SPI
traded down 41pt to 4499.

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 AIG/PWC manufacturing PMI, Aus ANZ job ads,
US
Tuesday AUS Aus RBA cash rate decision, Aus NAB business conditions
US US personal income, US construction spending
Wednesday AUS Aus trade balance
US
Thursday AUS
US US ADP employment report, US non-manufacturing ISM, Aus nominal retail trade, Aus building approvals
Friday AUS Aus AIG/HIA construction PCI, Aus RBA Statement on Monetary Policy
US US non-farm productivity, US non-farm payrolls, US unemployment rate
*Dates are indicative only and may change
MINI Trading Buy:
News Corp (NWSKZJ) – 2Q result should see higher guidance
We feel News Corp is set to again raise its FY10 guidance when it reports its 2Q10 results on 3 February. This reflects
the strong box office performance of 'Avatar' and improving advertising markets. We forecast 2Q10 operating profit up
17% to US$983m and raise FY10F to US$4137m (20% growth on pcp). NWS remains a key RBS Research conviction
buy.

RBS Research has a $20.50 Target Price on NWS which represents a healthy 18% upside. Get Long NWS with
NWSKZJ.

Source: IRESS

We upgrade FY10F operating profit growth to +20% and expect guidance to be raised
RBS Research raise FY10F operating profit by 3% to US$4,137m (from US$4002m). This equates to growth of 20% on
the pcp (previous forecast 16%) and is well ahead of guidance for ‘high single- to low double-digit growth’. However, we
expect this guidance will be raised at the 2Q10 result given improved visibility of ‘Avatar’ profits and the recovering TV ad
market (we believe that the company kept guidance conservative in November due to the risk of losses from ‘Avatar’).
RBS Research have raised FY10F EPS to US$0.88 (from US$0.85).

TWC retransmission deal underpins TV forecasts

Fox has successfully negotiated a retransmission deal with Time Warner Cable, the secondlargest cable operator in the
US. Whilst details were not disclosed we model initial revenue per sub of just over US$0.50 rising towards News Corp’s
target of US$1.00 over an assumed five-year contract life. The TWC deal only relates to the owned and operated Fox
stations (c40% of total subs). If the TWC deal were replicated across all 100m US pay TV customers then we estimate
revenues to Fox of cUS$450m rising to cUS$900m as the fee moves up towards US$1.00 (we model Fox to get 60% of
affiliate retrans revenue).

Buy retained. Price target raised to A$20.50 (from A$19.92)

RBS Research price target increases to A$20.50 on forecast upgrades. In our view the stock remains cheap on both a
peer multiple and sum-of-the-parts basis and we see guidance upgrades and potential capital management as key
catalysts. Buy retained.
RBS MINIs over NWS

Security ExPrc Stop Loss CP ConvFac Delta Description

NWSKZJ 1167.76 1281 Long 1 1 MINI Long
NWSKZI 790.29 867 Long 1 1 MINI Long
MINI Trading Buy:

Qantas (QANKZK) – Guidance confirms recovery story

We called QAN a buy using QANKZK on the second dip to $2.55 in early December and have since seen the market re-rate
QAN based on the recovery story. With November traffic strong, and December almost behind us, QAN has guided to 1H10
PBT of between A$50m-150m. While operating conditions remain volatile, we believe the recovery in traffic and yields will
gather strength in 2H10. Our FY10F PBT sits at A$466m, with a heavy skew to 2H10. Buy maintained. Buy Long MINI
QANKZK

Source: IRESS

QAN gives 1H10 PBT guidance in the range of A$50m-150m

With 1H10 almost complete, QAN has guided to first-half PBT in the range of A$50m-150m (vs no previous guidance).
While operating conditions remain volatile, this gives us confidence in our full-year forecast PBT of A$466m (vs
Bloomberg consensus of A$434m), which implies a heavy skew towards 2H10 as the recovery in traffic and yields gain
traction. Upside risks to our forecasts include strengthening demand and quicker yield improvement.
.
Traffic levels and yields showing improvement
Group load factor continued to improve in November, up 4.0pts to 82.3%, as Domestic loads increased 4.5pts (to 82.1%)
and International loads increased 3.7pts (to 82.4%). Yields are also continuing their pattern of recovery. RBS Research
estimate that domestic yields in November declined 3.3% on pcp, versus -5.1% in October and -8.9% ytd. This recovery
reflects both improving demand and price increases over the past 8-10 weeks, and expect further recovery over
December/January as discount fares continue to wash through the system. International yields are also improving, albeit
at a slower rate, due in part to the longer lead times for International travel. RBS Research estimate that International
yields declined 19.0% in November, versus -24.2% in October and -23.2% ytd. QAN implemented a 5% increase for
International fares earlier this month paving the way for further recovery through 2010.

Confirmation of recovery thesis; Buy maintained

Strong load factors and yield improvement remain the key to improved profitability for QAN. With loads continuing to strengthen across
QAN's operations, discounts washing through the system and price increases gaining traction, we expect to see further yield
improvement, and hence improved profitability, over coming months. While QAN is now trading on 1.2x FY10F P/NTA (vs 1.3x
historical average) we still see value in the stock at these levels and RBS Research’s target price of A$3.35 (based on 1.3x FY11F
NTA).
RBS MINIs over QAN

Security ExPrc Stop Loss CP ConvFac Delta Description

QANKZK 200 220 Long 1 1 MINI Long
MINI Trading Buy:

Paladin Energy (PDNKZK) – Long-term value hidden by noise

Kayelekera continues to be delayed, Langer Heinrich Stage 3 capex has blown out and production guidance is unlikely to
be met. However, the recent sell off looks overdone to us. With LH2 at full capacity, achieved prices higher than spot and
the stock trading well below our NPV, we maintain our Buy call.

Get long PDN with PDNKZK for a rebound to RBS Target Price of $4.60.

Source: IRESS

Kayelekera continues to be delayed

Quarterly production at Langer Heinrich of 842klb uranium was higher than our forecast of 804klb and showed good
progress finally ramping up to Stage 2 capacity (655klb in 3Q09). However, Kayelekera continues to underperform, with
production of 145klb lower than our forecast of 291klb. The key issue is the slow movement of the resin from resin in pulp
to elution, which has restricted plant feed capacity. PDN believes modifications will improve output from the end of
January, and plans to install a secondary wash screening facility in April. We will gain more details on the site visit this
weekend.
Capex blowout for Langer Heinrich Stage 3, but not material in the bigger picture
Langer Heinrich Stage 3 capex has risen to US$100m from US$71m on the back of scope changes and higher ZAR.
While we view this as disappointing, we note that the additional cUS$30m is not material for PDN and has a negligible
effect on our NPV.
Production guidance no longer applicable
We viewed the revised production guidance of 5.6-6.1Mlb provided with the 3Q09 quarterly as a stretch. Following delays
to Kayelekera, we have revised our FY10 production estimate from 5.0Mlb to 4.1Mlb, well below the bottom end. PDN
provided no revised guidance but said it believes Kayelekera will reach nameplate at the end of the 2Q10 (RBS 4Q10F).
Long-term value story intact
We remain concerned about ongoing production disappointments and by PDN’s overly aggressive production guidance,
which may prevent a near-term re-rating. However, we believe the worst is likely to be over. In our view, the recent sell off
is a buying opportunity. With the stock trading 19% below RBS Research’s NPV, we maintain our Buy call.

PDN last traded $3.71, BUY PDNKZK for 1-for-1 upside towards RBS Target Price of $4.60

RBS MINIs over PDN

Security ExPrc Stop Loss CP ConvFac Delta Description

PDNKZK 289.62 331 Call 1 1 MINI Long
RBS Round Up Corner:

Australian Strategy – Reporting Season looms

Very flat earnings revisions cycle leading into reporting
Heading into this reporting season, Australian earnings broker revisions have been unusually flat with neither a positive or
negative cycle evident. This suggests to us either the market is happy with the numbers or there is a degree of
uncertainty about the looming results. We believe a key driver of the recent flat earnings revisions cycle was the relatively
subdued management outlook commentary evident at the AGMs. While management commentary is traditionally more
downbeat at AGMs that at results, we believe a higher degree of conservatism may have prevailed given market
conditions over the past 18 months

Management outlook comments and 2010 guidance will be key

Consistent with our global recovery theme, we forecast modest average 2010 EPS growth of 6.8% for companies in our
coverage universe, but a strong rebound in 2011 of 28.7%. Given the modest expectations heading into the results, we
believe there is real scope for a strong February reporting season. We expect management outlook comments to be more
positive than at the AGMs, with upgrades and revisions to follow. In this context, the recent significant upgrades from
Commonwealth Bank, Computershare and Flight Centre are instructive, in our
view.

Surprise and disappoint candidates in the S&P/ASX 200

We have run our proprietary surprise/disappoint quant/qual screen to identify potential earnings surprise and disappoint
candidates. Surprise potential resides in Coca-Cola Amatil, Goodman Fielder, Healthscope, News Corp, Origin Energy,
Perpetual, Platinum Asset Management, QBE Insurance, WA Newspapers and Wotif. Disappoint candidates include
Aristocrat Leisure, BlueScope Steel, Gunns, ResMed and Pacific Brands.

December 2009 reporting season: maintaining the recovery

Our key expectations for the upcoming reporting season are follows:

We expect the December reporting season to be a solid one in terms of the level of earnings surprise.
• Confession season was relatively quiet, adding weight to our expectation of a good outcome next month.
WorleyParsons has been the only major downgrade to date, whereas there have been meaningful upgrades
recently by Commonwealth Bank, Computershare and Flight Centre.

• Management outlook comments will again be an important focus. Given the flat commentary at AGM
season, we will be looking for more upbeat management outlook comments at the results, reinforcing our strong
EPS growth forecasts for 2011.

• Where will all the cash in corporate Australia go? Australian corporate balance sheets are currently well
capitalised. Given the improving macro backdrop, we expect corporate expansion ambitions to be prevalent in the
management outlook commentary.

• 1H/2H earnings splits could lead to some unexpected results and place pressure on better second halves.

• FX exposures could be significant – Given the present strength in the AUD, the currency impact on earnings
may be significant.

• Earnings surprise and disappointment candidates – There will be companies that both surprise and
disappoint, and we identify a number of stocks with quant characteristics that suggest they may do so this
reporting season. The majority of stocks we identify are surprise candidates, adding weight to our view of a
generally positive outcome.
A positive reporting earnings season looms
Heading into this reporting season, Australian broker earnings revisions have been unusually flat with neither a positive
nor a negative cycle evident. This suggests to us either the market is happy with the numbers or there is a degree of
uncertainty about the looming results.
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 [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:
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240530) (“RBS Equities”) and has been taken from sources believed to be reliable. RBS Equities does not make representations that the information is
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© 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