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RBS Round Up: 03 December 2010
RBS Round Up: 03 December 2010
This material has been produced by RBS sales and trading staff and should not be considered independent.
The Round Up
3 December 2010
Issue No. 456
Daily Monitor
Equity Structured Products and Warrants
Overnight Commentary
Eco – Pending Home Sales for October showed a huge increase month on month up 10.4% vs -1% expected. Initial
Jobless Claims were slightly higher for the week at 436k vs 424k but the four-week moving average for initial weekly
claims for jobless benefits fell to a fresh two-year low and ICSC Chain Store Sales showed growth of 5.8% year-over-year
comparable-store gain for November 2010.
Movers – Homebuilders had a good night with Lennar up 7%, DR Horton 3.7% higher and Beazer added 5.2%. Banks had
a good night with BoA up 3.2% and JP up 3.1% on the Dow whilst on the S&P 100 Regions Financial was the best
performer up 6.2%. Abercrombie & Fitch was the 2nd best on the S&P500 after saying that stores open at least 1 year
had shown sales growth of 22%.
Commodities Commentary
Last % Move
GOLD 1383 -0.3%
OIL 87.97 1.2%
NI 23637 0.5%
AL 2327 0.4%
ZN 2260 4.6%
CU 8720 1.6%
CRB 1.0%
SPI Commentary
The SPI traded up 98 pts to 4691. Open at 4593 with a high of 4696 and a low of 4585. Volume 42,148. Overnight the SPI traded up 42
pts to 4736.
*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS
Despite the recent rally in the red metal EQN has still yet to appreciate, trading around the support
level of $5.60. The Citadel transaction could provide EQN with a high-quality asset without
overpaying, in our view. We maintain our Buy recommendation on the stock, with EQN continuing to
look attractive to us relative to the sector. Best way to play EQN is with 1-for-1 MINI EQNKZB. Strike
$3.472, Stop Loss $4.17.
Source: IRESS
• Copper demand underpinned by China, is surging and we forecast a 10% yoy rise in 2010 to a record 18.50mt
with a 2010-14F demand CAGR of 5% pa.
• We view 2010 as a balanced market and a prelude to inventory draining supply shortfalls ahead with a cumulative
supply shortfall of 1.20mt through to 2014F.
• Copper is also a supply story. World copper mine utilisation rates are woefully low at 78%. Head grades are
falling; smelters are starved of vital concentrate feedstock and where are the much needed new copper
whoppers?
• Exchange stocks of copper have been handsomely eroded. LME stocks are at 11-month lows and down 33%
since their February ’10 high, whilst Shanghai stocks have fallen 54% since their April ’10 record high to a one-
year low.
• Our 2010 price forecast is raised by 2% to US$7,300/t ($3.31/lb) and 2011 by 7% to US$8,265/t ($3.75/lb). By
2014, an end-cycle price peak is forecast, with the average price forecast to be a mouth-watering US$10,475/t
(4.75/lb). Our long-term copper price has been raised 11% to US$5,500/t ($2.50/lb).
Security ExPrc Stop Loss CP ConvFac Delta Description
EQNKZA 2.2578 2.71 Long 1 1 Long MINI
EQNKZB 3.472 4.17 Long 1 1 Long MINI
Equity Structured Products and Warrants
We have come off research restriction following BHP's withdrawal of the PotashCorp bid. In
our view the stock offers a compelling investment case and we have reinstated our Buy
recommendation.
Source: IRESS
Capital management a positive and probably only the start, in our view
BHP has reinstated its US$13bn buyback program, which has US$4.2bn to be completed. The buyback will be on market
and for Plc shares (at this stage there is no off-market purchase of Ltd shares). When completed the buyback will
increase RBS Research’s FY11F and FY12F EPS by 2%. We view the reinstatement as an interim measure in terms of
capital management. We believe the BHP board will review further capital management initiatives ahead of the interim
results in February 2011. RBS Research forecast BHP will be in a net-cash position by the end of FY11, leaving directors
with the options of reinvesting in the business, increasing dividends, buying back shares or all of the above.
Options for M&A appear limited now that PotashCorp is off the agenda
Opportunities for BHP to acquire a company that would make a meaningful impact now look limited. It seems that an oil &
gas acquisition might be the easiest option for assets material to BHP. We see no reason for such a deal to be pursued
straight away and we believe any such transaction would likely be six months away to allow for adequate due diligence.
Source: IRESS
For further information please do not hesitate to contact us on the details below
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