Equity Structured Products and Warrants

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

The Round Up
9 August 2010
Issue No. 383

The Round Up is a comprehensive

daily note produced by the RBS Global Market Action
Warrants team providing an overview Aussie Market Action
of market movements along with RIO Tinto (RIOKZG)
quality ideas for warrant traders and
Macquarie Group(MQGKZD)
investors.
Origin Energy (ORGKZC)
Australian Strategy
Scoreboard, commentary
SPI Comment, Events & Dividends
MINI Trading Buy – Iron Clad Results
MINI Trading Buy – When the going gets tough....
MINI Trading Buy – Offtake and set for NSW
privatisation sale
Monthly Market Review - May 2010

Equities
Move Last % Move Range Volume
ASX 200 -0.4 4566.1 -0.0% -21 to -0.u.c $4.0 bn(L)
SPI - yesterday -8.0 4529.0 -0.2% -23 to +2 15,730(L)
Dow Jones -21.4 10653.6 -0.2% -160 to -6 Low
S&P 500 -4.2 1121.6 -0.4% -19 to -3 Low
Nasdaq -4.6 2288.5 -0.2% -39 to -2 Low
FTSE -33.4 5332.4 -0.6% -58 to +42 Avg

Commodities
Move Last % Today % Past Month
Oil-WTI spot -1.31 80.70 -1.6% +12.1%
Gold Spot +10.45 1205.40 +0.9% +1.1%
Nickel (LME) +10.25 999.50 +1.0% +17.0%
Aluminium (LME) -0.43 98.96 -0.4% +10.8%
Copper (LME) -1.19 333.16 -0.4% +11.7%
Zinc (LME) +1.42 95.27 +1.5% +15.5%
Silver +0.14 18.47 +0.8% +3.6%
Sugar -0.05 18.24 -0.3% +9.3%
 Equity Structured Products and Warrants

Dual Listed Companies (DLC’s)

Move %Move Last AUD Terms Diff to Aus
NWS (US) -0.16 -1.0% 15.77 17.16 -31.2 c
RIO (UK) +1.0 p +0.0% £34.31 59.58 -1361.7 c
BLT (BHP UK) -3.0 p -0.1% £20.220 35.11 -601.6 c

American Depository Receipts (ADR’s)

Move %Move Last AUD Terms Diff to Aus
BHP (US) +0.46 +0.6% 75.51 41.08 -5.2 c
AWC (US) +0.03 +0.5% 5.99 1.63 -1.1 c
ANZ (US) +0.01 +0.0% 21.06 22.91 -13.6 c
WBC (US) -1.31 -1.2% 107.35 23.36 -26.0 c
NAB (US) -0.09 -0.4% 22.76 24.76 -26.7 c
LGL (US) +0.18 +0.5% 39.23 4.27 +0.8 c
RMD (US) -3.05 -4.5% 64.98 7.07 -16.0 c
JHX (US) +0.04 +0.1% 28.64 6.23 -3.9 c
PDN (CAN) -0.02 -0.5% 3.75 3.97 -2.8 c

Overnight Commentary

United States Commentary

US markets finished the week with a 21pt loss thanks to weak Non Farm Payroll numbers. Markets dropped 160pts early
after the jobs data showed -131k vs -65k expected but up from a revised -221k the month prior. The Unemployment Rate
was 9.5% vs 9.6% expected. It was another low volume day.

Why the recovery intra day recovery?? See note below… whisper of further QE.

Retailers were weak on the jobs data but the reporting season has been a good one which has encouraged investors.

United Kingdom & Europe Commentary

Eurostoxx: -1.42% FTSE: -0.62% DAX: -1.17% CAC: -1.28%

European markets were tracking along sideways until the US jobs data dragged them lower. Banks led the selloff after
the US jobs data on profit taking. In eco news German IP was weaker than expected; UK IP was also weaker whilst UK
Manufacturing Production was broadly in line.

More Quantitative Easing?

There's a lot of chatter about the Fed doing more QE (quantitative easing). The Fed introduced a range of 'passive' QE policies. These
are emergency facilities accessed at the discretion of the private sector. As the market healed, the size of these programs reduced.
That was good news: the private sector didn't need the emergency facilities. The Fed then switched to 'active' QE. This is where it
actively bought private sector assets. The principal asset it bought($1.25 trillion) was mortgage-backed securities. The issue going
forward is that as these MBS mature the Fed's balance sheet will naturally shrink, probably by around US$20bn per month. Our US
team is therefore flagging that the Fed may announce that it will recycle the maturing cash back into MBS markets. In other words,
maintain the size of its balance sheet, counteracting the MBS redemptions. I think this would be seen as a very minor positive by
markets.

This could be announced as soon as this week's FOMC. The more aggressive, but near term less likely, option is further expansion of
the balance sheet. This would be meaningful for markets. It could also further weaken the US$ but is not the current base case.
 Equity Structured Products and Warrants

Commodities Commentary

Oil -1.6%, Gold +0.9%, Nickel +1%, Aluminium -0.4%, Copper -0.4%, Zinc +1.5%, Silver +0.8%GOLD

GOLD

Gold extended its gains to settle higher for a eight straight day in light of weaker equity markets and rumours of further QE.

OIL

Oil declined Thursday, tracking a slump in equities driven by the poor jobs number

Currencies Commentary

DXY Index down another 50bps and extends its longest losing streak in 5 years and makes 9 straight weeks of falls. Is
this why metals are trading better than they feel at the moment? Interesting to see that "growth" cross like EUR/USD and
AUD/USD rallied on the employment data not because the world is a better place but because the market is an
aggressive seller of USD. More quant easing chatter for this Tuesday will only extenuate this.

SPI Commentary

The SPI traded down 10 pts to 4529. Open at 4539 with a high of 4558 and a low of 4514. Volume 18,041. Overnight the SPI traded
down 4pts to 4525.

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
 Equity Structured Products and Warrants

Upcoming Economic Events for the Week

Monday AUS ANZ Job Advertisements
US
Tuesday AUS
US
Wednesday AUS
US FOMC Rate Decision
Thursday AUS Unemployment Rate
US Continuing claims
Friday AUS
US Consumer Price Index
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

RIO Tinto (RIOKZG) – Iron Clad Result
RBS MINIs over RIO

Stock: Rio Tinto

Ticker: RIO
Share price: A$73.01
Target price: A$83.20
NPV: A$83.20
Rec. Buy

Summary

RIO reported underlying earnings of US$5.8bn, ahead of consensus at US$5.5bn and well above our forecast US$5.2bn.
The difference related to iron ore where RIO achieved better prices than we had expected (we took a conservative view
on price realisations in light of the move from benchmark to quarterly contracts). A dividend of US$0.45ps was declared,
inline with our forecast. Net debt at the end of the period stands at US$12bn (US$19bn YE2010), with gearing at 19%.
Overall a strong result in our view.

Underlying NPAT by division

Divisional NPAT (US$m) 1H10E Consensus Actual Diff vs RBS Diff vs RBS
Iron Ore 3,420 3676 4108 688 20%
Aluminium 387 348 358 -29 -7%
Copper 1,185 1153 1062 -123 -10%
Energy 620 793 642 22 4%
Diamond and Minerals 83 81 121 38 45%
Other Operations 4 -61 -2 -6 -148%
Underlying NPAT (US$m) 5,188 5,515 5,767 579 11%

Iron ore remains the key swing factor for RIO, with 2/3rds of earnings coming from the division. 3Q10 iron ore prices will
be the average of the March to May spot price, implying US$147/t FOB (above the spot price of US$134/t). This
represents another gain qoq, which will see positive earnings momentum continue.

Corporate items

RIO is about to enter a growth phase which is positive for production growth, however a significant amount of capex
needs to be spent.

+ Net debt reduced to US$12bn from US$39bn at 30 June 2009

+ Full year 2010 capex to approach US$6bn (RBS US$5.7bn)
+ Full year 2011 capex to be approx US$9bn (RBS US$5.9bn)
+ Impairment charge of US$403m, related to Alcan Engineered Products

Security ExPrc Stop Loss CP ConvFac Delta Description

NCMKZG 51.2382 56.31 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Macquarie Group (MQG.AX): When the going gets tough....
MQG's 1Q10 update highlighted that key divisions have been impacted by weak market conditions. RBS
Research have lowered FY11F EPS by 4% and 1% in forward years to account for these near term impacts. We
believe that underlying market conditions will improve in 2H11 rendering MQG good value at current levels.
Maintain a Buy.

Buy Long MINI MQGKZD for short/medium term trade to $45 or hold for the long term.

Source: IRESS

First quarter ahead of pcp but outlook cautious

MQG announced that its 1Q11 earnings were slightly ahead of a subdued pcp. As expected, the key divisions, Macquarie
Securities, Macquarie Capital and FICC, were impacted by weak market conditions. MQG's revised outlook states that
these divisions are unlikely to beat FY10 results in FY11F if 1Q11 conditions do not improve over the remainder of the
year. However, we believe that conditions in 1Q11 were particularly weak with global equity indices off 10-12% and see
this as unlikely to be repeated over the remainder of FY11.

Changes to forecasts - FY11 EPS reduced by 4% and FY12/13 reduced by 1%

RBS Research have lowered FY11F EPS by 4% to account for the cautious outlook for Macquarie Capital, Macquarie
Securities and FICC business. FY12/13F EPS are lowered by 1% as we believe that the investment banking cycle has
just been pushed back six to 12 months, and with the transaction pipeline building, it is a matter of markets stabilising to
reach execution.

Investment view - retain Buy recommendation, TP trimmed to A$54

MQG's balance sheet remains strong and the firm continues to capitalise on the market downturn by acquiring
businesses and portfolios from distressed sellers. Whilst the current operating conditions are clearly subdued, the
investment banking cycle appears to have been pushed back rather than cancelled altogether, and we see near-term
earnings supported by lower impairments and recent acquisitions. With the stock still trading below 10x RBS Research’s
reduced FY11F EPS, we retain a Buy recommendation.

RBS MINIs over MQG

Security ExPrc Stop Loss CP ConvFac Delta Description

MQGKZB 22.3002 24.33 Long 1 1 MINI Long
MQGKZD 26.1646 28.59 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Origin Energy (ORGKZC) – Offtake and set for NSW privatisation sale
ORG's share price has come under pressure of late. In addition to general market jitters, we believe
concerns over the outlook for APLNG and the potential for an earnings downgrade have also weighed
on sentiment. In our view, the longer-term outlook hasn't changed, and we are buyers on this
weakness. Buy maintained with RBS Target Price of $18.25

Source: IRESS

Earnings should hold up in FY10...

A few things have gone against ORG since the interim result in February (eg, Contact, Cooper flooding, lower oil price,
weaker APLNG gas sales), but we still expect the company to meet its c15% NPAT guidance (RBS +15.3% vs market
+16.6%). The key positive driver over the last half has been particularly weak electricity spot prices, which should help the
retail business deliver a solid FY10 result.

... and the outlook for FY11 looks pretty robust

As shown in this note, next year seems to be loaded with a range of positive earnings drivers, so we find it hard to see
ORG being unable to deliver solid profit growth. In our view, the biggest risk revolves around how the Darling Downs
power station will interact with ORG's retail business. In isolation, the near-term outlook for the generator would be pretty
ugly, but we are hoping that any downside is offset by improved retail margins.

RSPT shouldn't have a significant impact on long-term fundamentals

We still don't expect the current proposal to get up with no changes (eg, the uplift rate) but, even if it does, we don't see it
making a material dent in our ORG valuation. RBS Research base-case valuation for APLNG would fall only 10% under
the RSPT, using RBS Research conservative forecasts for capex and an LNG sales price. At any rate, we believe the
market is underestimating ORG's fall-back plans if the LNG project is delayed materially (we have pushed back the
timeline by 12 months to mid 2015) or even shelved.

Buy maintained; we think current weakness provides a good opportunity

It may be difficult to pinpoint a precise catalyst for Origin's share price to re-rate but, in our view, there is no question the
stock is loaded up with positive optionality that can be exercised at any time. The NSW trade sale (fingers crossed) looks
promising and we believe ORG is well positioned to make an accretive acquisition.
BUY ORGKZC for 1-for-1 upside towards RBS Target Price of $18.25

RBS MINIs over ORG

Security ExPrc Stop Loss CP ConvFac Delta Description
ORGKZC 1095.88 1198 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

Monthly Market Review - July 2010

The focus for markets in July was on the European bank stress tests. Despite some commentators questioning
how 'stressful' the tests really were, the market reacted positively to the outcome. Strong company results in the
US and a more tame than expected outcome from Basel also helped investor sentiment.

Australia's performance vs the world

In local currency, the All Ordinaries (+4.2%) underperformed the US S&P 500 (+6.9%), the World MSCI ex Australia
Index (+7.9%) and the regional MSCI ex Japan Index (+7.1%).

The best- and worst-performing sectors

The best performers for the month were Industrials (+7.2%), Financials ex Property (+6.5%) and Materials (+4.9%). The
worst performers were Information Technology (-4.0%), Telecommunication Services (-0.5%) and Health Care (+0.9%).

The top-five and bottom-five performing S&P/ASX 200 stocks

The top-five performers from the S&P/ASX 200 (price) Index for the month were Linc Energy (+56.4%), Intoll Group
(+41.3%), Lynas Corporation (+39.4%), Downer EDI (+38.1%) and Kagara (+34.0%). The bottom-five performers were
Nufarm (-29.1%), Aquarius Platinum (-19.8%), Eldorado Gold (-14.8%), iSoft Group (-14.7%) and St Barbara (-14.3%).

Consensus earnings revisions

The top-five upgrades were Iluka Resources (+23.8%), Intoll Group (+23.4%), Newcrest Mining (+7.2%), Lihir Gold
(+6.2%) and OZ Minerals (+2.7%). The top-five downgrades were Nufarm (-31.0%), Aquarius Platinum (-24.3%), Boral (-
18.8%), AWE (-14.6%) and Paladin Energy (-10.6%).
 Equity Structured Products and Warrants

Global growth and valuation appeal to drive equities

Global pressure points manageable and global economic growth to progress further
We have reviewed the key macro pressure points for global equity markets and are confident the gradual economic
recovery will be sustained. The market appears to be excessively discounting the prevailing structural and cyclical risks,
as serious as they are. The global markets are being forced to confront many unresolved issues, creating pockets of
opportunity. In our view, this is one such opportunity. We see corporate investment as the next global growth driver and
global corporate health is now supportive of investment resumption, following a period of capex neglect. Corporate
profitability should not be underestimated and in time is likely to be the micro issue that takes centre stage, pushing
macro issues to the background.

We believe resumed confidence in earnings will drive markets forward

Analysts are often thought to be perennially bullish at the outset. However, following two years of savage declines in
expectations and given the fact we are entering the first year of synchronised positive global economic growth, Australian
equity consensus estimates appear both defensible and achievable to us, at 24% growth forecast for FY11.

S&P/ASX 200 targets – 5300 by end-2010, 5600 by mid-2011

For the market as a whole, we derive our S&P/ASX 200 targets by applying a 12-month forward PE of 12.8x (about 1
standard deviation cheap) to the RBS top-down assumptions for net income growth of 23% in FY11F and 14.6% in
FY12F. On this basis, we forecast S&P/ASX 200 returns of 22% from 4354 currently to 5300 by year-end 2010 and a
further 5% appreciation to 5600 by mid-2011.

Our view is that there will be no default in Europe but that resolution of the crisis may still be some time off. We show
below that while debt markets have deteriorated this is certainly no GFC event. With the Australian market trading on a
12.2x forward market PE, some good buying opportunities are emerging on any sort of medium-term view.
 Equity Structured Products and Warrants

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/warrants
Trading Products Team
Ben Smoker 02 8259 2085 ben.smoker@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

Disclaimer
The information contained in this report has been prepared by RBS Equities (Australia) Limited (“RBS Equities”) (ABN 84 002 768 701) (AFS Licence No 240530) 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 contained 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 this 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. RBS Equities, 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 consider whether any
advice contained in this 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 consulted with your advisor for a personal securities recommendation. The information contained in this report is general advice only.
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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