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
23 November 2010
Issue No. 449

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 Telstra Corp. (TLSKZD)
quality ideas for warrant traders and
BHP Billiton (BHPKZJ)
investors.
Origin Energy (ORGKZC)
Australian Strategy
Scoreboard, commentary
SPI Comment, Events & Dividends
MINI Trading Buy – It's all in the timing
MINI Trading Buy – Deploying the cash
MINI Trading Buy – Cashflow set to surge
Monthly Market Review - October 2010

Daily Monitor
 Equity Structured Products and Warrants

Overnight Commentary

United States Commentary

The US finished in the red with financials weaker as Euro concerns coupled with FBI raids on 3 hedge funds as part of a
wide insider trading probe. Energy plays were also lower as the price of crude slipped while techs were the strongest
performers with takeover talk adding support.

Movers - BOA and JPM finished 3.1% and 2.3% lower while AMEX and GE gave up 1.2%. Chevron lost 0.6% and Alcoa
0.7% as they tracked their relative measures while HP's added 1.8% as it gets set to report results after market. GS,
Marshall and Isley and Regions Financial finished down 3.3% to 4.3% as details around the FBI probe remain limited.
On a brighter note Novell added 6.6% as an investor group agreed to pay 2.2b for the software company.

United Kingdom and Europe Commentary

UK - The FTSE was lower overnight as contagion fears in Europe and lingering concerns over tightening in China saw
banks an resource plays lower across the board. Banks with exposure to Ireland were the biggest laggards with Lloyds
and RBS off 4.6% to 4.2% while Lonmin, BHP and RIO shed 0.6% to 2.6%. Invensys shed 1.8% as Merrill's downgraded
the stock to HOLD, while defensive names were in favour with Severn Trent and Scottish & Southern Energy adding
1.4% and 1%.
 Equity Structured Products and Warrants

Commodities Commentary
Last % Move
GOLD 1367 0.6%
OIL 81.66 0.4%
NI 21556 -1.2%
AL 2268 1.2%
ZN 2138 -1.0%
CU 8290 -1.4%
CRB -0.3%

SPI Commentary
The SPI traded down 17ts to 4665. Open at 4648 with a high of 4688 and a low of 4626. Volume 25,537. Overnight the SPI traded
down 24pts to 4638.

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
US
Tuesday AUS
US GDP (QoQ), Existing Home Sales , FOMC Meeting Minutes
Wednesday AUS CB Leading Index (MoM)
US Core Durable Goods Orders (MoM), Initial Jobless Claims (MoM) , Personal
Spending (MoM) , New Home Sales
Thursday AUS
US
Friday AUS RBA Governor Stevens Speaks
US
*Dates are indicative only and may change
 Equity Structured Products and Warrants

MINI Trading Buy:

Telstra Corporation (TLSKZD) - It's all in the timing
The CSS bill, a key condition precedent for Telstra's NBN deal, has passed the lower house, but the vote in the
upper house is less certain with two independent Senators more likely to support Coalition amendments that
would force greater regulatory scrutiny. Buy TLSKZD MINI and play up to RBS Research Target Price of $3.06.

Source: IRESS

CSS Bill passes lower house but real test is in the Senate
The Government's revised telecommunications bill was voted through the House of Representatives on Tuesday.
Amendments proposed by the Coalition opposition parties were not supported. These amendments would have subjected
the ACCC to more routine scrutiny and also would have allowed the ACCC to apply proper scrutiny to the Telstra NBN
deal. The legislation now goes to the Senate where two independent senators appear more supportive of the
amendments. It seems unlikely that the legislation will pass in this sitting.

If legislation is not passed until August 2011, a vote may not occur until Nov 2011
If the legislation doesn't pass in November the Government will wait until a new Senate sits after June 2011 where the
more supportive Greens hold the balance of power. The Government can't allow the ACCC to rule on the deal until the
legislation has passed; so months of evaluation post legislation would mean a shareholder vote would not occur before
about November 2011.

Another year of NBN disclosures may be enough to highlight inherent inconsistencies

However, the passage of a further 9-12 months is likely to allow further inconsistencies inherent in the NBN business
model to be considered by an increasingly sceptical carrier industry. Delayed legislation may lead to the NBN stalling and
the deal not going ahead. The resulting uncertainty would likely lead to further price weakness.

The CSS Bill is one of several potential catalysts. Maintain Hold

Passage of the legislation would be an important catalyst and may have some rerating effect. However, there are still
several other catalysts that need to occur and the timeline to deal approval is still at least six months away, possibly
longer. We expect the market to want more certainty over the NBN deal and clearer evidence of success in the
turnaround strategy before a more substantial rerating of the stock. We retain our Hold rating and A$3.06 price target
(10% discount to our A$3.40 DCF valuation.)

Security ExPrc Stop Loss CP ConvFac Delta Description

TLSKZC 2.4588 2.57 Long 1 1 Long MINI
TLSKZD 2.1131 2.32 Long 1 1 Long MINI
 Equity Structured Products and Warrants

MINI Trading Buy:

BHP Billiton (BHP.AX): Deploying the cash

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.

We see plenty of room to increase dividends

We believe BHP has the capacity to increase dividends substantially. Currently, RBS Research estimate BHP is on an
FY11 dividend yield of only c2%. The US$0.93 dividend equates to about US$5.1bn, which compares to operating cash
flow of about US$29bn. In our view, BHP could materially increase this amount on a sustainable basis. We believe this
would be another positive and that it would demonstrate management's confidence in future cash flow.

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.

Investment view - Buy - we think BHP offers a compelling investment case

BHP is trading at a 15% discount to RBS Research’s NPV and on a PE of 10x FY12F. We advise investors to be
overweight BHP going into the next reporting season, as further capital management initiatives may provide another
positive catalyst for a re-rating. RBS Research reinstate full research coverage with a Buy recommendation and A$51.15
target price (was A$51.48).

RBS MINIs over BHP

Security ExPrc Stop Loss CP ConvFac Delta Description

BHPKZJ 32.1971 35.28 Long 1 1 MINI Long
 Equity Structured Products and Warrants

MINI Trading Buy:

Origin Energy (ORGKZC) – Cashflow set to surge
ORG's FY10 earnings fell a little short of our forecasts, but, importantly, FY11 is on track to be a big
year on the earnings front. With cashflows set to surge over the coming years, on our estimates, we
think the market is underestimating ORG's financial flexibility and optionality. Buy maintained.
Buy maintained with RBS Target Price of $18.25

Source: IRESS

Underlying NPAT of A$585m was behind our A$611m forecast

EBITDA of A$1,304m (incl associates) was the main variance to RBS Research numbers (A$1,321m forecast) but D&A
(variance of A$9m) and minorities (variance of A$9m) also impacted. Operationally, the generation and E&P contributions
were lower than we expected with retail offsetting. Management has suggested it would have hit its 15% growth target if
not for the overseas exploration write-downs, although RBS Research had these in the numbers already. OPCF of
A$789m was a little below RBS Research’s expectations (A$840m), but the 25c dividend was in line.

ORG has guided for 15% NPAT growth in FY11

FY11 guidance has been set at +35% EBITDAF growth and +15% NPAT growth in FY11. Importantly, the guidance now
includes a reasonably aggressive A$170m exploration programme and RBS Research have pushed up forecasts for
exploration write-offs to about A$65m (from A$40m). This has been the sole driver of RBS Research’s earnings
downgrade. Importantly, the valuation impact is negligible.

APLNG - is consolidation lurking?

Today ORG appeared the most open to collaborating with another project proponent since the Conoco deal was struck
almost two years ago and we continue to believe that any news on that front would be well received by the market. Like
all investors, we would like to see an off-take arrangement done before we get too excited about the project, but, in our
view, an investor is not paying a dime for any LNG upside.

Buy maintained, ORG's balance sheet about to go to work

ORG's major capex programme is taking a breather and the company will have very substantial cashflow over the coming
years. Throw in an under-geared balance sheet and we believe the market is under-estimating the opportunities ahead.
The NSW energy sell-down and APLNG are the obvious candidates, but we wouldn't be surprised to see some accretive
acquisition from left field that could create shareholder value.
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 1116.75 12.20 Call 1 1 MINI Long
 Equity Structured Products and Warrants

RBS Round Up Corner:

Monthly Market Review - October 2010

Australian equities continued to rise in October, up 1.7%, supported by the key theme of US
reflation via a second round of quantitative easing. QE2 has been US-dollar negative and
commodity price supportive and, as a result, materials was the best-performing sector,
generating a solid 5.6% return in the month.

Australia's performance vs the world

In local currency, the All Ordinaries (+2.1%) underperformed the US S&P 500 (+3.7%), the World MSCI ex
Australia Index (+3.7%) and the regional MSCI ex Japan Index (+2.7%).

The best- and worst-performing sectors

The best performers for the month were Materials (+5.6%), Information Technology (+3.4%) and
Telecommunication Services (+1.8%). The worst performers were Health Care (-0.8%), Property (-0.6%) and
Consumer Staples (-0.5%).

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 Nufarm (+26.0%), Extract
Resources (+25.2%), Perpetual (+24.5%), Karoon Gas Australia (+24.0%) and Fortescue Metals (+20.0%).
The bottom-five performers were Macmahon Holdings (-27.2%), iSoft Group (-23.2%), Kingsgate Consolidated
(-13.5%), Panoramic Resources (-13.3%) and Bow Energy (-12.8%).

Consensus earnings revisions

The top-five upgrades were MAp Group (+61.6%), Intoll Group (+10.9%), Qantas Airways (+7.6%), Boart
Longyear (+6.9%) and Fortescue Metals (+4.9%). The top-five downgrades were Sims Metal (-20.9%),
Transurban (-17.7%), MacArthur Coal (-11.9%), Ten Network Holdings (-11.9%) and Santos (-11.9%).
 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.
RBS Equities, its officers, directors, employees and agents accept no liability for any loss or damage arising out of the use of all or any part of the information contained in this
report. This Information is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local
law or regulation. If you are located outside Australia and use this Information, you are responsible for compliance with applicable local laws and regulation. This report may
not be taken or distributed, directly or indirectly into the United States, or to any U.S. person (as defined in Regulation S under the U.S. Securities Act of 1993, as amended).
The warrants contained in this report are issued by RBS Group (Australia) Pty Limited (“RBS”) (ABN 78 000 862 797, AFS Licence No. 247013). The Product Disclosure
Statements relating to these warrants are available upon request from RBS Equities or on our website www.rbs.com.au/warrants
RBS Group (Australia) Pty Limited is not an Authorised Deposit-Taking Institution and these products do not form deposits or other liabilities of The Royal Bank of Scotland
N.V. or The Royal Bank of Scotland plc. The Royal Bank of Scotland plc does not guarantee the obligations of RBS Group (Australia) Pty Limited.
© 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