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The Round Up
25 November 2010
Issue No. 451
Daily Monitor
Equity Structured Products and Warrants
Overnight Commentary
Movers - Retailers are the standouts in the lead up to the gift giving season with Coach +3.8%, Ralph Lauren +2.8%,
Amazon +5.5% and Tiffany's +5.2% with the latter posting a 27% increase in earnings. On the DOW growth proxies are
providing support with Boeing, CAT and Du Pont all up 2.3% to 2.9%.
Commodities Commentary
Last % Move
GOLD 1374 -0.3%
OIL 84.02 3.4%
NI 22460 4.2%
AL 2237 0.2%
ZN 2122 1.7%
CU 8250 1.4%
CRB 302 1.6%
SPI Commentary
The SPI traded down 74ts to 4586. Open at 4660 with a high of 4599 and a low of 4550. Volume 37,774. Overnight the SPI traded up
39pts to 4624.
*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS
A deal has been reached to pass key NBN legislation. We think there is now a high likelihood of a
shareholder vote on the NBN deal by June 2011 and associated capital management. We believe there
are now sufficient positive catalysts to drive a rerating to our A$3.06 target price. RBS Research move
to Buy .
Source: IRESS
Telstra raised to Buy (from Hold). We see sufficient catalysts to drive rerating.
If the NBN legislation passes, it will remove a major uncertainty and significantly improves the likelihood that Telstra can
meet its timeline for a shareholder vote by June next year. We expect it to outline capital management plans for the
A$11bn NBN compensation prior to any vote. Recent confirmation by the board that it intends to pay a 28c fully franked
dividend in both FY11 and FY12 is positive and Telstra also outlined at its AGM that its turnaround strategy remains on
track, with solid subscriber growth in the 4m to October (although there is still uncertainty on the revenue and earnings
impact). We believe that there are now sufficient positive catalysts to drive a rerating of the stock up towards our A$3.06
target price (10% discount to DCF). We move to Buy (from Hold) as a result.
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
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