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The Round Up
14 April 2010
Issue No. 310
Equities
Move Last % Move Range Volume
ASX 200 -32.7 4951.6 -0.7% -40 to -5.u.c $5.4 bn(A)
SPI - yesterday +20.0 4984.0 +0.4% -14 to +21 2,752(L)
Dow Jones +13.5 11019.4 +0.1% -58 to +33 Low
S&P 500 +0.8 1197.3 +0.1% -8 to +3 Low
Nasdaq +8.1 2466.0 +0.3% -13 to +10 Low
FTSE -16.0 5761.7 -0.3% -36 to +1 Low
Commodities
Move Last % Today % Past Month
Oil-WTI spot -0.59 83.75 -0.7% +3.2%
Gold Spot -4.65 1151.55 -0.4% +4.5%
Nickel (LME) -12.54 1154.11 -1.1% +17.3%
Aluminium (LME) +0.87 109.01 +0.8% +7.8%
Copper (LME) -0.24 356.86 -0.1% +6.1%
Zinc (LME) -1.58 106.79 -1.5% +2.0%
Silver -0.02 18.23 -0.1% +6.9%
Sugar +0.44 16.98 +2.7% -13.7%
Equity Structured Products and Warrants
Overnight Commentary
US markets eked out another small gain overnight as investors bought Intel ahead of reporting despite the underwhelming
report from Alcoa the night before. The Dow rose 13pts, the S&P added 0.1% and the Nasdaq climbed 0.3%.
Eco - The trade deficit in the US widened more than anticipated in February showing further signs of an improving
economy. The gap increased to $39.7bn vs $38.5bn expected and up from a revised $37bn with imports climbing 1.7%.
Importantly Import Prices rose less than expected showing that the US is not importing inflation.
Growth Proxies - Intel climbed 0.9% ahead of reporting after market where it has come in ahead of expectations while GE
rose 1.3% with the company benefitting from better trade surpluses with emerging economies. Alcoa dropped 1.6% after
reporting after market yesterday.
Retail - Home Depot, up 2.6% and its 5th straight gain, was the best on the Dow with the company a beneficiary of a more
freely spending US consumer. Family Dollar climbed 2.4%. Talbots jumped 5% after the women's retailer said it swung
into profit in the 4th quarter.
Financials - Regional financials were weaker overnight after a broker downgraded saying valuations are unsustainable
and earnings will disappoint. Regions and Keycorp were dropped to sell and they were off 4.6% and 2.4% respectively.
On the big board JP's dropped 0.6% and BoA was flat.
UK Banks - Banks were off today as investors remained cautious of the results to come out of the US with JP Morgan and
BOA set to kick off proceedings this week. Barclays, Standard Chartered, RBS and Lloyds off 0.5% to 1.4%.
Eco - German CPI was inline at 0.6% while the Wholesale Price Index was 1.3% vs 0.5% exp. British retail sales rose at
their fastest pace in a year in March boosting the retail plays however it was noted that this number was flattered by an
earlier Easter.
Equity Structured Products and Warrants
Commodities Commentary
Miners - Miners were the biggest weight on the market as metal prices retreated on the back of a weaker demand outlook.
Kazakhmys, Fresnillo, Randgold, Antofagasta, Xstrata, Eurasian Natural Resources, BHP and RIO all off 1.2% to 3.2%
shedding over 10 points from the market.
Energy - Energy plays were weaker as crude shed 2% closing below $83/barrell. BP, BG and Royal Dutch off 0.1% to
1.8%.
SPI Commentary
The SPI traded down 44pt to 4964. Open at 5008 with a high of 5011 and a low of 4959. Volume 21,364. Overnight the
SPI traded up 23pts 4985.
*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS
Source: IRESS
2Q10 result strong and upgrade to guidance; raise FY11F EPS to US$1.13
2Q10 operating profit of US$1,212m was above RBS Research’s US$983m forecast and up 44% on the pcp. 2Q10
normalised EPS of US$0.25 was ahead of RBS Research’s US$0.20 forecast (consensus US$0.20). The company
doubled its FY10 op profit growth guidance to ‘low 20’s’ from ‘high single to low double digit’. We believe this guidance
remains conservative in light of the 26% growth already delivered in the first half and pcp’s getting easier. RBS has raised
FY10F op profit to US$4,340m or 26% growth (vs +20% previously).
Cable continues to power ahead
Cable had another very strong quarter, with op profit up 35%. RBS raise FY10F cable op income 9% to US$2.23bn.
Cable makes up over 50% of News Corp’s op profit and is the key driver of earnings growth. Filmed earnings were also
strong, with very strong Avatar profits still to come.
Source: IRESS
Get long QBE with QBEKZM for a rebound to RBS Target Price of $23.50.
Source: IRESS
Our major bank cash EPS forecasts fall by 1% for FY11 and 2% for FY12
We have cut our forecast for system total lending growth for FY11 and FY12 to 6% from 7.5% and 8.5%. We doubt the
major banks can offset sluggish system loan growth by grabbing market share. We have cut our cash EPS forecasts for
the major banks by about 1% for FY11 and about 2% in FY12. The depressed loan growth for Australia and New Zealand
supports our preference for ANZ, as its Asian expansion strategy will decrease its reliance on the local market.
With the economy set to rebound in 2010, most sell-side bank earnings forecasts assume a solid recovery in lending
growth. The average current sell-side estimates suggest total lending growth for the big four Australian banks to reach 8%
in FY11 and 9% in FY12.
We also note the banks also expect sizeable recoveries in Australian lending growth.
Equity Structured Products and Warrants
Our analysis suggests that these forecasts are overly bullish, and conclude that total lending growth for the majors will
hold steady at roughly 6% in FY11 and FY12.
RBS Research have conducted a top-down review of macroeconomic factors that will influence
home and business lending over the medium term, and also a bottom-up review of recent trends
in approvals and paydowns.
RBS Research have arrived at a total lending growth rate of 5.9% in FY11 and FY12. Based on RBS Research forecasts,
to arrive at a total lending growth rate of roughly 8-10% (consensus) we would need to see a substantial improvement in
business lending of +6-10% above RBS Research forecasts, or a jump in home lending growth of 2-4% above forecast.
As a result RBS Research have made downward revisions to lending growth assumptions for the major banks. RBS
Research have downgraded cash EPS forecasts by ~1% for the majors in FY11 and 2% in FY12. As such, RBS
Research valuation and target prices have been trimmed by roughly 1.7% on average.
Equity Structured Products and Warrants
For further information please do not hesitate to contact us on the details below
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