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
29 November 2010
Issue No. 452

The Round Up is a comprehensive

daily note produced by the RBS Global Market Action Scoreboard, commentary
Warrants team providing an overview Aussie Market Action SPI Comment, Events & Dividends
of market movements along with Telstra Corp. (TLSKZD) MINI Trading Buy – NBN legislation a key catalyst
quality ideas for warrant traders and
investors. BHP Billiton (BHPKZJ) MINI Trading Buy – Deploying the cash
Origin Energy MINI Trading Buy – Cashflow set to surge
(ORGKZC)
Australian Strategy Monthly Market Review - October 2010

Daily Monitor
 Equity Structured Products and Warrants

Overnight Commentary

United States Commentary

US trading was subdued Friday with the session shortened for Thanksgiving. Euro concerns saw the greenback rally
against global currencies which in turn drove metal prices lower across the board. Freeport McMoRan shed 2.6% while
Vulcan Materials and National Oilwell fell 2.9% and 2.8% respectively. Retailers were hoping for the strongest period in 3
years as Black Friday kicked off the start of the Christmas period however results were mixed with Wal-Mart and Target
off 0.5% and 0.6% while Macys added 0.4%. Monster World continued its strength, adding 3.7%, as job data earlier in
the week showed the amount of people claiming unemployment benefits fell.

United Kingdom and Europe Commentary

UK - The FTSE was weaker Friday as concerns over European debt continue to weigh on financials which were some of
the biggest laggards in the session. RBS, Lloyds and Barclays fell 3.2% to 5.3% while miners Antofagasta, Anglo and
Kazakhmys shed 2.5% to 3.8% with metal prices falling on the back of further tightening in China. Defensives softened
the falls and BT added 4.4% after stating they would sell a 5.5% stake in Indian IT services provider Tech
Mahindra. Retailers were also weaker as Investec Securities cut the sector to underperform.

Commodities Commentary
Last % Move
GOLD 1368 -0.4%
 Equity Structured Products and Warrants

OIL 83.76 -0.1%

NI 22513 -1.2%
AL 2248 -0.5%
ZN 2105 -4.1%
CU 8239 -1.2%
CRB -0.4%

SPI Commentary
The SPI traded up 37ts to 4597. Open at 4660 with a high of 4627 and a low of 4592. Volume 19,770. Overnight the SPI traded down
20pts to 4576.

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
Wednesday AUS
US MBA Mortgage Applications , 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) - NBN legislation a key catalyst

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

Deal reached to allow key NBN (competition) legislation to become law

The likelihood of the NBN legislation passing the Senate this week now appears certain following the government's
decision to release a summary of the NBN business plan and a deal with independent senators. The government has
agreed that the NBN will be overseen by a cross-house parliamentary committee over the course of its build with input
from the Productivity Commission. However, other aspects of the legislation that were of concern to the Opposition are
unlikely to be amended: importantly, it appears the legislation will exempt the Telstra-NBN deal from the Trade Practices
Act, removing the remaining key risk.

Limited new information in publicly released business plan

The publicly released version of the NBN business plan contains little new information. The project will cost A$49.5bn,
with A$35.7bn in capital expenditure and A$13.8bn for decommissioning and infrastructure payments to Telstra (in line
with A$9bn post tax net present value already agreed with Telstra). NBN Co said it expects to finalise the agreement with
Telstra by December 2010. It expects up to 19% of premises to be passed by December 2011 and that it hopes to be
able to offer its first retail services by September 2011.

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.

Security ExPrc Stop Loss CP ConvFac Delta Description

TLSKZD 2.134 2.34 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
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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