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The Round Up
31 March 2010
Issue No. 303
Equities
Move Last % Move Range Volume
ASX 200 +19.5 4916.8 +0.4% +7 to +27 $5.2 bn(A)
SPI - yesterday +1.0 4927.0 +0.0% -17 to +11 3,138(L)
Dow Jones +10.2 10906.1 +0.1% -29 to +44 Low
S&P 500 +0.1 1173.3 +0.0% -4 to +5 Low
Nasdaq +6.1 2410.5 +0.3% -9 to +13 Low
FTSE -38.3 5672.3 -0.7% -48 to +32 Avg
Commodities
Move Last % Today % Past Month
Oil-WTI spot +0.27 82.44 +0.3% +3.5%
Gold Spot -6.97 1102.75 -0.6% -1.3%
Nickel (LME) +16.28 1103.10 +1.5% +15.3%
Aluminium (LME) +0.50 102.60 +0.5% +7.6%
Copper (LME) +3.74 354.46 +1.1% +9.0%
Zinc (LME) +2.15 106.46 +2.1% +8.1%
Silver -0.10 17.31 -0.5% +5.0%
Sugar +0.37 17.88 +2.1% -25.9%
Equity Structured Products and Warrants
Overnight Commentary
Stocks flitted between gains and losses in light trade ahead of the Easter long weekend with better economic data helping
sentiment but more worries about the Greek economy weighed. The Dow closed up 10pts, the S&P was flat and the
Nasdaq rose 0.3%.
Eco - The Conference Board Consumer Confidence number bounced in March coming in at 52.5 vs 51 expected while the
Conference Board's jobs outlook also improved which hopefully bodes well for a strong Payrolls number. The Case
Schiller Home Price Index was also slightly better than expected.
Growth Proxies - 3M climbed 3.6% and topped Dow gainers after a broker said profits will beat estimates. Home Depot
added 0.4% and Lowe's rose 0.5% on the back of the Case Schiller Index with Wal-Mart climbing 0.4%.
Tech - A mixed night with Verizon, up 3.2%, and the 2nd best on the Dow after it was revealed that Apple, up 1.5%, would
release 2 new iPhones with one working on the Verizon network. AT&T which has been the exclusive carrier for the
iPhone until now fell 2.3% and was the worst on the Dow.
Financials - Worries about Greece's funding needs still troubled investors and along with concerns about the Citi sale
process weighed on the sector. On the big board BoA was off 1.3% while JP's fell 0.6% and on the S&P Citi was 1.4%
lower, Goldmans fell 1.2% and Wells Fargo dropped 0.6%.
The FTSE fell 38 points today with banks eroding the miners' early gains and leading the broader market into the red.
Volumes appear to be off leading in to the Easter break. The market finished the day -0.7%, the DAX -0.2% and the CAC -
0.3%.
UK Banks - Banks were in the doldrums as concerns over the upcoming election and the consequent decision over the
governments' holdings in some financial heavyweights loomed on the sector. RBS and Lloyds fell 3.4% and 3%
respectively while HSBC and Barclays were off 2.1% and 2.4% with the 4 removing 19 points from the market.
Eco - The UK emerged from an 18 month recession posting better than expected GDP numbers at 0.4% vs 0.3%. Current
accounts were also healthier at -1.7b vs 5.1b. In Germany, CPI was 0.5% vs 0.3% (mom) and the Import Price Index was
1% vs 0.4% (mom).
Equity Structured Products and Warrants
Commodities Commentary
Miners - Miners were out of the blocks fast spending the morning session in positive territory but were unable to hold the
gains. BHP finished flat while RIO and Xstrata fell 0.3% and 0.1% respectively. Kazakhmys fell 0.4% after stating annual
net earnings had fallen by half from the previous year. Management said they had cut back production during the
recession and had been unable to capitalise on the recent copper price rise.
Energy - Energy plays were weaker again as crude fell during UK trading. BP, BG, Royal Dutch and Cairn Energy off
0.4% to 2.1% taking over 7 points from the market.
SPI Commentary
The SPI traded up 4pt to 4926. Open at 4922 with a high of 4947 and a low of 4918. Volume 18,533. Overnight the SPI
traded down 4pts 4925.
*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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