RBS Round Up: 03 September 2010
RBS Round Up: 03 September 2010
RBS Round Up: 03 September 2010
This material has been produced by RBS sales and trading staff and should not be considered independent.
The Round Up
3 September 2010
Issue No. 401
Daily Monitor
Equity Structured Products and Warrants
Overnight Commentary
ECO - Pending home sales were 5.2% vs. -1% exp while factory orders was lower at 0.1% vs. 0.2%. initial jobless claims
came in at 472k vs. 475k exp but continuing claims were 4456k vs. 4450.
Movers - Boeing and 3M continued their strength adding 1.8% and 1.1% respectively. DELL added 2% as it bowed out
of the race to buy 3PAR, which added another 2.5%, and HP also posted a gain of 1.2% as it looks certain to acquire the
data storage company. Burger King added 25% as it agreed to sell itself to investment firm 3G Capital and Alcoa added
3% taking the top spot on the DOW.
Equity Structured Products and Warrants
Commodities Commentary
GOLD 1251 0.3%
OIL 74.99 1.5%
NI 21650 2.9%
AL 2145 1.8%
ZN 2174 1.9%
CU 7635 0.4%
CRB 1.0%
SPI Commentary
The SPI traded up 38pts to 4529. Open at 4491 with a high of 4585 and a low of 4476. Volume 37,197. Overnight the SPI traded up
22pts to 4559.
*SPI report taken from the 9:50am open to the 4:30pm close on the previous trading day. Charts taken from IRESS
Summary
RIO reported underlying earnings of US$5.8bn, ahead of consensus at US$5.5bn and well above our forecast US$5.2bn.
The difference related to iron ore where RIO achieved better prices than we had expected (we took a conservative view
on price realisations in light of the move from benchmark to quarterly contracts). A dividend of US$0.45ps was declared,
inline with our forecast. Net debt at the end of the period stands at US$12bn (US$19bn YE2010), with gearing at 19%.
Overall a strong result in our view.
Divisional NPAT (US$m) 1H10E Consensus Actual Diff vs RBS Diff vs RBS
Iron Ore 3,420 3676 4108 688 20%
Aluminium 387 348 358 -29 -7%
Copper 1,185 1153 1062 -123 -10%
Energy 620 793 642 22 4%
Diamond and Minerals 83 81 121 38 45%
Other Operations 4 -61 -2 -6 -148%
Underlying NPAT (US$m) 5,188 5,515 5,767 579 11%
Iron ore remains the key swing factor for RIO, with 2/3rds of earnings coming from the division. 3Q10 iron ore prices will
be the average of the March to May spot price, implying US$147/t FOB (above the spot price of US$134/t). This
represents another gain qoq, which will see positive earnings momentum continue.
Corporate items
RIO is about to enter a growth phase which is positive for production growth, however a significant amount of capex
needs to be spent.
Source: IRESS
NPAT of A$198m was at top end of guidance (A$180m-200m) and beat our A$191m
We weren't expecting the A$25m (post tax) write-down of Jabiru/Challis and Legendre, so arguably the underlying NPAT
of A$210m was even further ahead of expectations. The variance to our forecast was split evenly across lower costs,
D&A and income tax. No change to production guidance (49-52 mmboe vs RBS at 49.9). The interim dividend of 22cps
was in line. We have updated our forecasts to reflect recent guidance (see Table 1).
Will buyers really sign up for a second train's off-take without reserves?
We must admit we would be surprised to see the likes of a Kogas sign a binding contract for significant volumes of LNG
not backed by at least 2P reserves. For this reason, we are still hoping that Shell, or another large E&P major, is in the
mix to become a partner with Santos and Petronas. In our view, this would be very well received by the market.
Source: IRESS
For further information please do not hesitate to contact us on the details below
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