RBS ROund Up: 07 October 2010

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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

7 October 2010 Issue No. 424

The Round Up is a comprehensive

daily note produced by the RBS

Warrants team providing an overview

of market movements along with

quality ideas for warrant traders and

investors.

Daily Monitor

Global Market Action Scoreboard, commentary

Aussie Market Action SPI Comment, Events & Dividends

XJO Short (XJOKZQ)

S&P500 Long (SPFKZA) International MINIs Pairs trade

Santos (STOKZD) MINI Trading Buy – You don't get something for

nothing

Origin Energy (ORGKZC) MINI Trading Buy – Cashflow set to surge

Australian Strategy Monthly Market Review - September 2010




Overnight Commentary United States Commentary

US indices were mixed overnight as the market paused ahead of tomorrows payrolls number. Tech stocks bore the bruntof the selling as MS downgraded some semiconductor heavy weights driving the NASDAQ south.

ECO - ADP Employment Change came in at -39k vs 20k expected.

Movers - GE and 3M were up over 1.2%, oil majors Exxon and Chevron added 1.1% and 0.6% and Alcoa posted a gainof 1.8% as it gets set to lead out US reporting season tonight. On the downside tech plays were weaker with Verizon,and HP's off 0.6% and 0.2%

United Kingdom and Europe Commentary

UK - The FTSE chalked up a win with miners adding the majority of the points as MS released a bullish note on thesector. Investors remain bullish as it seems more likely the globe will initiate another rounder of quantitative easing.Anglo, Lonmin, Kazakhmys and Xstrata adding 3.8% to 4.2%. BA was a standout for a second day as Barclays raisedtheir price target...the stock finishing up 4.5% leading mid cap peer up 12% as they look to hit earnings estimates out ofthe park.




Commodities Commentary

Last % Move

GOLD 1349 0.2% OIL 8318 0.4% NI 24787 0.3% AL 2358 -0.7% ZN 2334 1.0% CU 8259 1.0% CRB 0.3%

SPI Commentary

The SPI traded up 79 pts to 4699. Open at 4620 with a high of 4713 and a low of 4612. Volume 35,620. Overnight the SPI traded up 12

pts to 4705.

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

USWednesday AUS Unemployment Rate

US ADP Nonfarm Employment Change

Thursday AUS

US Initial Jobless Claims

Friday AUS

US Nonfarm Payrolls , Unemployment Rate

*Dates are indicative only and may change




International MINIs Pairs trade: XJO (XJOKZQ) overvalued in USD terms

To take advantage of the newly listed RBS International and FX MINIs we have recommended a trade toprofit from the recent outperformance of the XJO vs the Dow/S&P500. The Aussie market has seen

significant inflows of capital driving our market to 5mth highs and the AUD to 2 year highs. Buy XJOShort XJOKZQ and Buy S&P500 Long SPFKZA for this divergence to close.

Source: Bloomberg

XJO Vs DOW/S&P500 in USD terms

The chart above illustrates the gap that has opened up since the beginning of July. The XJO has outperformed theDOW/S&P500 indices by 13.1% in this period. To play this pairs trade you can Short XJO and Long S&P500 usingXJOKZQ and SPFKZA MIINIs. Both the AUD and XJO have had substantial run-ups and we recommend that you lookto lock-in these gains with a short XJO but maintain your market exposure with a Long S&P.

Source: IRESS

Security ExPrc Stop Loss CP ConvFac Delta Description

XJOKZY 5,308.83 5,049 Short .01 1 Short

XJOKZQ 4,949.78 4,708 Short .01 1 Short

SPFKZA $957.2631 1,004.00 Long .01 1 Long

DJXKZA $9,047.7850 9,486.00 Long .01 1 Long




MINI Trading Buy: Santos (STO.AX): You don't get something for nothing

Santos has finally announced a long-awaited sell-down and off-take deal inrespect of GLNG. However,some concessions had to be given and this has disappointed the market. We still believe there is value

in Santos to be unlocked over time and maintain our Buy rating.

Source: IRESS Total emerges with a 20% equity stake in GLNG and 1.5mtpa of off-take STO has sold-down 15% for A$650m, which was well below the A$850m implied by the Petronas deal. Unfortunately,STO has also been forced to forgo its US$500m second train FID payment, in return for Petronas agreeing to up its off-take to 3.5mtpa (from 2mtpa with a 1mtpa option). On top of this, STO has vended in some more of its CSG acreage at nilcost, although management wasn't able to put a contingent resource number on the size.

Key hurdles now funding, proving up T2 reserves and environmental approvals STO is still targeting FID by the end of CY10 and plans to update the market on funding plans and capex numbers around

that time. Management today suggested that a further sell-down of equity and some off-take appears likely before FID,but wasn't a necessity. We still think Santos will need at least A$1.5bn of fresh equity for GLNG in order to keep the ratingagencies happy.

No change to RBS Research’s Santos valuation and target price just yet RBS Research will be refining the valuation assumptions over the coming weeks as the project moves closer to FID. Inisolation, the second train FID payment would remove about A$0.66/share from current valuation, but RBS Research hadbeen factoring in extremely conservative LNG pricing for any future volumes signed up. If anything, RBS Research’sA$2.65/share valuation for GLNG may need to increase slightly (pre 15% sell-down).

Buy maintained post pull-back, but an investor in STO needs patience In our view, the biggest disappointment was having to give up the US$500m second train FID payment in exchange for'project certainty'. While we believe this was a necessary step in getting the project closer to the finish line and unlocking

value for shareholders, the market had not been expecting it after recent press speculation that Shell might get involvedwith GLNG in some form of project consolidation. Overall, we still think there will be some upside as GLNG comes tofruition. RBS MINIs over STO

Security ExPrc Stop Loss CP ConvFac Delta Description

STOKZD 928.95 10.22 Long 1 1 MINI Long




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 bigyear 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 contributionswere lower than we expected with retail offsetting. Management has suggested it would have hit its 15% growth target ifnot for the overseas exploration write-downs, although RBS Research had these in the numbers already. OPCF ofA$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 nowincludes 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 earningsdowngrade. 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 struckalmost two years ago and we continue to believe that any news on that front would be well received by the market. Likeall investors, we would like to see an off-take arrangement done before we get too excited about the project, but, in ourview, 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 comingyears. 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 1100.32 1198 Call 1 1 MINI Long




Strong balance sheets to drive investment and acquisitionsOver the past couple of years, we have consistently highlighted the strength of corporate Australia’s balance sheet.Reporting season again supported this, as evident in the charts below.

We forecast net debt will decline in absolute terms over the next few years. However, as shown in the chart below, M&Aactivity has been quite muted in Australia over the past 12 months.

But this conservative approach has created some unique expansion opportunitiesDue to the capital raising/preservation policies, corporate Australia is now well placed to expand over the next 6-18months. We believe corporate thinking might go along the following lines:

• Despite some setbacks, the worst of the global financial crisis looks to have passed. The Asian economies(Australia in particular) look to be strong. We don’t expect a double-dip in the US, although growth may be slow.

• The balance sheet is strong as a result of the conservative capital policies adopted.• Debt markets are freeing up, making funding increasingly available on improving terms.• Asset values are generally still well off their highs and/or a number of key growth projects (eg,• PNG LNG) are approaching investment phase. Private equity is also likely to be looking to divest assets acquired

in the last cycle.




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 [email protected]

Ryan Corrigan 02 8259 2425 [email protected]

Investment Products Team

Elizabeth Tian 02 8259 2017 [email protected]

Tania Smyth 02 8259 2023 [email protected]

Robert Deutsch 02 8259 2065 [email protected]

Mark Tisdell 02 8259 6951 [email protected]

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 hasbeen 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 assuch. 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. RBSEquities and its affiliated companies may make markets in the securities discussed. RBS Equities, its affiliated companies and their employees from time to time may holdshares, 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 orco-manager of a public offering of any such securities in the past three years. RBS Equities’ affiliates may provide, or have provided banking services or corporate finance tothe companies referred to in this report. The knowledge of affiliates concerning such services may not be reflected in this report. This report does not constitute an offer orinvitation to purchase any securities and should not be relied upon in connection with any contract or commitment. RBS Equities, in preparing this report, has not taken intoaccount an individual client’s investment objectives, financial situation or particular needs. Before a client makes an investment decision, a client should consider whether any

advice contained in this report is appropriate in light of their particular investment needs, objectives and financial circumstances. It is unreasonable to rely on anyrecommendation without first having consulted with your advisor for a personal securities recommendation. The information contained in this report is general advice only.RBS Equities, its officers, directors, employees and agents accept no liability for any loss or damage arising out of the use of all or any part of the information contained in thisreport. This Information is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to locallaw or regulation. If you are located outside Australia and use this Information, you are responsible for compliance with applicable local laws and regulation. This report maynot be taken or distributed, directly or indirectly into the United States, or to any U.S. person (as defined in Regulation S under the U.S. Securities Act of 1993, as amended).

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© Copyright 2009. RBS Equities. A Participant of the ASX Group.

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 toexercise 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 typeof warrant.

All charts taken from IRESS unless indicated otherwise

RBS ROund Up: 07 October 2010

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