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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

18 May 2010Issue No. 333

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.

Equities

Move Last % Move Range Volume

ASX 200 -143.9 4467.2 -3.1% -144 to + $6.6 bn(A)SPI - yesterday -115.0 4495.0 -2.5% -143 to -58.u.c 39,406(H)Dow Jones +5.7 10625.8 +0.1% -184 to +41 HighS&P 500 +1.3 1136.9 +0.1% -21 to +6 HighNasdaq +7.4 2354.2 +0.3% -43 to +18 AvgFTSE -0.3 5262.5 -0.0% -31 to +65 Avg

CommoditiesMove Last % Today % Past Month

Oil-WTI spot -1.10 70.51 -1.5% -15.3%Gold Spot -11.08 1222.10 -0.9% +7.4%Nickel (LME) -38.78 935.63 -4.0% -22.6%Aluminium (LME) -5.17 89.13 -5.5% -18.2%Copper (LME) -20.80 291.91 -6.7% -16.7%Zinc (LME) -7.09 84.75 -7.7% -21.8%Silver -0.46 18.89 -2.4% +6.5%Sugar -0.24 13.89 -1.7% -12.9%

Global Market Action Scoreboard, commentary

Aussie Market Action SPI Comment, Events & Dividends

Newcrest (NCMKZG) MINI Trading Buy Flight to GOLD

Equinox (EQNKZA) MINI Trading Buy Costs in focus

ANZ (ANZKZN) MINI Trading Buy Still Restoring

Australian Strategy US Reporting Season

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Dual Listed Companies (DLCs)Move %Move Last AUD Terms Diff to Aus

NWS (US) +0.06 +0.4% 16.45 18.74 +25.8 cRIO (UK) -95.5 p -3.0% 31.15 51.40 -1274.5 cBLT (BHP UK) -19.0 p -1.0% 18.955 31.29 -560.5 c

American Depository Receipts (ADRs)Move %Move Last AUD Terms Diff to Aus

BHP (US) -0.82 -1.2% 65.57 37.34 +45.5 cAWC (US) -0.07 -1.2% 5.74 1.63 +0.5 cTLS (US) +0.09 +0.7% 13.11 2.99 +1.7 cANZ (US) -0.33 -1.7% 19.40 22.10 -5.2 cWBC (US) -0.64 -0.6% 106.66 24.30 +101.9 cNAB (US) -0.15 -0.7% 21.80 24.83 -1.8 cLGL (US) -0.89 -2.4% 36.05 4.11 -5.4 cRMD (US) +0.43 +0.6% 68.72 7.83 +9.8 cJHX (US) -0.07 -0.2% 33.60 7.65 -0.5 c

PDN (CAN) -0.15 -4.1% 3.52 3.88 +1.2 c

Overnight CommentaryUnited States Commentary

TheUSekedoutagainof6ptsthankstoabounceintheEurooffa4yearlow.EnergysharesledtheDowdown185ptsearlyasoildippedunder$70forthefirsttimethisyear.TheS&Padded0.1%andtheNasdaqrose0.3%. Eco -EmpireManufacturingwaswellbelowexpectationsat19.11vs30expectedanddownfrom31.86priorbutimportantlystillexpanding.NAHBHousingMarketConfidenceIndexwas22vs20expectedandupfrom19prior. Growth Proxies -Caterpillarwasoff1.7%thankstotheweaknessinNYmanufacturingdata.Alcoafell2.1%tobetheworstontheDowandtogethertheytook10ptsofftheDow.Retail -Lowe'swasoff3.1%afterforecasting2Qearningsbelowanalystexpectations.TheCEOsaidconsumersarestillconcernedaboutunemploymentandhomeforeclosures.HomeDepotrose1.1%afterbeingweakerearly.Wal-Martrose1.2%aheadofearningslaterthisweek.Homebuilders -TheNAHBindexshowedconsumersrushedtosigncontractsbeforeaApril30deadlineforanupto$8,000taxcredithelpingtriminventories.DRHortonwasup1.5%,Pulterose0.5%,KBHomesadded0.9%andLennarended0.1%higher.United Kingdom & Europe Commentary

TheFTSEfinishedtheday0.3pointsbelowwereitstartedasearlygainswereerodedbyminersandtravelfirmswithglobaldemandconcernsandtheIcelandicashcloudthebigissues.ThemarketfinishedthedayflatwhiletheDAXadded0.2%andtheCAClost0.5%.

Banks -BankswereundercontinuedpressureasEurodebtconcernsandpossiblenewfinanciallegislation,aimedatreducingBritain'sdeficit,weighedonthesector.Barclays,LloydsandRBSthebiggestunderperformers,off0.7%to1.4%,asJPMorganreleasedareportidentifyingthe3asthemostlikelytobeeffectedbynewprovisioningrequirements.

TheFTSEEurofirst300closed0.1%lowerastheEurohit4yearlowsandcopperandoilpricesflirtedwithkeysupportlevels.AirlineswereweakerastheIcelandicvolcanocontinuestospurtash,grounding1000flightsthroughoutEurope,Ryanair-3.5%,KLMAirFrance-3.6%.TravelgiantsTUIandThomasCookwereunabletoescapetheselloffshedding

2.9%and3.2%astheyclaimedprofitswouldbeloweredby70mpounds.Hochtief,theGermanconstructiongroupfell7.7%afterreportinglowerthanexpectednewordersandrumourscirculatedaboutfaultysupportstructuresina500meuroprojectinHamburg.

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Commodities Commentary

Miners -Minerswerethebiggestweightsonthemarkettrackingsubstantiallycommoditypricesloweronthebackofglobaldemandfears.ConcernsthatChinesedemandmayhavealreadypeakedtriggeredaselloffacrosstheboard.BHP,RIO,Fresnillo,KazakhmysandXstrataoff1%to3%removingover10pointsfromthebroadermarket.

SPI CommentaryTheSPItradeddown112ptto4495.Openat4607withahighof4611andalowof4467.Volume44,855OvernighttheSPItradedup20pts4524.

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 US PPI, US housing starts

Wednesday AUS Aus wage price index, Aus WMI consumer sentiment

US US core CPI

Thursday AUS

US

Friday AUS

US US Philadelphia Fed index, US leading index

*Dates are indicative only and may change

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MINI Trading Buy:Newcrest Mining (NCMKZG) Flight to GOLD

NCM has secured LGL board approval for its merger proposal via an increase in bid terms. On RBS Researchsnumbers the increased terms remain EPS accretive but are dilutive on an NPV basis. We see increased sector

relevance and strong growth profile as supporting the combined entity going forward. RBS Research TargetPrice to A$40.52.

Source: IRESS

Increased NCM offer acceptedThe LGL board has recommended an increased offer of 1 NCM share and A$0.225 for every 8.43 LGL shares held, anincrease of 6.3% above the previous offer. This is in line with RBS Researchs previously stated position that a 5-10%improvement in bid terms of the bid would secure the support of the LGL board. However, the release of the Henry taxreview implies a proportionately greater impact for NCM than LGL on an NPV basis and ultimately erodes the value of anincreased script component, in our view. In light of the new tax proposals we believe NCM has achieved a soundoutcome.

NPV dilutive but its about the bigger pictureUnder the increased bid terms and including A$85m in synergies we estimate that the deal would be 1.4% EPS accretivein year one (from 2% previously) and 8.9% NPV dilutive for NCM. However, the combined entity would be trading at a

P/NPV multiple of 1.17. This compares with our historical average P/NPV multiples of 1.45 for LGL and 1.39 for NCM. Onthis basis alone we believe that the combined entity will re-rate, but flag increased index weighting, sector significanceand expanding production profile as justification for an increase P/NPV premium over time.

Investment viewPrior to the initial bid, our preference was for NCM over LGL for gold exposure due to diversification by mine andgeography, its strong growth pipeline, management strength and a relatively low P/NPV multiple. Should the merger besuccessful we are of the view that NCM's management team will be able to extract greater operational synergies overtime than the A$85m currently factored in to our numbers, and remain buyers on a long term view. We maintain our viewthat a competing bid for LGL is unlikely but would continue to hold that stock with a view to NCM exposure now that atimeline for the merger has been established.

RBS MINIs over NWS

Security ExPrc Stop Loss CP ConvFac Delta Description

NCMKZG 24.9127 27.38 Long 1 1 MINI Long

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MINI Trading Buy:Equinox (EQNKZA) Costs in focus

1Q10 cash costs of US$1.60/lb were slightly higher than we expected, and leave EQN stretched to meet full yearguidance of US$1.35/lb. However, with production improving, positive exploration results, and the stock continuing to

trade at a significant discount to NPV, we maintain our Buy call.Buy Long MINI EQNKZA for short term trade to $4.82 or hold for the long term.

Source: IRESS

Costs in line, earnings upEQN reported 1Q10 NPAT of US$32.5m which included pre-tax derivative losses of US$16m (mark to market of thehedge book). Stripping out these non cash derivative losses, underlying NPAT was US$44m, which was above ourforecast of US$35.2m. We had factored in higher interest costs associated with debt restructuring during the quarter.

But cost guidance likely to riseOperating costs of US$1.60/lb for 1Q10 was broadly in line with our forecast of US$1.57/lb. The company maintained fullyear cost guidance of US$1.35/lb but noted that a significant improvement needs to take place to achieve this.Management advised that absolute dollar million costs need to come down to meet guidance, which we believe may bedifficult with additional equipment coming on stream (five new trucks by mid-year). Contractor costs were high in 1Q10

which provides some opportunity to strip costs out, however with the wet season starting again in 4Q10, we remainconservative and have increased our projected costs for 2010 to US$1.40/lb.

Positive investment view maintainedEQN remains one of our key picks in the sector. While costs are likely to be higher than guidance, productionimprovements throughout the year should see a significant reduction in unit costs from current levels. With the issuessurrounding the Australian government's revisions to mining tax, EQN remains sheltered from these issues. Further, EQNis likely to release feasibility study results for an expansion of Lumwana by year end, which we also see as a positivecatalyst. The stock is trading at a P/NPV of 0.83x and continues to look cheap to us. We maintain our Buy call.

RBS MINIs over EQN

Security ExPrc Stop Loss CP ConvFac Delta Description

EQNKZA 2.1356 2.56 Long 1 1 MINI Long

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MINI Trading Buy:ANZ Banking Group (ANZKZN) Still Restoring

ANZ's 1H10 result was 3% above our cash EPS estimate, although the dividend was 4% below our forecast. Inour view, ANZ's revenue was held back by wider sector trends, but its interest margin should outstrip peers in

FY10. We lift our FY10 cash EPS forecast 3.9% and maintain our Buy recommendation.

Source: IRESS

1H10 cash EPS was 4% above Bloomberg consensusANZs 1H10 results (underlying EPS $0.913, cash EPS $0.944) beat consensus by 4%, although the $0.52/sharedividend fell short of RBS Researchs $0.54/share forecast. Adjusted for FX movements and assuming full ownership ofING, ANZs 1H10 underlying revenue rose 3.2% on 2H09 and profit before bad debts and tax grew just 3.6% on 2H09.ANZs top line held back by sector trendsWe see wider sector influences held back top-line growth. In FY10, all major banks face flat loan balances, softer tradingincome, weakness in wealth management and lower retail banking fees. With this industry backdrop, higher net interestmargins are all thats left to boost revenues. ANZ lifted its group net interest margin by a healthy 6bp, despite a big dragfrom trading activities. The main company-specific drag for ANZ was cost growth.But most of these drags should lift by 1H11Even so, some of these clouds may start to clear in 2H10. ANZ highlighted a pick-up in corporate loan applications,

although it concedes that drawdowns have yet to budge. Corporate loan repricing and higher free funds earnings shouldlift 2H10 margins again. Operating cost growth looks to have peaked, and momentum should return in the Asian unit.We upgrade cash EPS 3.9% for FY10FRBS Research has lift their forecasts to account for better margins, recent acquisitions, the New Zealand recovery, and alower payout ratio. Cash EPS forecast rises 3.9% for FY10, 6.1% for FY11 and 5% for FY12. RBS Researchs FY10Fdividend falls to $1.14 /share.Retaining Buy, raising price target to $27.26/share (from $26.28/share)We see less pressure on ANZs earnings by 2H10 and 1H11. ANZ has about $3bn in excess capital relative to the peeraverage and trades on a 4% discount to peers (IBES 12m fwd). RBS Research price target is $27.26/share (DDM of$26.26/share and $1.00/share for extra capital).ANZ last traded $22.15, BUY ANZKZN for 1-for-1 upside towards RBS Target Price of $27.26

RBS MINIs over ANZSecurity ExPrc Stop Loss CP ConvFac Delta DescriptionANZKZL 1384.42 1506 Call 1 1 MINI LongANZKZM 1266.98 1383 Call 1 1 MINI LongANZKZN 1687.26 1823 Call 1 1 MINI Long

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RBS Round Up Corner:US Reporting Season Summary

We enter the 1Q10 US reporting season with both the US and Aussie equity markets looking

fairly valued, and earnings revision cycles in both countries flat. Therefore, we see USreporting as a significant sign post for both markets. We identify the key sectors and stocksto watch from Oz.

Looking for top-line sales growth in the US for 1Q10A key barometer for this US reporting season will be the extent to which companies deliver both top-line sales as well asearnings surprise. Of the last four US reporting seasons, only 4Q09 delivered both sales and earnings surprises. Thisoutcome was generally seen as evidence of the US recovery accelerating and not just corporate cost-cutting.

Revenue growth of 12% pcp (just 8% delivered last quarter)For 1Q10, Bloomberg is looking for revenue growth of 12% on 1Q09, which compares with 8% actual for December 2009.On a sector basis, the key contributors are likely to be Energy, which accounts for 36% of the expected aggregated

revenue growth, and Financials at 15%.

Which US stock results should we focus on in Oz?

During the peak of US reporting, we are generally inundated with results on a daily basis, some of which have morerelevance than others for the Australian market. To help prioritise the US results, we have surveyed the RBS researchanalysts and asked them to identify which are the key US stocks to watch in their sectors. These are presented in thetable below, along with their expected reporting date and key forecast expectations.

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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 or

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co-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 clients investment objectives, financial situation or particular needs. Before a client makes an investment decision, a client should consider whether anyadvice 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).

The warrants contained in this report are issued by RBS Group (Australia) Pty Limited (RBS) (ABN 78 000 862 797, AFS Licence No. 247013). The Product DisclosureStatements relating to these warrants are available upon request from RBS Equities or on our website www.rbs.com.au/warrants

RBS Group (Australia) Pty Limited is not an Authorised Deposit-Taking Institution and these products do not form deposits or other liabilities of The Royal Bank of ScotlandN.V. or The Royal Bank of Scotland plc. The Royal Bank of Scotland plc does not guarantee the obligations of RBS Group (Australia) Pty Limited.

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 secondinstalment 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 - 180510

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