Sunday 11 April 2004 table of contents . . . summary of recommendations summary of recommendations 1 Stock Recommendation Current Price Target Stop Loss Time Frame how to use this newsletter 1 GGN Buy 29.5 cents 55 cents 21 cents 12 months sample page 2 TNE Buy 55 cents 85 ents 43.5 cents 12 months HVN Trade Dividend $2.84 See pg 9 See pg 9 2-4 weeks CBA Trading SELL $32.45 See pg 11 See pg 11 1 week QBE Lock in Profits $11.29 See pg 12 See pg 12 1 month STOCK ON THE MOVE gallery gold limited 3 technology one limited 3 portfolio management 4 stock on the move distributions 13 INSTALMENT INVESTOR how instalment warrants work 7 harvey norman limited 9 OPTION/WARRANT TRADING technical analysis 10 commonwealth bank of australia 11 WRITING COVERED CALLS qbe insurance group limited DISCLAIMER HOW to use this newsletter The quick guide on how to use the Investment Wise newsletter. There are 2 categories, the novice stock market trader (please follow steps on the left hand column) and the advanced stock market trader (please follow steps on the right hand column). novice trader advanced trader step 1 step 1 Read the sample page – How to interpret our Stock on the Move picks on page 2 Read pages 7 to 12. These are relevant to your level of trading 12 17 step 2 step 2 Read pages 2 to 6. These are relevant to your level of trading Read the Disclaimer on page 17 step 3 Read the Disclaimer on page 17 A Publication of PPS Investments Pty Ltd A.C.N 097 446 369 Australian Financial Services Licence no. 246670. © Copyright 2001-2004 1 Investment Wise The Stockmarket Edge HOW to interpret our Stock on the Move picks Investing in Small-Mid Cap Stocks to achieve Big Returns Expected Knowledge: Level of Difficulty: None All Levels (i.e. Beginner, Intermediate and Advanced) Every week emerging stocks that are about to make a big move are highlighted with a suggested investment strategy. Even in the worst Stock Market conditions, there are always stocks that will appreciate in value. Traditionally, this has been the aim of Fund Managers around the World – To Find Market Outperformers. Now, you too can access recommendations that have a proven record of success. The sample shown on the right is the typical format of a “Stock on the Move” recommendation. Refer to the explanations below on how to interpret the information provided. SAMPLE Stock on the Move Recommendation Peptech Limited Stock Exchange Code PTD Recommendation BUY First Recommended 05-01-2001 Current Share Price $1.87 A unique code used by the Australian Stock Exchange to identify listed companies 12 Month Price Target $3.50 Suggested Stop Loss $1.54 Intended investment advice placed on a particular stock Earnings per Share (cents) 21.20 Market Capitalisation ($) 278.6 M Date at which the stock is/was first recommended as a “BUY” How many shares do I buy ? Current Share Price Price that the stock last traded at the time of writing Trade Size 12 Month Price Target The expected level of that the stock is expected to reach within the next 12 months Stock Exchange Code Recommendation First Recommended Suggested Stop Loss Amount ($) you are prepared to lose = Market Price − $1.53 PTD 3.0 Price at which investors should sell their shares if the stock trades below indicated level 2.5 2.0 Earnings per Share (cents) Market Capitalisation ($) How many shares do I buy ? Measures the earnings that are attributed to each equivalent ordinary share over a 12 month period The total number of shares on issue multiplied by their market price. This can be applied to work out the market value of one company Decide the dollar amount you are prepared to lose if the stock trades below the Suggested Stop Loss (typically 2-3% of the total amount of money you have to invest). If you can afford to lose $350, then the maximum number of shares which should be purchased is: $350 ÷ (Market Price − Stop Loss Sell Price) 1.5 1.0 0.5 1994 1995 1996 1997 1998 1999 2000 2 Peptech (PTD) researches, develops, produces and markets peptides, antibodies and related products for the pharmaceutical, veterinary and agricultural industries. The Company's peptide-based products are used for the treatment of diseases in the areas of cancer, inflammation and infection in humans and the management of animal health and fertility. This report was produced by PPS Investments Pty Ltd (ACN 097 446 369), which holds an Australian Financial Services Licence (Licence no. 246670). PPS Investments Pty Ltd believes that the information and material contained in this report has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of this information and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, PPS Investments Pty Ltd does not accept any liability for any loss arising from any use of the material contained in this report. DISCLOSURE: PPS Investments Pty Ltd may hold and/or effect or have effected a transaction upon its own account in the investments referred to in this report or any related investment before the material is published. Additionally, PPS Investments Pty Ltd may, within the previous twelve months, have provided advice or investment services to the companies mentioned in this report. WARNING: This report is intended to provide general securities advice only. It is not prepared having regard to any particular investor’s investment objectives, financial situation and/or particular needs. This report may not be reproduced, distributed or published for any purpose, unless the person or entity seeking to do so is expressly authorised in writing to do so by PPS Investments Pty Ltd. Sunday 11 April 2004 © Copyright 2001-2004 2 Investment Wise The Stockmarket Edge Stock on the Move Technology One Limited Gallery Gold Limited Stock Exchange Code GGN Stock Exchange Code TNE Recommendation BUY Recommendation BUY First Recommended 11-04-2004 First Recommended 11-04-2004 Current Share Price 29.5 cents Current Share Price 55 cents 12 Month Price Target 55 cents 12 Month Price Target 85 cents Suggested Stop Loss 21 cents Suggested Stop Loss 43.5 cents Earnings per Share (cents) -2.27 Earnings per Share (cents) 2.57 Market Capitalisation ($) 107.9 M Market Capitalisation ($) 164.3 M How many shares do I buy ? Trade Size How many shares do I buy ? Amount ($) you are prepared to lose = Trade Size Market Price − 20.5 cents Note. Amount ($) you are prepared to lose is typically 2-3% of the total amount of money you have to invest = Amount ($) you are prepared to lose Market Price − 43 cents Note. Amount ($) you are prepared to lose is typically 2-3% of the total amount of money you have to invest GGN TNE 0.40 1.50 1.20 0.30 0.90 0.20 0.60 0.30 0.10 2000 2001 2002 2003 2004 1999 2001 2002 2003 2004 Gallery Gold Ltd (GGN) is an emerging gold exploration and producing company primarily focused on the Mupane Project in Botswana. With production of 100,000oz of gold expected to start in October 2004 from the Mupane Project, GGN is in a strong position to leverage this profitable mine. Strong cash flow is expected which will help the exploration of a number of different areas and metals including nickel, platinum, copper and diamonds. The recent merger with Spinifex has increased GGN’s exploration portfolio immensely and the Buckreef Rwamagaza Project in Tanzania is scheduled for a bankable feasibility study after already confirming resource estimates of 1.1m ounces of gold. GGN has strong institutional support and with major shareholder Lion Selection Group at the helm, GGN deserves a market re-rating as it goes from explorer to producer Technology One Ltd (TNE) is focused on the design, development, implementation and support of software applications for the corporate and government sectors. TNE has two main divisions, Software Engineering and Service Delivery and judging by the amount of R&D spend (20% of revenues), TNE is committed to delivering the leading solutions to its customers using Client Server, Internet and eBusiness Technologies. TNE has as an impressive list of customers including, Australian Broadcast Authority, Melbourne Water Corporation and the Department of the Senate. The financials of TNE are solid, recently producing a 16% increase on net profit before tax of $5.5m for the half year ending December 2003. With a pick up in the IT sector expected in 2005, TNE has strong fundamentals, including a dividend yield of 5% to in the second half of this year. A ‘speculative buy’ ensure its continued growth in the next 24 months. Sunday 11 April 2004 © Copyright 2001-2004 3 Investment Wise The Stockmarket Edge Portfolio Management How to manage recommendations from Stock on the Move like the Professionals The key to successful trading is cutting losses quickly and holding onto winning trades. Very often investors sell out of winning trades, only to see the stock trade a lot higher. However, it is more disturbing to see an unrealised profit of 60% turn into a losing trade. It is very difficult to pick market tops and bottoms. We use “Profit Stops” to help investors manage their investments. Profit Stops are like Safety Nets that protect unrealised profits. The chart on the right demonstrates our use of Profit Stops. The Initial Stop Loss is raised as the stock trades higher to lock in profits. Notice that as the stock trades higher, the Profit Stop is revised to a higher level. Finally, as the stock trades below the Revised Profit Stop, we sell the stock to realise a profit of 16%. CEY 1.1 1.0 Revised Profit Stop P 0.9 Sell Profit Stop Setup to Protect Gains 0.8 O Buy Initial Stop Loss 0.7 0.6 This Portfolio Management section is how we help you manage your investments in Stock on the Move. New Stock on the Move picks featured this week have also been included and updated Stop Loss and Profit Stops are highlighted. The Profit Stop always starts off as the Initial Stop Loss. We recommend that investors Volume 300 x1000 2000 November December2001 February March April May June sell the stock should the share price trade below the Stop Loss or Profit Stop indicated in the table below. Buy Date Stock Model Qty Buy Price Stop Loss Profit Stop Target Last Trade Profit/Loss % Return 22-12-02 GRR 9,000 $0.220 − $0.590 $0.400 $0.670 +$4,050.00 +204.55% 17-01-03 ALK 3,000 $0.415 $0.345 − $0.650 $0.355 -$180.00 -14.46% 14-02-03 BLD 1,600 $4.510 − $6.020 $6.000 $6.370 +$2,976.00 +41.24% 14-02-03 COA 1,700 $2.230 − $3.160 $3.000 $3.300 +$1,819.00 +47.98% 14-03-03 HLY 840 $5.380 − $6.520 $7.700 $6.650 +$1,066.80 +23.61% 11-04-03 ADB 1,200 $7.600 − $8.300 $9.200 $8.360 +$912.00 +10.00% 02-05-03 BWP 3,500 $1.440 $1.430 − $1.700 $1.600 +$560.00 +11.11% 09-05-03 EPT 8,300 $0.170 − $0.730 $0.350 $0.790 +$5,146.00 +364.71% 16-05-03 SPC 1,800 $1.380 $1.120 − $2.000 $1.340 -$72.00 -2.90% 06-06-03 ALZ 1,600 $1.650 $1.360 − $2.000 $1.700 +$80.00 +3.03% 20-06-03 MGI 2,500 $1.630 $1.440 − $2.000 $1.720 +$225.00 +5.52% 27-06-03 WTP 5,200 $0.440 $0.350 − $0.800 $0.730 +$1,508.00 +65.91% 04-07-03 ARQ 3,500 $0.690 $0.560 − $1.300 $0.910 +$770.00 +31.88% 11-07-03 HCN 1,700 $0.800 $0.520 − $2.000 $1.200 +$680.00 +50.00% 11-07-03 KYC 2,600 $1.290 $1.110 − $2.500 $1.460 +$442.00 +13.18% 11-07-03 NLX 4,100 $0.340 $0.225 − $0.750 $0.295 -$184.50 -13.24% 11-07-03 PLF 1,300 $2.420 $2.060 − $3.500 $2.420 $0.00 0.00% Sunday 11 April 2004 © Copyright 2001-2004 4 Investment Wise The Stockmarket Edge Buy Date Stock Model Qty Buy Price Stop Loss Profit Stop Target Last Trade Profit/Loss % Return 18-07-03 AHD 820 $2.650 $2.050 − $4.500 $3.400 +$615.00 +28.30% 25-07-03 SYM 2,300 $1.120 $0.920 − $1.600 $1.250 +$299.00 +11.61% 01-08-03 IFM 1,800 $0.990 $0.730 − $1.500 $0.890 -$180.00 -10.10% 08-08-03 APN 1,060 $3.820 $3.360 − $5.500 $3.840 +$21.20 +0.52% 15-08-03 CTO 7,500 $0.165 $0.100 − $0.350 $0.160 -$37.50 -3.03% 15-08-03 PRG 1,200 $2.380 $2.000 − $3.250 $2.860 +$576.00 +20.17% 22-08-03 LCL 2,200 $0.890 $0.680 − $1.500 $0.820 -$154.00 -7.87% 29-08-03 BTC 2,400 $0.530 $0.330 − $0.900 $0.460 -$168.00 -13.21% 29-08-03 SGN 830 $3.340 $2.750 − $4.500 $3.260 -$66.40 -2.40% 05-09-03 OKN 1,160 $1.240 $0.820 − $2.300 $1.230 -$11.60 -0.81% 05-09-03 SRL 2,400 $0.650 − $0.980 $1.500 $1.170 +$1,248.00 +80.00% 12-09-03 MAH 4,100 $0.270 $0.155 − $0.600 $0.295 +$102.50 +9.26% 19-09-03 CPB 1,100 $5.690 $5.250 − $7.500 $6.130 +$484.00 +7.73% 26-09-03 RBK 2,500 $0.500 $0.305 − $1.100 $0.700 +$500.00 +40.00% 03-10-03 HER 1,900 $0.570 $0.320 − $1.500 $0.950 +$722.00 +66.67% 10-10-03 NDC 7,600 $0.190 − $0.355 $0.450 $0.400 +$1,596.00 +110.53% 17-10-03 CAB 870 $3.110 $2.550 − $4.000 $3.320 +$182.70 +6.75% 17-10-03 SOL 610 $6.650 $5.850 − $9.000 $6.420 -$140.30 -3.11% 24-10-03 VGL 1,300 $1.260 $0.900 − $2.300 $1.290 +$39.00 +2.38% 31-10-03 HIG 3,300 $0.365 $0.220 − $0.900 $0.430 +$214.50 +17.80% 07-11-03 SMC 5,000 $0.265 $0.170 − $0.600 $0.250 -$75.00 -5.66% 14-11-03 DOW 400 $3.800 $2.640 − $6.000 $3.290 -$204.00 -13.42% 14-11-03 TEN 1,000 $2.780 $2.310 − $4.000 $2.820 +$40.00 +1.44% 21-11-03 LNN 740 $5.860 $5.200 − $6.800 $6.000 +$103.60 +2.39% 28-11-03 MNR 1,400 $1.090 $0.760 − $1.800 $1.190 +$140.00 +9.17% 05-12-03 MCW 2,600 $1.760 $1.580 − $1.900 $1.740 -$52.00 -1.14% 05-12-03 MIA 4,500 $0.700 $0.600 − $1.110 $0.750 +$225.00 +7.14% 12-12-03 SGS 1,600 $1.250 $0.950 − $2.500 $1.050 -$320.00 -16.00% 19-12-03 CCL 890 $6.150 $5.600 − $7.500 $6.740 +$525.10 +9.59% 19-12-03 RHC 710 $4.600 $3.910 − $6.500 $5.080 +$340.80 +10.43% 09-01-04 IRE 1,300 $2.650 $2.300 − $4.500 $3.040 +$507.00 +14.72% 09-01-04 MCC 1,500 $1.420 $1.100 − $2.500 $1.540 +$180.00 +8.45% 16-01-04 MPI 8,700 $0.120 $0.064 − $0.250 $0.120 $0.00 0.00% 16-01-04 SMX 7,100 $0.265 $0.200 − $0.550 $0.250 -$106.50 -5.66% 23-01-04 PDN 15,000 $0.059 − $0.125 $0.100 $0.135 +$1,140.00 +128.81% 23-01-04 VPE 38,000 $0.025 $0.013 − $0.050 $0.021 -$152.00 -16.00% 30-01-04 EXS 5,800 $0.250 $0.170 − $0.400 $0.265 +$87.00 +6.00% 30-01-04 TBC 7,700 $0.220 $0.160 − $0.400 $0.215 -$38.50 -2.27% 06-02-04 ABI 4,000 $0.360 $0.240 − $0.800 $0.370 +$40.00 +2.78% 06-02-04 FLX 19,000 $0.072 $0.047 − $0.150 $0.076 +$76.00 +5.56% 13-02-04 EOS 980 $2.830 $2.300 − $4.500 $2.600 -$225.40 -8.13% Sunday 11 April 2004 © Copyright 2001-2004 5 Investment Wise The Stockmarket Edge Buy Date Stock Model Qty Buy Price Stop Loss Profit Stop Target Last Trade Profit/Loss % Return 13-02-04 PMM 2,100 $1.520 $1.300 − $2.500 $1.510 -$21.00 -0.66% 20-02-04 MOS 6,200 $0.250 $0.175 − $0.500 $0.240 -$62.00 -4.00% 20-02-04 OIL 3,800 $0.475 $0.350 − $1.000 $0.440 -$133.00 -7.37% 27-02-04 BBG 890 $7.430 $6.880 − $9.500 $7.600 +$151.30 +2.29% 27-02-04 IRI 5,200 $0.270 $0.175 − $0.650 $0.275 +$26.00 +1.85% 05-03-04 AMM 7,700 $0.190 $0.130 − $0.400 $0.160 -$231.00 -15.79% 05-03-04 VTI 2,300 $0.590 $0.380 − $1.000 $0.500 -$207.00 -15.25% 12-03-04 CIY 750 $4.450 $3.800 − $6.500 $4.900 +$337.50 +10.11% 12-03-04 MPH 2,500 $0.670 $0.480 − $1.200 $0.690 +$50.00 +2.99% 19-03-04 HPX 1,900 $1.620 $1.370 − $2.300 $1.550 -$133.00 -4.32% 19-03-04 ITE 2,800 $0.330 $0.160 − $0.800 $0.325 -$14.00 -1.52% 26-03-04 CLT 1,400 $1.260 $0.930 − $2.500 $1.310 +$70.00 +5.38% 26-03-04 KZL 2,000 $1.130 $0.890 − $1.700 $1.050 -$160.00 -8.99% 02-04-04 CKR 3,300 $0.700 $0.560 − $1.000 $0.710 +$33.00 +1.43% 02-04-04 HWE 1,900 $1.000 $0.750 − $1.800 $1.040 +$76.00 +4.00% 08-04-04 GGN 5,500 $0.295 $0.210 − $0.550 $0.295 $0.00 0.00% 08-04-04 TNE 4,100 $0.550 $0.435 − $0.850 $0.550 $0.00 0.00% NOTE. Sto cks that trade b elo w th e Stop Loss (or Profit Stop) are removed from the above table. The Model Qty is based on $500 initial stop losses and there is no guarantee that the above returns can actually be achieved. Returns may be under-stated since dividends and other distribution income are not included in the above calculations. Divid end s and o ther distrib utio n in co me are listed o n page 13. THIS CONCLUDES THE SECTION FOR NOVICE INVESTORS. PLEASE READ THE DISCLAIMER ON PAGE 17. Sunday 11 April 2004 © Copyright 2001-2004 6 Investment Wise The Stockmarket Edge Instalment Investor !! WARNING !! EXAMPLE This section is intended for INTERMEDIATE-TOADVANCED INVESTORS ONLY. Instalment warrants are derivative products and are extremely risky. The listed products have been sorted in order of gearing. Investors should be aware that the products listed at a greater discount incur more interest charges and there is no guarantee that investors will profit from investing in these products. Investors should also seek advice from an Accredited Derivatives Adviser and a Tax Specialist. Two investors are considering a $10,000 investment in National Australia Bank. Investor-A decides to invest in the shares and Investor-B decides to invest in the instalment warrants to take advantage of the enhanced dividend yield and franking credits. Assuming National Australia Bank is trading at $30.00 and pays an annual dividend of $1.35 consider the scenarios below. National Australia Bank Instalment Second Payment (Loan Amount) Capital Interest (8.00% pa) Borrowing Fees Instalment Warrant Price Blue Chip Stocks – UP TO 80% OFF ! Level of Difficulty: Expected Knowledge: Intermediate-to-Advanced ASX Instalments Booklet (Enjoy dividends before paying for your shares) $16.00 $14.00 $1.28 $0.40 $15.68 At January 20X1, say NAB is trading at $30.00: Blue Chip stocks have always been preferred investments due to their ability to produce solid earnings even in the worst economic conditions. Investors can use Instalment Warrants to gain exposure to Blue Chip stocks without the high capital outlay that is normally required. Instalment warrants are like buying shares on lay-by but the investor receives the full dividend and franking credits. Investors pay approximately 50% of the current underlying share price, which means the remaining portion is borrowed from the issuer. A pre-paid interest component is built into the initial price and depreciates over the life of the instalment warrant. • Investor-A buys 333 NAB shares at $30.00 Dividend Yield = ($1.35 ÷ $30.00) x 100% = 4.56% • Investor-B buys 637 NAB instalments at $15.68 Dividend Yield = ($1.35 ÷ $15.68) x 100% = 8.61% At January 20X2, say NAB is trading at $33.00: • Investor-A sells 333 NAB shares at $33.00 Profit = Capital Gain + Dividend Income = ($33.00 − $30.00) x 333 + $1.35 x 333 = $1,448.55 or 14.49% • Investor-B sells 637 NAB instalments at $17.00 Profit = Capital Gain + Dividend Income = ($17.00 − $15.68) x 637 + $1.35 x 637 = $1,700.79 or 17.00% NOTE. Pre-Paid interest is initially built in to the price of the instalment warrant and deducted in the form of time decay over its trading life. At maturity, all interest has been repaid (i.e. no time value) and the price of the instalment warrant is worth ($33.00 − $16.00) = $17.00. Sunday 11 April 2004 © Copyright 2001-2004 7 Investment Wise The Stockmarket Edge Instalment Trading Strategy Trading the Dividend of Blue Chip Stocks Blue Chip stocks generally pay dividends to their shareholders. For this reason, Blue Chip stocks are very popular amongst investors when the stock is close to paying a dividend. To be eligible for the dividend, investors must own the stock before the ex-dividend date. This requirement often creates a lot of interest in the shares as investors buy the stock in order to receive the dividend. !! WARNING !! This section is intended as a CASE STUDY ONLY. The example discussed here is historical and is not an indication of future returns. All prices have been backdated and are theoretical results. There is no guarantee that such returns can actually be achieved. Instalment warrants are derivative products and are extremely risky. Investors should also seek advice from an Accredited Derivatives Adviser and a Tax Specialist. The Trading Strategy - ANZIPF ANZIPF is an Instalment Warrant that can be used to take advantage of leverage, enhanced dividend yields and possibly franking credits (see your Tax Adviser). The second payment of ANZIPF is $10.00 and expires on 26 June 2003. The instalment trading strategy is as follows. • Buy ANZIPF leading up to the ex-dividend date • Receive entitlement to the dividend of 39 cents • Hold ANZIPF for a maximum of 2 weeks after the ex-dividend date in anticipation that ANZ will recover its dividend (i.e. Appreciate to share price levels prior to the ex-dividend date) • Sell ANZIPF on dividend recovery (or if ANZ does not recover its dividend within 2 weeks) ANZ SELL P ANZ Banking Group Limited On 17 May 2002, ANZ was expected to trade ex-dividend and pay a fully franked dividend of 39 cents. This meant that investors who wished to receive the 39 cent dividend had to own the shares before 17 May 2002. ANZ was trading at $19.13 on 8 May 2002 and creating an opportunity to trade the stock leading up to the ex-dividend date. O BUY V EX DIVIDEND The Trade - ANZIPF • On 8 May 2002, ANZ was trading at $19.13 ANZIPF Bid: $9.98 ANZIPF Ask: $10.00 • On 17 May 2002, ANZ trading ex-dividend for 39cents • On 31 May 2002, ANZ trading $19.50 ANZIPF Bid: $10.30 ANZIPF Ask: $10.32 • Profit = Capital Gain + Dividend = ($10.30 − $10.00) + $0.39 = $0.69 or 6.9% Sunday 11 April 2004 © Copyright 2001-2004 8 Investment Wise The Stockmarket Edge Instalment Investor Harvey Norman Limited (HVN) HVN last traded $2.81 (at the time of writing). The next exdividend date is expected on 14 April 2004. We believe this creates a great opportunity to trade instalments to take advantage of enhanced dividend yields and potentially franking credits (see your Tax Adviser). Instalment investors may consider trading the period leading up to the ex-dividend date and holding for no more than 2 weeks after the ex-dividend date in anticipation that the stock may recover its dividend. NOTE. All figures below are quoted in cents. For simplicity, time decay is assumed constant. Investors should be aware that cheaper (more geared) products have greater Weekly Interest Decay. We prefer instalments that are 50% of the share price, since the interest on the outstanding loan is significantly less. HVN 3.50 3.00 2.50 2.00 May Jun Jul Aug Sep Oct Nov Dec 2004 Feb Mar Apr Code Strike Price Expiry Bid Offer Intrinsic Value Pre-Paid Interest Weekly Interest Decay (in cents) Discount HVNIMC 125 20-May-04 159 160 156 4 0.7 43.06% HVNIDA 125 15-Jun-04 158 160 156 4 0.4 43.06% HVNIYE 200 25-Sep-06 149 154 81 73 0.6 45.20% HVNIMF 175 18-Nov-04 118 119 106 13 0.4 57.65% HVNIWF 200 25-May-05 108 110 81 29 0.5 60.85% HVNIWG 200 06-Dec-04 98 99 81 18 0.5 64.77% HVNIMT 275 27-May-04 21 22 6 16 2.4 92.17% Sunday 11 April 2004 © Copyright 2001-2004 9 Investment Wise The Stockmarket Edge Option/Warrant Trading How to Profit from a Rising and Falling Market Level of Difficulty: Advanced Expected Knowledge: ASX Options Booklet (Understanding Options Trading) ASX Warrants Booklet (Understanding Trading Warrants) Each day, money moves in and out of the Stock Market. This is the reason why share prices move up and down. The table below shows our short-term view on each stock based on Technical Analysis. The highlighted stock is our pick of the week and a trading strategy is presented in the Option/Warrant Trading Strategy. !! WARNING !! This section is intended for ADVANCED INVESTORS ONLY. Options and warrants are derivative products and are extremely risky. The warrants below have been chosen based on our own selection criteria and there is no guarantee that investors will profit from investing in the products listed. Investors should also seek advice from an Accredited Derivatives Adviser. Code Last Trade Technical Comment AMP $5.64 After reaching new highs of $5.80, stock taking a breather before another likely attempt at $6.00 ANZ $19.05 As long as $18.67 can hold, stock is likely to continue breaking new highs BHP $12.35 As long as $11.77 can hold, all time high of $12.79 in reach BIL $5.74 With price finally breaking out on strong volume, look for a test of the $6.00 level soon CBA $32.45 A break of $32.15 is likely to lead to a fall to the $31.00 level CML $8.07 As expected the break of the $8.00 level should leave prices headed towards the $8.50 level FGL $4.48 Stock range trading with resistance remaining at $4.60 LLC $10.27 Volatility starting to increase, look for a breakout in either direction soon NAB $31.40 The $31.00 level remains the key support with a future breach likely to lead to a fall the $30.00 level NCP $12.43 Stock appears to have broken upwards from triangle formation but looking slightly stretched QAN $3.51 Reversal from the $3.40 level is likely to see the stock test the $3.80 level next RIO $35.21 The $34.40 level need to hold for stock to resume its bullish scenario SGB $21.05 As long as $21.00 can hold, stock likely to continue higher towards $22.00 TLS $4.54 As long as the $4.50 level can hold, stock is likely to test the $4.70 level next WBC $17.65 A break of $17.45 could lead to a likely fall to $17.00 with a small descending triangle forming WOW $11.65 Any reversal from these levels should be used as a good buying opportunity as stock looks oversold Sunday 11 April 2004 © Copyright 2001-2004 10 Investment Wise The Stockmarket Edge Warrant Trading Strategy Woolworths Limited Stock Exchange Code CBA Recommendation Trading SELL Current Share Price $32.45 Short Term Support $32.15 Short Term Resistance $32.80 Trading Horizon 1 week Preferred Warrant CBAWSV Suggested Trade Size 6,000 units CBA Abandon above $32.80 33 32 Short below $32.15 Stop above $32.45 31 30 Our technicals indicate that CBA is looking bearish in the short term. With short-term support at $32.15 and resistance at $32.80, traders looking to gain exposure to the underlying share price may consider the warrants below. Scenario results below have been calculated using constant delta, volatility and 5 days time decay. Traders may use the indicated support and resistance levels to initiate and/or abandon the trade. (i.e. If CBA trades below $32.15 – Go Short with a potential target of $31.25 and use $32.45 as your stop loss. If CBA trades above $32.80 before trading below $32.15, abandon the trade completely). 2 19 27 2 9 February 16 23 1 8 March 15 22 29 5 April 12 19 26 3 10 May 1 !! WARNING !! This section is intended for ADVANCED INVESTORS ONLY. The calculations below assume that delta; time decay, interest and volatility remain constant. The figures and returns are indicative only and there is no guarantee that indicated returns can actually be achieved. Investors should seek advice from an Accredited Derivatives Adviser. The following table shows the expected movement of each warrant if the stock trades to the TARGET in 5 days. Type Code Strike Price Expiry Offer Put CBAWSV $33.00 27-May-04 Put CBAWSX $32.00 Put CBAWMX $30.00 CBA $0.90 Return $0.230 +$0.085 +36.96% 27-May-04 $0.115 +$0.055 +47.83% 29-Jul-04 $0.079 +$0.015 +18.99% The following table shows the expected movement of each warrant if the stock trades to the STOP LOSS in 5 days. Type Code Strike Price Expiry Offer Put CBAWSV $33.00 27-May-04 Put CBAWSX $32.00 Put CBAWMX $30.00 Sunday 11 April 2004 $0.30 Return $0.230 –$0.045 –19.57% 27-May-04 $0.115 –$0.030 –26.09% 29-Jul-04 $0.079 –$0.010 –12.66% © Copyright 2001-2004 CBA 11 Investment Wise The Stockmarket Edge Writing Covered Calls How to Make Regular Income on Your Existing Blue Chip Shares Level of Difficulty: Expected Knowledge: Intermediate-to-Advanced ASX Options Booklet (Understanding Options Trading) Investors who own Blue Chip Stocks can earn a regular income in the Options Market. This is simply done by Writing Covered Calls over your existing stock. A Covered Call is a Call Option sold/written when the investor already owns the stock. One Option Contract normally equates to 1,000 shares. The risk involved in writing covered calls is the underlying share price trading significantly higher than the strike sold. In this instance, the investor forgoes the opportunity to sell the stock at a higher level. This risk allows Blue Chip Stock holders to earn regular income on Call Premium sold. !! WARNING !! This section is intended for INTERMEDIATE-TO-ADVANCED INVESTORS ONLY. Options are derivative products and are extremely risky. The Call Options below have been chosen based on our own selection criteria and it is assumed that the investor is holding a minimum of 1,000 shares for every Call Option contract sold/written. Writing Covered Calls is an income generating strategy. Investors selling Calls at recommended strikes must be willing to sell the stock at these levels. Investors should also seek advice from an Accredited Derivatives Adviser. QBE Insurance Group Limited (QBE) QBE last traded $11.30 (at the time of writing) and has traded from a low of $6.05 to a high of $11.50. We believe the stock is looking very attractive for existing shareholders to lock in profits. Investors holding a minimum of 1,000 shares may consider selling the QBE $11.50 July 2004 Call Options at a premium of $0.41 (at the time of writing) for income. If the stock closes above $11.50 at expiry, you will effectively be selling at $11.91 (i.e. $11.50 + $0.41). NOTE. When an investor sells a Call Option over a stock the investor does not already own, this is known as Writing Naked Calls. Investors should note that Writing Naked Calls exposes the seller/writer to unlimited losses and we strongly advise AGAINST such practices. Sunday 11 April 2004 QBE 12.0 10.5 9.0 7.5 6.0 M J J A © Copyright 2001-2004 S O N D 2003 M A M J J A S O N D 2004 M A 12 Investment Wise The Stockmarket Edge Stock on the Move Distributions Ex-Date Stock Distribution per Share Shares Held 09-03-01 HSP $0.0200 3,800 $76.00 13-03-01 SSE $0.0225 6,600 $148.50 14-03-01 CEY $0.0250 7,100 $177.50 09-04-01 ILU $0.1200 1,200 $144.00 23-05-01 JHX $0.0950 1,200 $114.00 25-06-01 MTT $0.0150 2,300 $34.50 25-06-01 SWD $0.0525 12,500 $656.25 04-07-01 PRG $0.0400 2,000 $80.00 03-09-01 HIL $0.0740 2,100 $155.40 10-09-01 HSP $0.0250 3,800 $95.00 17-09-01 PLW $0.0675 2,500 $168.75 20-09-01 DGD $0.0400 2,000 $80.00 24-09-01 FFL $0.0250 2,300 $57.50 03-12-01 ALZ $0.0300 8,300 $249.00 18-02-02 CRG $0.2000 1,100 $220.00 25-02-02 FFL $0.0400 2,300 $92.00 04-03-02 BHL $0.0492 800 $39.36 04-03-02 FWD $0.0500 1,300 $65.00 06-03-02 SSX $0.0250 2,700 $67.50 13-03-02 PRT $0.0400 1,600 $64.00 13-03-02 COA $0.0400 2,600 $104.00 18-03-02 BRZ $0.0850 3,800 $323.00 18-03-02 MIA $0.0150 4,500 $67.50 22-03-02 HWI $0.0500 2,100 $105.00 02-04-02 SKE $0.0400 2,300 $92.00 05-04-02 DVN $0.0300 14,200 $426.00 08-04-02 FKP $0.0500 7,100 $355.00 09-04-02 PMM $0.0600 2,900 $174.00 15-04-02 GUD $0.0750 3,100 $232.50 10-05-02 APE $0.1500 2,900 $435.00 04-09-02 CTL $0.0250 1,300 $32.50 10-09-02 HIL $0.1000 2,900 $290.00 12-09-02 GWT $0.0750 2,500 $187.50 16-09-02 CLT $0.0500 2,100 $105.00 16-09-02 IIN $0.0200 2,700 $54.00 16-09-02 IIN $0.0200 2,700 $54.00 20-09-02 GAP $0.0300 2,600 $78.00 20-09-02 CDR $0.0275 5,000 $137.50 Sunday 11 April 2004 © Copyright 2001-2004 Distribution Income 13 Investment Wise The Stockmarket Edge Ex-Date Stock Distribution per Share Shares Held 23-09-02 MXI $0.0100 10,000 $100.00 23-09-02 ANE $0.0700 2,000 $140.00 23-09-02 SKE $0.0600 1,300 $78.00 24-09-02 BSG $0.0075 20,000 $150.00 24-09-02 FUN $0.0150 7,100 $106.50 01-10-02 RIC $0.0250 3,500 $87.50 04-10-02 FKP $0.0500 3,500 $175.00 11-10-02 MCP $0.0600 1,600 $96.00 14-10-02 CWP $0.0500 6,200 $310.00 14-10-02 ASB $0.0500 2,600 $130.00 16-10-02 OMP $0.1200 1,100 $132.00 21-10-02 FBU $0.0765 3,100 $237.15 21-10-02 OPS $0.0950 700 $66.50 21-10-02 SKN $0.0100 8,400 $84.00 21-10-02 VWD $0.0500 5,000 $250.00 08-11-02 ENV $0.0570 4,500 $256.50 03-12-02 APA $0.0300 5,500 $165.00 23-12-02 AIP $0.0490 10,000 $490.00 23-12-02 SGP $0.1560 3,300 $514.80 20-01-03 CRS $0.0200 3,800 $76.00 12-02-03 KRS $0.0200 10,000 $200.00 13-02-03 JBM $0.0800 2,200 $176.00 20-02-03 UEL $0.1000 2,380 $238.00 21-02-03 MXI $0.0100 10,000 $100.00 24-02-03 BLD $0.1100 1,600 $176.00 26-02-03 ALN $0.1400 1,900 $266.00 03-03-03 ION $0.0525 1,600 $84.00 05-03-03 THG $0.0250 5,500 $137.50 07-03-03 TSE $0.0600 1,300 $78.00 11-03-03 RIC $0.0250 3,500 $87.50 12-03-03 GWT $0.0250 2,500 $62.50 12-03-03 GWT $0.0750 2,500 $187.50 14-03-03 SKN $0.0150 8,400 $126.00 17-03-03 BDS $0.1000 1,300 $130.00 24-03-03 COA $0.0500 1,700 $85.00 31-03-03 FUN $0.0350 7,100 $248.50 01-04-03 BRS $0.0900 1,300 $117.00 01-04-03 SKE $0.0600 1,700 $102.00 09-04-03 ENV $0.0380 4,500 $171.00 10-04-03 FAN $0.0330 1,200 $39.60 Sunday 11 April 2004 © Copyright 2001-2004 Distribution Income 14 Investment Wise The Stockmarket Edge Ex-Date Stock Distribution per Share Shares Held 17-04-03 SDI $0.0300 620 $18.60 06-05-03 GTP $0.0200 3,200 $64.00 08-05-03 RKN $0.0100 6,200 $62.00 24-06-03 AIP $0.0500 3,300 $165.00 24-06-03 BWP $0.0536 3,500 $187.60 24-06-03 HLY $0.0830 840 $69.72 24-06-03 MGI $0.0307 2,500 $76.75 24-06-03 MTT $0.0460 1,500 $69.00 18-08-03 SPC $0.0300 1,800 $54.00 22-08-03 ALZ $0.0300 1,600 $48.00 25-08-03 ALS $0.1200 1,200 $168.00 26-08-03 BLD $0.1200 1,600 $192.00 29-08-03 AHD $0.0650 820 29-08-03 ALN $0.1200 1,900 $228.00 02-09-03 IFM $0.0190 1,800 $34.20 02-09-03 WTP $0.0050 5,200 $26.00 03-09-03 SYM $0.0400 2,300 $92.00 05-09-03 SGN $0.0430 830 $35.69 08-09-03 CTX $0.0400 1,400 $56.00 08-09-03 TSE $0.0700 1,300 $91.00 09-09-03 GFD $0.0150 5,800 $87.00 09-09-03 HIL $0.1050 1,200 $126.00 09-09-03 EQI $0.0300 2,700 $81.00 10-09-03 APN $0.0650 1,060 $68.90 12-09-03 GWT $0.0800 2,500 $200.00 15-09-03 CSM $0.0275 3,500 $96.25 15-09-03 FFL $0.0500 8,300 $415.00 16-09-03 JBM $0.2000 2,200 $440.00 16-09-03 PRT $0.0600 1,600 $96.00 19-09-03 PHY $0.0250 1,100 $27.50 22-09-03 COA $0.0600 1,700 $102.00 23-09-03 ADB $0.2100 1,200 $252.00 24-09-03 FUN $0.0200 7,100 $142.00 24-09-03 MGI $0.0332 2,500 $83.00 29-09-03 SDI $0.0450 620 $27.90 02-10-03 SOT $0.0050 1,700 $8.50 03-10-03 GRD $0.0300 1,600 $48.00 03-10-03 LCL $0.0150 2,200 $33.00 09-10-03 FAN $0.0440 7,100 $312.40 09-10-03 OKN $0.0300 1,160 $34.80 Sunday 11 April 2004 © Copyright 2001-2004 Distribution Income $53.30 15 Investment Wise The Stockmarket Edge Ex-Date Stock Distribution per Share Shares Held 13-10-03 ALZ $0.0300 1,600 $48.00 20-10-03 NUF $0.1300 1,300 $169.00 22-10-03 DVC $0.0300 1,400 $42.00 24-10-03 SOL $0.1000 610 $61.00 31-10-03 MGW $0.1100 870 $95.70 11-11-03 ENV $0.0570 4,500 $256.50 25-11-03 MTT $0.0500 1,500 $75.00 28-11-03 CPB $0.1400 1,100 $154.00 08-12-03 LNN $0.1400 740 $103.60 02-01-04 PRG $0.0550 1,200 23-02-04 CCL $0.1300 890 $115.70 24-02-04 BLD $0.1400 1,600 $224.00 27-02-04 AHD $0.0600 820 $49.20 01-03-04 HCN $0.0100 1,700 $17.00 02-03-04 IRE $0.0800 1,300 $104.00 03-03-04 IFM $0.0190 1,800 $34.20 05-03-04 SYM $0.0200 2,300 $46.00 05-03-04 VGL $0.0400 1300 $52.00 09-03-04 DOW $0.0400 400 $16.000 09-03-04 SPC $0.0300 1,800 $54.000 10-03-04 ADB $0.1900 1,200 $228.000 15-03-04 WTP $0.0200 5,200 $104.000 15-03-04 CAB $0.0650 870 $56.550 15-03-04 MIA $0.0150 4,500 $67.500 22-03-04 COA 0.06000 1,700 $102.00 23-03-04 BBG 0.12500 890 $111.25 25-03-04 ALZ 0.04000 1,600 $64.00 25-03-04 HPX 0.06000 1,900 $114.00 25-03-04 MGI 0.03375 2,500 $84.38 30-03-04 LCL $0.0170 2,200 $37.40 01-04-04 PMM $0.0400 2,100 $84.00 02-04-04 NUF $0.0800 1,300 $104.00 05-04-04 APN $0.1180 1,060 $125.08 06-04-04 OKN $0.0375 1,160 $43.50 Sunday 11 April 2004 © Copyright 2001-2004 Distribution Income $66.00 16 Investment Wise The Stockmarket Edge DISCLAIMER This report was produced by PPS Investments Pty Ltd (ACN 097 446 369), which holds an Australian Financial Services Licence (Licence no. 246670). PPS Investments Pty Ltd believes that the information and material contained in this report has been obtained from reliable sources. However, no representation is made about the accuracy or completeness of this information and it should not be relied upon as a substitute for the exercise of independent judgment. Except to the extent required by law, PPS Investments Pty Ltd does not accept any liability for any loss arising from any use of the material contained in this report. D ISC LOSUR E: PPS Investments Pty Ltd may hold and/or effect or have effected a transaction upon its own account in the investments referred to in this report or any related investment before the material is published. Additionally, PPS Investments Pty Ltd may, within the previous twelve months, have provided advice or investment services to the companies mentioned in this report. WARNIN G: This report is intended to provide general securities advice only. It is not prepared having regard to any particular investor’s investment objectives, financial situation and/or particular needs. This report may not be reproduced, distributed or published for any purpose, unless the person or entity seeking to do so is expressly authorised in writing to do so by PPS Investments Pty Ltd. NOTES: AUG recommendation replaced by ABX as a result of the merger (05-02-03). UEL shareholders received $3.15 from Alinta Limited takeover (2507-03). AIP off-market takeover by MGI (07-10-03). HRT stock code changed to LRX (30-10-03). FAN 11:10 Share Split (28-10-03). DOW 1:4 Reconstruction (20-11-03). ARL stock exchange code changed to NLX (11-12-03). Sunday 11 April 2004 © Copyright 2001-2004 17
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