Investec prefs

[BullDog]

Costain? I thought it was quite obvious what the catch is with that company. But good luck to you all the same.

No it wasn't obvious top me, which is why I asked for an explanation when you first commented and why I've mentioned it again when you made a similar query about this share.

I'm a long-standing investor in Costain and really am scratching my head here given the business's ongoing profitability and newly declared dividends.


GS

I can't remember the last time Costain made any money on a project. I've lost count of the number of times over the decades they have been near bankruptcy. Hardly surprising when they take work on with either no or low single digit margins. My own experience of Costain from within the energy industries is that they only make any money from mission creep and change orders. It's an awful business to be in. But of course, somebody has to be.

You see things differently and that's what makes a market. Good luck to you with Costain, I hope it continues to be a fruitful investment for you.

[everhopeful]

Bought at 5.58 at HL this morning

[StillFalling]

Hi Bulldog

'HL reports 25.9% yield at RE.B. Not for me, paying your capital back to you as income I suppose?' I think you will find the yields that high because they paid some of the pref dividends they had missed. Its not paying back your capital.

Apologies if this does not reply to Bulldogs post, but my first time posting here.

[OldBoyReturns]

The market pricing of INVR has me completely baffled. Now 553 to buy through HL. There is about 13 of dividend accrued in that price giving a 'clean' price of 540. So a running yield of 11.6% with base rate at 5.25% which would rise to over 12% IF the BoE raises the base rate to 5.5% later today. At current price the base rate would have to fall to 2.75% for the yield to fall as far as 7%. Gilt yields do not suggest the market thinks that is happening anytime soon.

[OldBoyReturns]

The September inflation figures out today together with comments from the BoE's chief economist this week suggest the door is still open for another base rate rise. This makes INVR look even better value as a pure base rate tracker. I managed to buy at 540 last week which equates to a clean price of 520 after stripping out the c.20p of dividend in the price. That gives a running yield of a touch over 12% while BoE base rate is at 5.25%.

Looks very mis-priced to me and a very useful hedge to long dated gilts.

[88V8]

The September inflation figures out today together with comments from the BoE's chief economist this week suggest the door is still open for another base rate rise. This makes INVR look even better value as a pure base rate tracker. I managed to buy at 540 last week which equates to a clean price of 520 after stripping out the c.20p of dividend in the price. That gives a running yield of a touch over 12% while BoE base rate is at 5.25%.

Looks very mis-priced to me and a very useful hedge to long dated gilts.

They are my second-highest Pref holding, but I note their high exposure to South Africa, and that gives me pause to buy more.

V8

[OldBoyReturns]

They are my second-highest Pref holding, but I note their high exposure to South Africa, and that gives me pause to buy more.
V8

I have also accumulated more than I usually would for individual pref due to the yield being such an outlier. CEBB was presenting a similar opportunity but the supply at bargain prices soon dried up.

The market in INVR is surprisingly active considering there are only about 2.8m shares left in issue post the 2016 tender offer.

Investec lists the largest holders of its prefs at 31 March 2023 as:

Rock (Nominees) Ltd 20.1%
CGWL Nominees Ltd 5.1%

I think Rock (Nominees) Ltd is Charles Stanley and CGWL is Canaccord Genuity. The large CS holding suggests the prefs are held in discretionary accounts.

[Laughton]

Price ticking up a bit today but invested my NWBD income in a few more INVR @ 558p for what I make a yield of 9.2% taking account of costs.

[simoan]

Price ticking up a bit today but invested my NWBD income in a few more INVR @ 558p for what I make a yield of 9.2% taking account of costs.

Hi Laughton,

Sorry, that might have been my fault, although I only bought 1500 first thing @548.8p. I'm likely to buy a few more going forwards. Being new to INVR I'm not sure what liquidity is like generally? Doesn't look like there's normally that much daily volume...

All the best, Si

[OldBoyReturns]

Price ticking up a bit today but invested my NWBD income in a few more INVR @ 558p for what I make a yield of 9.2% taking account of costs.

Excluding dealing costs a price of 558 to buy represents a 'dirty' running yield of 11.2% which increases to 11.6% if you strip out the c.20p of dividend accrued in the market price.

[BullDog]

Price ticking up a bit today but invested my NWBD income in a few more INVR @ 558p for what I make a yield of 9.2% taking account of costs.

Hi Laughton,

Sorry, that might have been my fault, although I only bought 1500 first thing @548.8p. I'm likely to buy a few more going forwards. Being new to INVR I'm not sure what liquidity is like generally? Doesn't look like there's normally that much daily volume...

All the best, Si

I have been dithering over buying some of this. But I don't know enough about how it works, especially in an environment of falling interest rates. We may see that sometime in the next year or so. If you don't mind, I'd appreciate hearing your thinking behind buying INVR? Thanks.

[simoan]

Hi Laughton,

Sorry, that might have been my fault, although I only bought 1500 first thing @548.8p. I'm likely to buy a few more going forwards. Being new to INVR I'm not sure what liquidity is like generally? Doesn't look like there's normally that much daily volume...

All the best, Si

I have been dithering over buying some of this. But I don't know enough about how it works, especially in an environment of falling interest rates. We may see that sometime in the next year or so. If you don't mind, I'd appreciate hearing your thinking behind buying INVR? Thanks.

I guess with INVR you have to take a view on interest rates as the coupon depends on it, but otherwise interest rates are not something I pay a lot of attention to since predicting such things is beyond my pay grade. Within my portfolio I have investments that will do well if interest rates decrease from here, and I have those that will do well if they stay high for longer than anticipated, or even go higher. INVR falls into the latter camp with the kicker that it is trading well below par value should there be another tender offer. In the meantime the running yield is >11%. As others have pointed out, even if interest rates reduce to ~3% the running yield will be double that.

[BullDog]

I have been dithering over buying some of this. But I don't know enough about how it works, especially in an environment of falling interest rates. We may see that sometime in the next year or so. If you don't mind, I'd appreciate hearing your thinking behind buying INVR? Thanks.

I guess with INVR you have to take a view on interest rates as the coupon depends on it, but otherwise interest rates are not something I pay a lot of attention to since predicting such things is beyond my pay grade. Within my portfolio I have investments that will do well if interest rates decrease from here, and I have those that will do well if they stay high for longer than anticipated, or even go higher. INVR falls into the latter camp with the kicker that it is trading well below par value should there be another tender offer. In the meantime the running yield is >11%. As others have pointed out, even if interest rates reduce to ~3% the running yield will be double that.

Thanks, I appreciate you taking the trouble to reply.

[OldBoyReturns]

I have been dithering over buying some of this. But I don't know enough about how it works, especially in an environment of falling interest rates. We may see that sometime in the next year or so. If you don't mind, I'd appreciate hearing your thinking behind buying INVR? Thanks.

For me the attraction of INVR is the discrepancy between the INVR yield of 11.6% and what the yield on long term gilts (c.5%) implies for long term interest rates. Clearly the INVR yield implies interest rates will fall significantly from current levels whereas the long term gilt yield suggests a much more modest fall.

Other financial prefs yield 7%-7.5%. It would take the BoE base rate falling to about 2.75% for the yield on INVR to be 7% at current prices.

Just to add I only really invest for and track income these days. I am not focussed on increasing value. Most of my trades are purely based on relative yields in order to grow income. So I haven't invested in INVR based on any expectation that the market will reprice it just cos I think it is mis-priced.

[monabri]

Late to the show here!
At first glance, the yield on offer on INVR seems to be not very exciting. It is only after reading this thread that the penny dropped.

[Laughton]

It would take the BoE base rate falling to about 2.75% for the yield on INVR to be 7% at current prices.

I really can't see inflation, let alone interest rates, getting down to that level again in my lifetime so very happy to buy some more of these if they remain at this kind of level as and when other prefs/bonds send me the divis/coupons.

They're going into my SSAS so it will be something for the next generation to decide if and when to sell.

Looking back at my equity portfolio - I only wish that that had been compounding at anything like the rates currently available on prefs and bonds.

[monabri]

Price ticking up a bit today but invested my NWBD income in a few more INVR @ 558p for what I make a yield of 9.2% taking account of costs.

Hi Laughton,

Sorry, that might have been my fault, although I only bought 1500 first thing @548.8p. I'm likely to buy a few more going forwards. Being new to INVR I'm not sure what liquidity is like generally? Doesn't look like there's normally that much daily volume...

All the best, Si

I bought 440 at ~3pm (565p) and tried to purchase another similar qty at 4:15pm. No problems on the first buy but the order could not be filled on the second buy (it would have to go to a dealer to fill it).

[simoan]

Hi Laughton,

Sorry, that might have been my fault, although I only bought 1500 first thing @548.8p. I'm likely to buy a few more going forwards. Being new to INVR I'm not sure what liquidity is like generally? Doesn't look like there's normally that much daily volume...

All the best, Si

I bought 440 at ~3pm (565p) and tried to purchase another similar qty at 4:15pm. No problems on the first buy but the order could not be filled on the second buy (it would have to go to a dealer to fill it).

The latter is due to a trading glitch on the LSE this pm, not your broker. See the news!

[Kr1ck]

So I haven't invested in INVR based on any expectation that the market will reprice it just cos I think it is mis-priced.

Well your head is screwed on right. Any reprice will be a bonus! I picked these up for a song during the financial crisis as a hedge against inflation.
In August 22, when interest rates were at 1.75%, INVR was priced at 600. These have been mispriced for a while now they should be in the
high 800's but I think it is safe to buy just for the yield as the downside (falling rates) is pretty well covered in the price. The fact that the market is anything but efficient is how we make our margin.

[PrefInvestor]

I would very much appreciate an explanation of the yield figures being mentioned for INVR in this thread. Looking at the INVR dividends page on HL, the last 5 years 2023-2019 it has paid dividends of 33.03, 11.93, 11, 17.21 and 8.73. During that time it’s share price has been between 350 and 600p. 500-600p more recently (significant variations there). Dividing those two figures gives rather pathetic yields of 1.5-3% roughly. Which ties in with the yield given by HL of 1.97%, which is hugely different to what’s being quoted here.

What am I missing ?

Thanks in advance.

Pref