The Lemon Fool

Co-op released an upbeat announcement on its 2017 results last week:

https://www.co-operative.coop/media/new ... sults-2017

The price of the 2025 11% notes did not seem to budge and YTM still about 6%. I am very happy to hold at the current price, but I wish the Group would concentrate a little more on debt reduction instead of handing rewards to customers and running more academies. They have a £450m bond maturing in 2 years time. On current form refinancing on better terms (they are currently paying 6.875%) should not be a problem, but a lot could go wrong before then, such as a Brexit induced recession or other disruption in the retail sector.

At least there is no option to redeem/cancel at par...

p.s. I got online quotes to buy/sell 10k nominal of the 11% 2025s (42TE) earlier today. Buy was at 131, for a ytm of 5.9%, sell 128.561 for ytm 6.2%.

A rare bit of good news from the high street on Friday:

https://www.londonstockexchange.com/exc ... 90556.html

The highlights for me:

Group Profit before tax** increases to £26m (2017: £14m)** and Group Underlying Profit before tax*** increases to £10m (2017: £3m), this after £35m of reward is generated for Co-op members and their communities
...
Total net debt at the end of the first half of £707m, down from £775m at year-end

So an 86% increase in profit before tax and 233% underlying profit before tax and that is AFTER handing £35 million out in "Member Rewards".

Only negatives I can see are with the insurance businesses. It is unfortunate the Co-op want to persist with this. I would prefer it if they got shot of insurance and concentrated on groceries/funerals as the insurance businesses do not appear to benefit the Group with profits or customers (members) with competitive products.

Overall though, not a bad result for a bunch of lefties.

2025 11% bonds totally unmoved by the good results. Online quotes to buy/sell 10k nominal today were 130.3495/128.16, for YTMs of 5.76%/6.07% respectively. IMHO that is currently good value for these bonds and I will continue to hold - may even buy a few more.

Hi Paul,

Do you know if it's possible to purchase in lower denominations, e.g. 100s or 1000s?

thanks
M&M

Melanie wrote:Hi Paul,

Do you know if it's possible to purchase in lower denominations, e.g. 100s or 1000s?

thanks
M&M

100 shares 42TE can be bought for with HL, I got a online quote but did not accept it.

air04 wrote:

Melanie wrote:Hi Paul,

Do you know if it's possible to purchase in lower denominations, e.g. 100s or 1000s?

thanks
M&M

100 shares 42TE can be bought for with HL, I got a online quote but did not accept it.

We use iWeb ourselves, so perhaps we should ring them and see.

You cannot buy these through iWeb. I do hold some at iWeb from issue, they were exchanged for various Co-op Bank securities, but iWeb will not allow me to purchase any more, just sell.

iWeb are not the best when it comes to bonds and other fixed income securities, although for the ones they do offer the phone dealing charge is only £5. I have quite a substantial position in the Balfour Beatty prefs BBYB, but iWeb suddenly dropped them without any communication, so again I can sell but not buy any more.

FredBloggs wrote:I am delighted to hear that the business is handing money back to customers and running academies. After all, the business is a cooperative. The clue is in the name. And that is exactly how it should be run. After all the poor decisions and bad management, I would be very happy to see the Coop thrive, grow and hand more money back to customers and run more academies.

Yes I don't really begrudge them doing that. I am a member and they send me vouchers every year as well!

It is mainly for my own selfish interest as a bond holder that I would like to see debt reduced

However, if they did make more effort to reduce debt they could refinance longer dated debt at lower costs and in the longer term hand over more to lenders and their various schemes.

hiriskpaul wrote:You cannot buy these through iWeb. I do hold some at iWeb from issue, they were exchanged for various Co-op Bank securities, but iWeb will not allow me to purchase any more, just sell.

iWeb are not the best when it comes to bonds and other fixed income securities, although for the ones they do offer the phone dealing charge is only £5. I have quite a substantial position in the Balfour Beatty prefs BBYB, but iWeb suddenly dropped them without any communication, so again I can sell but not buy any more.

Yeah, we noticed this. Mel and I bought a few other bonds through iWeb, but we are seriously considering opening another ISA account with a different provider in order to make the most of the market.

M&M

Don't open it with Barclays if you want to buy retail bonds. See the discussion on the post below this.

I managed to pick up another chunk of Co-Op 42TF yesterday at 5.50p for an IRR of 6.29% which I am more than happy with. I especially like the idea that they are effectively paying back the capital as we go along.

Only downside is that they only pay once per year but that at least delays the temptation for me to invest the "coupon" in something I shouldn't.

Solid 2018 results announced on Friday. Full details on the Co-op group site here: https://www.co-operative.coop/investors/annual-results

Prices of the 2025 Final Repayment Notes unmoved this morning at 125 buy/123.55 sell, equivalent to YTMs of 6.30%/6.53%. The price seems very low to me considering how well the Group is performing and I would buy more if I did not already have a large position. Definitely not selling at this price. Cannot get on-line prices for the Instalment Repayment Notes.

hiriskpaul wrote:Prices of the 2025 Final Repayment Notes unmoved this morning at 125 buy/123.55 sell. Cannot get on-line prices for the Instalment Repayment Notes.

Thanks for this.
I found ditto with the pricing.

They do seem pretty decent but I'm soooo long Financials. Already trying to think how to replace BBYB when they mature next year. I feel another topic coming on.

V8

88V8 wrote:

hiriskpaul wrote:Prices of the 2025 Final Repayment Notes unmoved this morning at 125 buy/123.55 sell. Cannot get on-line prices for the Instalment Repayment Notes.

Thanks for this.
I found ditto with the pricing.

They do seem pretty decent but I'm soooo long Financials. Already trying to think how to replace BBYB when they mature next year. I feel another topic coming on.

V8

Not a financial! Remaining Co-op Bank shares have been disposed of, but they still have a small insurance business.

hiriskpaul wrote:

88V8 wrote:

hiriskpaul wrote:Not a financial! Remaining Co-op Bank shares have been disposed of, but they still have a small insurance business.

Fair point. So, you don't think that when the next crash comes the insurance tail could wag the retail dog?
In which case, yes, it would be a nice diversification.

V8

88V8 wrote:
Fair point. So, you don't think that when the next crash comes the insurance tail could wag the retail dog?
In which case, yes, it would be a nice diversification.

V8

Very little risk in the insurance side now (other than failure to make any money!):

For Insurance during 2018, the priority was to develop plans for the future of the business by removing the underwriting risk and moving to a distribution model. This will allow us to provide more of our members with a broader range of insurance products while at the same time managing financial risk.

At the beginning of 2019 we announced the sale of our insurance underwriting business to Markerstudy for £185 million and, subject to regulatory approval, the deal should be completed by summer 2019. Markerstudy will protect the jobs of many of our existing insurance colleagues.

Part of the sale is to put in place a new long-term arrangement for distributing Co-op branded motor and home insurance products underwritten by Markerstudy. Meanwhile, we’ll continue to work with other partners to further develop our range of policies.

In theory there should be nothing here that could blow up, as all risks should be underwritten.

The profit comes from groceries and funerals, and they do seem to be competent at both.

Sorry to be stupid (especially as I already own some of these 42TE) but how do you arrive at a YTM of 6.30% with a purchase price of 125p?

I seem to arive at 5.8% without allowing for dealing costs.

Laughton wrote:Sorry to be stupid (especially as I already own some of these 42TE) but how do you arrive at a YTM of 6.30% with a purchase price of 125p?

I seem to arive at 5.8% without allowing for dealing costs.

Just using the excel yield () function. I may have incorrectly typed in a number, so could be wrong. Out at the moment, will check when I get in. What are you using?

Don't worry about it. I've now used a different calculator and come up with 6.285% (Excel YIELD instead of Excel YIELDMAT)

Not sure why they give different results.

Laughton wrote:Don't worry about it. I've now used a different calculator and come up with 6.285% (Excel YIELD instead of Excel YIELDMAT)

Not sure why they give different results.

Ok, not sure what YIELDMAT does. YIELD is the one to use for bonds. You can sanity check your result by discounting all the future cashflows at whatever YIELD gives you. That should get you the current clean price + accrued (i.e. dirty price). Alternatively, lay out all the cashflows, including purchase price and accrued as negatives, then use XIRR.