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Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

Gilts, bonds, and interest-bearing shares
SKYSHIP
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Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#176949

Postby SKYSHIP » October 29th, 2018, 6:28 pm

Balfour Beatty 10.75% Cum Convertible Preference (BBYB):

Forget about the convertible element of this stock; just look at it as a redeeming bond.

BUY at 110.16p = 110.75p inc. exps. They redeem at par on 1st Jul’20 after paying four more 5.375p semi-annual dividends; ie the return is 121.50p.
The next XD date is in just 3-week’s time – 22nd November.

So, for effectively a 1.7yr bond what is the Gross Redemption Yield?

I’m sure you will be expecting 3.5%, 4.0%, 4,25% perhaps. WRONG…

The GRY at that price is 5.7%! Check it out. My computer model is spot on – 5.7%

For a totally secure deposit for 20months, you’ll earn 5.7%pa.

The stock at the moment is a stock-market anomaly. As they say over here in France:– SERVEZ-VOUS.

Alaric
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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#176952

Postby Alaric » October 29th, 2018, 6:48 pm

SKYSHIP wrote:For a totally secure deposit for 20months, you’ll earn 5.7%pa.


I'd suspect there's quite a lot that could go wrong, so I don't think "totally" and "secure" are the right words. If it was so, it would be priced much closer to a similar Gilt.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#176967

Postby GoSeigen » October 29th, 2018, 7:50 pm

SKYSHIP wrote:Balfour Beatty 10.75% Cum Convertible Preference (BBYB):

[...]

For a totally secure deposit for 20months, you’ll earn 5.7%pa.

The stock at the moment is a stock-market anomaly. As they say over here in France:– SERVEZ-VOUS.


For a neat example of what "totally secure" means, please review the last two years of Co-op Bank's totally secure[TM] senior bonds maturing Sep 2017.


GS

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#176984

Postby SKYSHIP » October 29th, 2018, 8:58 pm

You cynics you - instead of carping like most innocents who don't know a good thing when given the opportunity - go take a look at the stats and the statements in the recent Interims:

https://uk.advfn.com/stock-market/londo ... 0/78075360

Read, learn, interpret...and especially learn that if I mark your card, take note and don't carp...

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177011

Postby GoSeigen » October 30th, 2018, 12:20 am

SKYSHIP wrote:You cynics you - instead of carping like most innocents who don't know a good thing when given the opportunity - go take a look at the stats and the statements in the recent Interims:

https://uk.advfn.com/stock-market/londo ... 0/78075360

Read, learn, interpret...and especially learn that if I mark your card, take note and don't carp...



This is the bonds board SKYSHIP, we have a different mentality here...


For two year risk I've gone for DEPFA TRY which yields some 25%. With currency risk of course, but otherwise totally secure too.


;-)

GS

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177031

Postby SKYSHIP » October 30th, 2018, 8:11 am

Sorry re my above - was posted in haste as supper on the table - didn't mean to be rude! Will post again later with why I interpret BBY as secure...

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177034

Postby SKYSHIP » October 30th, 2018, 8:21 am

Go Seigen - you certainly need that emoticon for that stock!

Incidentally, you say the bond board. I looked for a preference share board & found that all the pref share threads are actually on this board; so posted here.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177036

Postby SKYSHIP » October 30th, 2018, 8:23 am

...including one of your own!!! "Pref Shares - keep it simple"

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177039

Postby GoSeigen » October 30th, 2018, 8:38 am

SKYSHIP wrote:Go Seigen - you certainly need that emoticon for that stock!

Incidentally, you say the bond board. I looked for a preference share board & found that all the pref share threads are actually on this board; so posted here.


You're right, pref share conversation is tolerated as most prefs are pseudo-fixed-income securities.


I don't disagree with the thrust of your OP, just with the specific words you used to describe the risk of preference shares in this issuer. They are IMO at the risky end of stocks discussed on this board. Risks include:

1. No redemption. Bearable if there is a market for the shares.
2. Credit risk. Well, preference shareholders are not creditors, so if anything goes wrong with the business in the next two years there is no come-back.

Balancing this no doubt BBYB has specific merits which I guess you will post about later [positives include the high coupon and the redemption and cumulative language in the terms].


GS

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177041

Postby Alaric » October 30th, 2018, 8:47 am

GoSeigen wrote: so if anything goes wrong with the business in the next two years there is no come-back.


The accounts may show a healthy position, but even just recently there was that cake shop that nearly went under. It's in a similar sector to Carillion which may also be regarded as a warning sign.

Market makers may have incorrectly priced the default risk, in which case it may be a relative bargain as far as fixed income is concerned.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177054

Postby everhopeful » October 30th, 2018, 9:38 am

There does seem to be a general distaste for preference shares following the Aviva mess. I don't share this and would see BBYB as a perfectly reasonable risk particularly after the latest figures form the company. New City High Yield Fund (NCYF) is a large holder and you could argue that investing in NCYF would produce a higher yield than BBYB with more diversity. It is however at a premium to NAV.
The suggestion that discussion of prefs is "tolerated" on this board makes one wonder why the board could not just be named "fixed interest". Bonds, gilts, prefs and ITs and funds specializing in fixed interest could all then be "tolerated" officially.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177068

Postby hiriskpaul » October 30th, 2018, 10:13 am

Our biggest single position, scattered across SIPPs, ISAs, kids ISAs, my Ltd company and unsheltered accounts. We will be very unhappy if this turns into a Carillion!

177m prefs in issue, immaterial debt, £366m net cash as of last HY and a infrastructure portfolio valued (by the company) at £1.2B. Pension scheme is in deficit but plans are in place to rectify and not a material problem. Construction side of the business is in profit, although margins tight.

On the whole I agree with SKYSHIP, a stock market anomaly, but totally secure? No.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177088

Postby rippleog » October 30th, 2018, 11:07 am

If you purchased BAYB using your Lloyds Bank shareholding account you will have received an additional payment equivalent to slightly more than another coupon payment...
Why?..not sure really..but I think they deemed unsuitable for retail investors and they deemed compensation was necessary for allowing me to purchase the holding....
I guess they dont subscribe to the idea of totally safe!!
BUT thankyou for pointing out the opportunity #skyship....VERY MUCH APPRECIATED....

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177214

Postby SKYSHIP » October 30th, 2018, 6:22 pm

In the investment game everybody either statistically or instinctively knows the level of risk they are prepared to carry; and that level will inevitably change according to age, or factors affecting personal wealth.

The level of risk may also vary in a balanced portfolio, as it may be a deliberate decision to allocate a certain %age to higher risk / higher reward investments.

Personally I now run a fairly low risk strategy. On the eve of my 70th birthday I know that a 2008 event may not be followed again by the gift of 2009, so I now run a higher allocation to fixed interest or secure income stocks.

As to BBYB, well Balfour Beatty is a leading international infrastructure group. With 28,000 employees, they provide innovative and efficient infrastructure that supports communities and enables economic growth. They finance, develop, build and maintain complex infrastructure such as transportation, power and utility systems, social and commercial buildings; and operate internationally in the UK & Ireland, US and the Far East.
In the recent Interims Leo Quinn, Group Chief Executive, said, "All our businesses are now either achieving industry standard margins or on track to do so in the second half. The disciplines installed under Build to Last are also enabling us to increase the order book with key infrastructure projects to translate Balfour Beatty's expert capabilities into future profitable growth.

"Given the strength of our balance sheet and the Board's confidence that the Group's full year earnings will meet expectations, we are raising the interim dividend by 33% and plan to repay the outstanding convertible bonds this year."

The reference to Build to Last is the strategic review undertaken in 2014/5 to uprate the company though the tendering for higher margin business; a strategy given overwhelming credence following the collapse of Carillion. So, after years in the doldrums marked by profit warnings and years of losses, BBY is back on track. As testament to the success of its Build to Last recovery programme, underlying profit in 2017 more than doubled to £196m, while industry standard margins are expected to be achieved in the second half of 2018.

BBY has a MCap of £1.8bn and assets of £1.2bn; though their contract investments could well be conservatively valued as there have been rumours of a sale of their PFI assets to Private Equity for as much as £1bn.

Whatever happens, BBY is an increasingly profitable company with substantial reserves; and redeeming the prefs for £112m in 2020 would be no problem. Though the more likely outcome is that many, especially institutional, holders will roll over into an extended maturity, or even a ZDP alternative.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177259

Postby AleisterCrowley » October 30th, 2018, 10:20 pm

Logged on to Halifax share dealing (HSDL) earlier and it wouldn't give me a quote for BBYB -"We no longer allow investment in this stock."
ELLA and AV.A (picked randomly) seem OK

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177290

Postby SKYSHIP » October 31st, 2018, 7:57 am

Bizarre - please do ask them why...

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177291

Postby SKYSHIP » October 31st, 2018, 8:14 am

Could be some bureaucratic objection to the convertible element!

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177522

Postby hiriskpaul » November 1st, 2018, 9:04 am

SKYSHIP wrote:Could be some bureaucratic objection to the convertible element!

I have a large position with iWeb, a HSDL brand, but they suddenly dropped the stock, without any notification. I can sell but not buy any more through them. The only explanation was of the "computer says no" type, but I suspect it might be something to do with the word "convertible" in the title. You can of course still buy the much more risky ordinary shares through iWeb/HSDL, but common sense has never been a strength with this broker.

Hargreaves Lansdown and Youinvest, where my daughters have their ISAS, are not a problem and I don’t recall my daughters having to agree to return a complex instrument form either.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177541

Postby 88V8 » November 1st, 2018, 9:52 am

Can buy more of them through ii.
Question is, with rising yields on so many stocks, do I want to?

Trying to recall how the capital loss on redemption of BBYB will be treated for CGT, if it's offsettable that is a bonus.

But NWBD* is available at 6.25%, BOI at 6.7%, BWRA* at 5.6%, NTEA at 5.75% and good old ELLA at 5.9%.
On the other hand, BBYB is a diversification from the usual Financials with which one's portfolio is probably stuffed.

Anyway, the sweetshop is open, if one can tolerate the upcoming capital decline.
Which as an income investor I mostly can.

V8

*reckoned by those on Marks's site to be safe from premature retirement.

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Re: Balfour Beatty 10.75% Cum Convertible Preference (BBYB)

#177603

Postby taylor20 » November 1st, 2018, 12:43 pm

hiriskpaul wrote:I have a large position with iWeb, a HSDL brand, but they suddenly dropped the stock, without any notification. I can sell but not buy any more through them.


Could be a bug in their system, I vaguely remember in the past you could not buy shares in an ISA if the share had less than x years left before redemption? I'm struggling to find a reference to this in the internet though!

EDIT: From Wikipedia:

Restrictions removed from July 2014...

The S&S ISA had a five years remaining at time of purchase restriction on public debt securities such as government, corporate bonds, debentures and Eurobonds. Conditional redemption, such as that based on possible future market performance, was acceptable, as was the borrowing company or government redeeming the security early or exercising of options if there are defaults, insolvency risks or covenant breaches


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