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Co-op Group 11% 2025 - half way mark

Gilts, bonds, and interest-bearing shares
hiriskpaul
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Co-op Group 11% 2025 - half way mark

#273036

Postby hiriskpaul » December 23rd, 2019, 11:20 am

Seems like only yesterday that many of us piled into Co-op Bank securities before the Bank restructuring that resulted in these Co-op Group bonds. Mark Taber (aka OldBoyReturns) somehow achieving the remarkable feat of persuading LT2 holders and the Co-op Group to bail out the more subordinated retail paper. Yet here we are half way to maturity. I have kept all the bonds issued to me and picked up a few more along the way.

In January 2014, shortly after they became tradeable, I obtained a price to sell 10k nominal of 116.25, for a yield to maturity of about 8.8%. Current price to sell 10k nominal is 124 (as of this morning), YTM 6.1%, so much of that 8.8% has been front loaded - the internal rate of return has been 10.3%.

Co-op Group, having been given a kick up the backside, are now profitable and growing their retained businesses. On a risk/reward basis I cannot see a better deal right now, so will continue to hold, despite the drop in yield.

Well done again Mark!

sackofspuds
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Re: Co-op Group 11% 2025 - half way mark

#286127

Postby sackofspuds » February 22nd, 2020, 6:23 pm

I too hold these. 42TE is the ticker I believe:
https://www.londonstockexchange.com/exc ... PSTBS.html

Now very roughly:
Buy 1k shares, cost £1,280
Interest pa £110

Fast forward 6 years (to keep it simple)
Total interest £660
Capital returned £1,000
Total £1,660

Investing £1,280 to get £1,660 in 6 years time doesn't sound like a great deal. Very roughly seems like about 5% yield. Any of the following are yielding more than 5%:
BOI
LLPC
LLPD
NWBD
SAN

Where have I gone wrong, or have I?

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Re: Co-op Group 11% 2025 - half way mark

#286151

Postby Laughton » February 22nd, 2020, 10:18 pm

I too hold some of these (and loads of the 42TF).

Using your 1.28 purchase price and ignoring dealing costs I make the YTM 5.28% - so given that there is an end date in site I don't think that's too bad.
But as I already own these I would only receive about 1.26 sell price so, again ignoring dealing costs, that means I would be giving up a YTM of 5.63% and replacing that is even more difficult.

All those others you mention don't have maturity dates.

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Re: Co-op Group 11% 2025 - half way mark

#286196

Postby 88V8 » February 23rd, 2020, 10:15 am

sackofspuds wrote:Any of the following are yielding more than 5%:
BOI, LLPC, LLPD, NWBD, SAN


The benefit of a fixed term is that one knows the outcome. The capital, the income.

Those you list above, all of which I hold along with 42TE, prices currently are high. So the outcome over the next few years is likely to be a capital fall, if that matters to you, but the extent of the fall is unknown.

It's hard to find anything really attractive at current prices. Currently I am buying ITs rather than FI. As of July I will have a wodge looking for a home when BBYB, my largest single holding, matures
Which of course is the downside of a fixed term, unless there is a roll-over, it ends.

Yes, the turnaround of the Co-op is remarkable, and OBR's part in it should not be forgotten.

V8

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Re: Co-op Group 11% 2025 - half way mark

#286231

Postby Wizard » February 23rd, 2020, 2:01 pm

I also bought into the predecessor Coop instruments in quantity. To be honest in hindsight I bought far more than was sensible. The holding in these is about the same size as my experimental HYP holding, the Coop bonds have been a better overall investment by far (though over a different time period to be fair) and take up virtually no time at all to monitor, whereas I am forever worrying about various of my HYP holdings and deciding which one is the next impending disaster. I certainly won't be selling these at this price / ytm, my main concern is what I will be able to buy when the mature.

It is a real shame OBR decided not to participate in TLF.

sackofspuds
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Re: Co-op Group 11% 2025 - half way mark

#286250

Postby sackofspuds » February 23rd, 2020, 4:13 pm

[quoteThose you list above, all of which I hold along with 42TE, prices currently are high[/quote]

Good point though NWBD has been higher in the last five years. Peaked about March 2018, a year later they hit a five year low.

Definitely worth thinking about volatility though.

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Re: Co-op Group 11% 2025 - half way mark

#286327

Postby sackofspuds » February 24th, 2020, 12:50 am

Those you list above, all of which I hold along with 42TE, prices currently are high. So the outcome over the next few years is likely to be a capital fall


Isn't it the case that 42TE price will fall closer to the 20/12/25 maturity date? After all, a year before maturity why would I pay a 28% premium to what I'm going to get back?

Looking at a 5 year graph it seems that, very roughly, the bank prefs spiked mid-2016 to mid-2017. True, most of them are currently above the average of the price outside that spike period. In the last year, here's the rise:
NWBD 16.84%
LLPD 4.07%
LLPC 11.82%
BOI 8.38%
SAN 8.15%
42TE 1.15%

Current yield:
BOI 6.26%
LLPC 5.87%
LLPD 5.79%
NWBD 5.48%
SAN 5.30%
42TE 4.95% approx

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Re: Co-op Group 11% 2025 - half way mark

#286337

Postby BobGe » February 24th, 2020, 6:50 am

Don't forget the tax position differs as some are dividend distributions and others pay an interest coupon. Also 42TE is annual.

hiriskpaul
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Re: Co-op Group 11% 2025 - half way mark

#286436

Postby hiriskpaul » February 24th, 2020, 3:39 pm

There has been quite a price rise since December. I have been quoted a clean price of 128.1 for 10k nominal, so definitely worth revisiting the investment case after a 3.3% increase in only 2 months.

I find it helpful to consider the internal rates of return when comparing different types of FI investment. For example, today's all-in dirty price to buy 10k nominal of the Co-op bond 42TE was 131.36. That includes accrued interest and HL's fee of £11.95. Assuming I hold to maturity on 20/12/25, the internal rate of return will be the yield to maturity of 5.04%. The all-in price of NWBD was 166.25, including the stamp duty and HL's fee. Based on payment dates of 16/04 and 16/10, the running yield comes out as 5.60%. To achieve the equivalent of the IRR of 42TE up until 20/12/25 would mean selling NWBD on 20/12/25 at 158.8. The current live sell price is 164.5, so I would be out of profit buying NWBD instead of 42TE if the price was about 3.5% lower than it is now on 30/12/25. Selling 42TE to buy NWBD is of course more risky, due to the buy/sell spread on 42TE. Current all-in sell price of 42TE is 130.08, for an IRR to 30/12/25 of 5.26%. That implies a future NWBD sell price of at least 161 to break even on the deal.

The price of NWBD appears quite high at present and personally I think it quite a big risk to assume the sell price will be above 161 on 20/12/25. I also think it quite likely that the yield of 42TE will continue to drop and if say it was 2% on 20/12/23, that would imply an internal rate of return until then of about 6.6%. That might be a better time to sell and buy more NWBD, or whatever.

All sorts of other factors to consider of course, taxes (if not in tax shelter), likelihood of default, "Aviva risk", diversification, re-investment risk. LLPC and others yield more than NWBD, but because of its terms, NWBD has much lower "Aviva risk" in it than LLPC, etc, but I am not ruling this risk out completely.

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Re: Co-op Group 11% 2025 - half way mark

#286447

Postby sackofspuds » February 24th, 2020, 4:47 pm

hiriskpaul wrote:I find it helpful to consider the internal rates of return when comparing different types of FI investment.


Yes, thanks, hiriskpaul. Food for thought there.

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Re: Co-op Group 11% 2025 - half way mark

#292311

Postby Wizard » March 19th, 2020, 12:16 pm

These have fallen back in the COVID-19 carnage. Now available to buy at £105. I make that a YTM of 9.7%. That seems pretty attractive to me, surely a business that majors on food shops and funerals will not be drastically hit by a COVID-19 driven recession? My only issue is that I hold too many of these at the moment. But I can't see much else out there that I think should be as robust as 42TE at anything like the return.

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Re: Co-op Group 11% 2025 - half way mark

#292535

Postby sackofspuds » March 20th, 2020, 12:26 am

Agreed. These are on my watchlist. Like you say, backed up by the supermarket which will do fine now.

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Re: Co-op Group 11% 2025 - half way mark

#292550

Postby Wozzitworthit » March 20th, 2020, 6:33 am

Yes - I have also been watching these over the past week or so

What I was a little concerned about was that 42TF appears to only be giving a YTM of around 5.68% compared with 9.76% for 42TE whereas previously they used to be probably wuthin plus/minus .5% of each other (if my memory is right), with 42TF often being the slightly higher one

This led me to to wonder whether there was some underlying cause that I am missing. The only one I can think of is that 42TF may be conceived as being perceived as safer as they are paying capital back each year and/or there aren't so many available to purchase

I too, have an attic full of Co-op but I think I am willing to take a few more on and will mull over for a bit

Woz

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Re: Co-op Group 11% 2025 - half way mark

#292559

Postby johnhemming » March 20th, 2020, 7:28 am

didn't one of these fall back on the results?

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Re: Co-op Group 11% 2025 - half way mark

#292699

Postby hiriskpaul » March 20th, 2020, 3:20 pm

I have tried to buy these a few times today, but have been unable to get a quote, except for 1k nominal, now at 111 (YTM 8.5%). Could kick myself as I could have bought in reasonable size yesterday for 99p, but failed to press the confirm button! OTOH, no problem selling with quotes of 106.5 for 50k nominal, 105.5 for 100k nominal.

hiriskpaul
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Re: Co-op Group 11% 2025 - half way mark

#292702

Postby hiriskpaul » March 20th, 2020, 3:23 pm

johnhemming wrote:didn't one of these fall back on the results?

Results are not out yet. The interims were very robust.

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Re: Co-op Group 11% 2025 - half way mark

#292707

Postby hiriskpaul » March 20th, 2020, 3:54 pm

Wozzitworthit wrote:Yes - I have also been watching these over the past week or so

What I was a little concerned about was that 42TF appears to only be giving a YTM of around 5.68% compared with 9.76% for 42TE whereas previously they used to be probably wuthin plus/minus .5% of each other (if my memory is right), with 42TF often being the slightly higher one

This led me to to wonder whether there was some underlying cause that I am missing. The only one I can think of is that 42TF may be conceived as being perceived as safer as they are paying capital back each year and/or there aren't so many available to purchase

I too, have an attic full of Co-op but I think I am willing to take a few more on and will mull over for a bit

Woz

Yes, 42TF is incredibly illiquid much of the time, so I would not trust the buy/sell prices.

p.s. can now get 42TE at 113.

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Re: Co-op Group 11% 2025 - half way mark

#292714

Postby Holts » March 20th, 2020, 4:43 pm

Had to pay 104.9 yesterday via online and would only do 10k size , shows the value of having a proper broker during such times I suppose .

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Re: Co-op Group 11% 2025 - half way mark

#292747

Postby johnhemming » March 20th, 2020, 6:39 pm

hiriskpaul wrote:
johnhemming wrote:didn't one of these fall back on the results?

Results are not out yet. The interims were very robust.

42TF fell back on 23rd December as far as I can see. It was months after the interims, but not that recently.

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Re: Co-op Group 11% 2025 - half way mark

#292757

Postby hiriskpaul » March 20th, 2020, 7:45 pm

johnhemming wrote:
hiriskpaul wrote:
johnhemming wrote:didn't one of these fall back on the results?

Results are not out yet. The interims were very robust.

42TF fell back on 23rd December as far as I can see. It was months after the interims, but not that recently.

That may be when it went XD. 42TF amortises at 1p per year.


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