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LLOYDS is going to FLY

lse:lloy

#3578

Hi @J_Westlock, Well that’s a bit strange, anyway I have copied and pasted the text below. If you have specific questions after that then just ask…

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Regarding preference shares there is much to tell, I guess some of the key points are as follows:-

  1. Preference shares are a fixed interest type of investment, akin to a bond, and so have some different characteristics to ordinary shares (equities).
  2. They pay a coupon rather than a dividend, different name but much the same thing. But with preference shares the amount of the coupon is defined as part of the product. Eg NWBD is a 9% NatWest preference share. The 9% defines the amount of the coupon that an investor receives as a proportion of the “par” value, the price the preference share was originally issued at. For most prefs this is 100p. So NWBD pays out 9p in coupons over the year. Most prefs pay their coupon in two equal half yearly payments, though a few pay in four equal quarterly payments. So NWBD (a 9% pref) pays out 2 x 4.5p coupons at half yearly intervals and RAVP (a 12% pref) pays out 4 x 3p coupons quarterly.
  3. Unlike equities the amount of the coupon can NEVER be varied as it forms part of the product as do the coupon payment timings. Companies can’t declare different coupons for prefs as they do with dividends for equities.
    4.Prefs come in several forms:-
    a. Cumulative or Non-cumulative. In theory a non cumulative pref can withhold coupon payments if the company is not in a financial position to be able to pay them. A cumulative pref can skip a coupon payment but if it does it must make up the missed payment at a later payment date.
    b. Irredeemable/Redeemable. Redeemable prefs have an end date rather like a bond at which time holders are typically repaid at par and coupon payments cease. Irredeemable prefs have no such end date and in theory once you own them payments go on forever.
  4. Some prefs have “must pay” clauses built into their prospectus. Eg NWBD has such a clause which says if the company ever decides not to pay the coupon for any reason then they have to issue the holders additional preference shares to a value of 4/3 of the amount of the missed coupon.
  5. You should also know that a company cannot pay a dividend on their ordinary shares if they withhold the coupon on their preference shares. The net result of such clauses is that the companies tend to always pay the coupon on their prefs.
  6. All prefs have a prospectus which is a document expressed in highly technical legal language which defines all of the characteristics of the preference share.
  7. While prefs are initially issued at par they are traded on the stock market (like bonds) and their price can rise above par and fall below it. Reliable prefs paying high coupons are (were ?) much sought after and prices in recent years soared way above par. For example LLPC a 9.25% Lloyds preference share that I held was priced at about 175p in March 2018. I bought most of mine for less than 100p way back around 2012.
  8. Prefs are sensitive to the prevailing level of interest rates. As rates go up prices fall and the yield increases, if rates fall then prices rise and the yield decreases. In this respect they behave like bonds.
  9. Like ordinary shares prefs have a bid and offer price. The prices typically quoted on most financial sites is referred to as the “official spread” and it is typically quite large, normally about the amount of a half yearly dividend payment. In actuality though if you do dummy buy and sell, trades on a pref you will often find that the actual buy and sell figures are considerably inside the official spread. But prefs are generally considered illiquid investments and some are traded relatively infrequently and hence the large spreads.
  10. Be aware that liquidity can be a significant issue particularly when selling any of the smaller pref issues. I have never had a problem buying however many I wanted, but have frequently had problems selling. You may find that you cannot sell your entire holding and may be limited to selling no more than X shares on any given day. But this can change day to day. It can be annoying though.
  11. Personally I always thought that the best time to buy prefs was on the XD date. On that date the offer price drops by close to the dividend amount, allowing you to buy more shares for the same amount and increasing your yield. You just have to then wait 6 months to receive your first coupon payment.
  12. Investing in prefs of smaller companies can be a risky business. If the company goes out of business then you will likely be looking at a total loss. Personally I wouldn’t invest in such issues.

At this point I should provide a brief summary of the disastrous events that happened in the preference share world in March 2018. In their results presentation in early March 2018 Aviva made a statement to the effect that they intended to cancel all their preference shares at par and cease paying the coupons. They said that they had received legal advice saying that this was a valid interpretation of the wording in their pref prospectuses. As most other preference share prospectuses contained similar if not identical wording this caused panic in the preference share universe and prices of pretty well all preference shares collapsed.

There followed an extended campaign led by Mark Taber (of the fixed income investor website) supported by a number of major corporate holders of preference shares. Eventually Aviva were forced to back down, but the preference share world has not recovered, prices remain depressed and the cancellation threat potentially remains. Raven Russia are the only company that I know of that have modified their articles of association to explicitly remove the cancellation threat though Aviva has said in its retraction that it will not cancel its preference shares at par in future but would pay “fair market value” if it did so.

See the following links for more detail:-

https://www.aviva.com/newsroom/news-rel … ce-shares/

https://www.telegraph.co.uk/investing/s … 4m-payout/

Now the cancellation threat is less of an issue if you have only paid ~115p for your prefs but if you are holding them in your portfolio at ~175p and might only get paid closer to 100p for them that’s a different order of magnitude of problem.

Now to my knowledge this whole cancellation issue has never been tested in court and it it were it may be that it would not succeed. But then again those holding Lloyds ECNs (these are not prefs but are similar fixed interest products) did raise a legal challenge to their redemption by Lloyds and they lost their case and their income from those investments.

So what I had thought to be a pretty ironclad asset class providing excellent income and security has to my mind been severely damaged by these events. Most of the leading preference shares continue to trade but at much lower prices than prior to March 2018.

So I would say that you need to think very carefully if you are prepared to invest in this asset class under the circumstances that currently prevail. I have personally decided that I will, but will only purchase prefs which are on offer at low asking prices to help avoid the risk of capital loss should the cancellation issue raise its head again.

The preference shares that I currently hold are as follows:-
a) BWSA, Bristol & West 8.125% pref shares
b) GACB, General Accident plc 7 7/8% cumulative irredeemable pref shares
c) RSAB, RSA Insurance Group 7 3/8% cumulative pref shares
d) STAB, Standard Chartered plc 7 3/8% non-cumulative irredeemable pref shares
e) RAVP, Raven Property Group cumulative pref shares.

I bought a) to d) when they were all available for around 115p around November 2018. Most have since increased in price since then with the exception of STAB. RAVP is the one preference share that I am aware of that has amended its articles of association to eliminate the cancellation threat. I have decided that I will NOT buy some of the big names like LLPC, NWBD and SAN which are still trading at 140p and above.

One other big name is worthy of a mention I guess, that being ELLA (Ecclesiastical Insurance). I believe that they issued a statement at the time of Aviva cancellation issue saying that they had no plans to cancel their prefs. And being that they are really the Church of England one would hope that they can be trusted to deal fairly with their investors !.

Well I have probably been wittering on about this for far too long now. I believe that the information that I have provided is correct (gleaned over my many years of holding prefs) but I cannot ABSOLUTELY guarantee it and you should definitely do your own due diligence should you consider investing.

This post is not intended as any form of financial advice and if you choose to invest then you do so totally at your own risk.

ATB

Pref


#3579

Thanks for that Pref.

What are the factors that are driving the price movement? You mentioned interest rates but anything else other than demand?
It won’t matter say if RSA has a bad year or not on your RSAB, RSA Insurance Group 7 3/8% cumulative pref shares I assume?

If that’s the case then why don’t all pref shares move up and down pretty much in line with each other upon interest rate movements?
I guess I’m really wondering about how large the market is on people buying and selling these prefs thus creating the demand (or not)?


#3580

Hi Again @J_Westlock, OK I will try to answer as factually as I can, but given your questions much of what I am going to say will be just my own opinion…

  1. There is definitely a community of people who hold and trade pref stocks, mostly income seekers I think. It’s nowhere near as large a market as for equities though. I really don’t have any figures for how large the market is. Certainly the most popular pref issues are traded quite frequently and there is normally no problem with liquidity on these (but it is on a far smaller scale than ordinaries).
  2. The price of a given pref will suffer (perhaps severely) if the issuing company gets into real trouble for any reason. I recall a situation where a certain bank was under threat of losing its US banking licence for some reason, some years ago, and its prefs and ordinaries plummeted. But the situation has to be pretty severe. For example I see no evidence of Lloyd’s pref prices reflecting what’s been happening with its ordinary share price just recently or of Brexit impact for example. As long as the company is seen as financially secure then I don’t think that their pref price will be affected. But if a companies ordinary share price is surging that won’t necessarily be reflected in its pref price either.
  3. For prefs that are trading “normally” I think that people choose what to buy primarily based on the yield and the perceived safety/security. When I was holding 80%+ prefs there were something like 13 different pref shares that I was prepared to buy and hold. These were the prefs of mostly large companies that I felt comfortable were secure and offered a decent yield. There were many other pref issues though, some issued by smaller companies and many trading below par and offering significant yields – I always avoided these myself as I considered them too risky. Equally there were pref issues that I did not consider because they did not offer what I considered a decent yield, BPs prefs BP.A and BP.B are an example of this. Probably because they are considered more secure they trade at a higher price and so offer a lower yield.

I’m not sure if this answers your questions, but it’s the best I can do……

ATB

Pref


#3581

Yes it did… thanks.

Is there a good site where you get to see all the various issues across the whole market along with yield, coupon, market price etc ?


#3582

Sorry @J_Westlock but I’m afraid that the answer to that is No. Resources for preference share investors these days are sorely lacking. Canaccord Genuity used to publish a regular PDF newsletter entitled “Leading Prefs and Pibs” and you can still find a few old ones of these lying around, but I think they’ve stopped doing them now.

Also be aware that not all brokers can hold and trade even the big names in preference shares, HL can but when I tried a demo account at IG I discovered there were some that could not be held :angry:

As for pricing data, even on HL the best that you get to see is the official spread figures. I price mine each day doing dummy sell trades, dummy buy trades too if I’m thinking of buying. On the portfolio they value your holding as the bottom of the official spread, very conservative :angry:.

Personally I think that the best that you can do is to use sharesmagazine/stockwatch facility where I have a Prefs watchlist with all my holdings and favourites on it. This too only gives you the official spread figures BUT for some you can look at the live trades to get a sense of what the real live buy/sell price is (but clearly dummy trades are the most accurate). Sadly since the pref crash for some reason LSE trade data is withheld for several days on most of the big names so for these dummy trades are the only solution.

If you want I will post a picture of my Prefs stock watch watchlist to see which I follow, if that’s of any interest. It’s only some 13 names though.

ATB

Pref


#3583

Yes please. I’m getting to think that bonds/pref shares should play some part of my portfolio.


#3584

Besides the usual places I find these helpful:

Business Insider, Bond screener. Prices can be some way out.

I have is set to Sterling Bonds with yields of 5-10%, you can pick a broad range.

https://markets.businessinsider.com/bonds/finder?p=6&borrower=&maturity=&yield=5&bondtype=6,7,8,19&coupon=5&currency=402&rating=&country=

If you are interested in a deeper understanding of bonds;

WiseAlpha Bond Academy
Ever wondered how the biggest banks make money? They have been investing in some of the largest companies in the world through corporate bonds, and reaping outsized returns. Take this course to learn more about bond investing from industry experts.

The free course is now CPD accredited.

For RNS, this is set to search IRISH releases on Investgate
https://www.investegate.co.uk/Index.aspx?searchtype=3&words=IRSH

That’s a good way of finding updates on Dublin listed Sterling/Euro Bonds.


#3585

I’d like to see that Pref.


#3586

Hi @J_Westlock & @devonplay, OK posted below

If you click on the T symbol it displays a list of all of the live trades for that stock, sadly it only works for some of them because as I said - since the pref crash trade data on the big prefs is now being delayed by several days. You cant even get it on the LSEs own site.

Ive also posted the pref section of my purchase planning worksheet. This contains a list of every stock/IT/ETF that I might ever want to hold (Ive only posted the pref section) and I use it to work out how much a trade is going to cost, what income its going to generate, the yield, whether Ive got enough money in the right accounts etc. All that sort of stuff. Ive posted it as it gives you the coupon value on each pref and todays yields (more or less) and the dividend XD and payment dates. Some of the dates are going to look old but then they are virtually the same every year. To be totally accurate in respect of the costs and income etc. before I do a trade I need to put in live prices, but these will be “in the ballpark”.

I hope you can read it as its a bit small. I did compress the column widths as much as i could !!. If you click on the image it will display just the image which is easier to read.

Hi devon, good to hear from you. Hope you are well. Still doing the WiseAlpha thing I see. Hope its working out for you.

ATB

Pref


#3587

Hi Pref, yes still doing it. I’ve got a holding of 50 plus bonds on the site, mainly B & C, YTM (before annual charges) of 12% plus. Still a small position overall for me.

I’ve bought a few ORB bonds this year Burford and Lendinvest.

All’s going well. It’s been a decent enough year.

I’m wary of buying corporate bonds above par at the moment, but I did in the last few days Domestic & General and Lowell (both ondecent yields), but there’s some distance to go in short dated high yield I think.

I see you on LF, I still checking everyday.

Good luck with everything.

WiseAlpha have their AGM coming up soon, I’m expecting some big news from them, but they are adding bonds with some regularity. I think so far this month Dignity’s long dated issue, couple of Eurobonds and some more of the popular issues.

I got my Debenhams income payment this morning! That’s one of the benefit of bonds, long after the shareholders…


#3588

@PrefInvestor1

Doing well, as are my USA investments, everyone of which is at all time highs.

Trying to get my tax return finished!


#3589

Hi @Eadwig, Oh joy. Not sorry to say that I dont have to do those any more !!.

Good Luck

Pref


#3590

The old saying goes, when the US sneezes the rest of the world catches a cold. Today, the power has shifted to China. They get a virus, stock markets fall. (doesn’t quite have the same ring to it)


#3591

Clever Money buying in here for the new Dividend policy :slight_smile:

Personally I be getting my wages in May then the 1st Quarterly Dividends starting in June

What’s not to like here

£££££££££

Lloyd’s Banking Group is the UK’S Green Bank


#3592

How about the fact you can easily buy some ITs or ETFs that give you a better total return?


#3593

As this appears to be an open forum I thought I’d discuss this mornings trading update from Dixons. They reported a 2% increase so obviously people bought and the share price went up 5%. Then just after lunch they said, woops, we made a mistake, we actually meant a FALL of 2% then the sp plunged about 6% only to recover 7% on the day.
I wonder how many directors in that company profited and how many punters panicked and lost out. I appreciate, from a retail perspective, they are next to useless but how can they get away with getting their numbers so wrong?


#3594

Hi @skiking37, Doesn’t make a whole load of sense to me TBH. Guessing that the initial incorrect announcement came out via RNS at 07:00 and the shares spiked up to ~150 having closed the previous day at 142.x (though goodness knows why on a group profit of 2% ?). Then the correction came out at 13:40 (by which time pretty well all of the gain had been lost) but after that (negative) correction the shares powered away to end at ~151 about 7% up.

You need to be brave or crazy to invest in any high street retailer nowadays though IMV, and the mobile market is surely dead now ? (Witness their bad result in that area).

Good luck to anyone who sold towards end of business and took the profit !. If some directors did so well good for them. What I am failing to understand is why any part of the results (corrected or not) could actually be viewed as good and worthy of a 7% rise in the share price ?. I am obviously missing something…

ATB

Pref


#3595

I think the initial rise was the fact that the results were (falsely) above expectations. Looking at the live graphs the plummet didn’t happen until around the time the woops moment was announced - yes, slightly before which was probably due to the people in the know! (isn’t insider trading illegal). I can’t think of any explanation as to why it got the subsequent spike at the close of the day.
As for your comment about applauding the directors if they financial benefitted from knowing they had sent out incorrect results then I’m shocked. It’s insider trading!
Dixons and carphone are a perfect match - both completely inept. Mobile market is not dead especially amongst the apple flock who will replace at the next release. However, phones are getting more reliable and therefore not being replaced every 2 years (except apple) but all sellers are experiencing that issue.
I almost invested in them a couple of months back as, imo, they had hit a low but a couple of pence above my buy point. I could have made 15-20%. I still think 115-120 is a buy point. They are bizarrely a happy place on the retail park which is different to the high street.


#3596

Hi @skiking37, Well I really wasn’t trying to applaud insider trading, clearly that is reprehensible. By the time the correction announcement was made the stock had just about lost all its early gains, so anyone selling in the morning might have known something - but it might have just been people taking profit on an unexpected move ?.

It’s the afternoon move AFTER the correction announcement which looks particularly crazy to me though. Why would the stock surge 7% given the correction ?. The true information was available to all by then. My comment in my previous post referred to selling in that situation, which is surely totally legitimate for anyone - directors included ?.

ATB

Pref


#3597

I assume you read the RNS @skiking37 ?
I looked at it only when the story broke. It’s not the sort of company I’d invest in personally.
For such a short RNS it raised quite a few questions for me.

How do they calculate like-for-like? What period is it? What’s the methodology of what’s included/excluded (branches?).
Why is there such a % difference in the local currency results to ‘reported’?