Investing at $1.69. Yeah or Nah?
I have looked at various comparative investments. But the question I have not answered is that with all the share price movements since the start of the calendar year, is investing in Investore today 'the go'? The alternative way to put money into Investore is via the listed bonds. These currently are trading on the debt market at:
a/ 3.85% (offer of IPL010 4.4% coupon 18-04-2024 bonds, no buy bidders)
b/ 4.45% (offer of IPL020 2.4% coupon 31-08-2027 bonds, no buy bidders)
c/ 3.75% (offer of IPL030 4.0% coupon 25-02-2027 bonds, 3.95% buy bidders)
for a best return of 4.45% (option B)
Gross earnings yield (which is different from dividend yield, as Investore's dividends are higher than their earnings) for the head share at 31-12-2021 based on a share price of $1.95 was:
4.71% x (24.316/27.980) = 4.09%
But with the decline in share price in the interim, this yield has improved to:
4.09% x (195/169) = 4.72%
There are no earnings retained to fund further growth of the portfolio in this modelling. So this yield is the best sustainable yield an investing shareholder can ever expect to get from IPL going forwards, (unless the IPL share price declines further of course).
Where there is an option of either buying a share or a bond as alternative ways of getting into the same company, I generally look for the bond option to have a higher yield to compensate for missing out on the growth prospects over time of the alternative option of owning the share. The history of the IPL share since listing in 2016 at around $1.65 has been a generally rising share price as interest rates fell followed by a falling share price as interest rates rose. At a closing price of $1.69 today, we are almost back to where we started five years ago.
Were there any other perks small shareholders accumulated along the way? The 20th May 2020 capital raise offered new shares at a discounted $1.65 early in the FY2021 year. That discount doesn't look so generous at today's IPL share price. Institutional shareholders ended up with the same deal a month earlier. It looks like a well managed capital raising by the company, where shareholder stakeholders long term broke even on their new shares.
It comes down to this: A 4.72% gross return for the shareholder verses a 4.45% gross return for the bondholder. Despite the security of the cashflow, I can't help feeling both are overpriced. A yield of 5% sounds better, That means a share price of:
$1.69 x (4.72/5) = $1.60
The share price has been there prior to the second half of 2019, and that is a price level where I can start to see shareholder value.
Verdict: A 'Nah' at today's prices.
SNOOPY
discl: do not hold