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  1. #1361
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    Quote Originally Posted by percy View Post
    Roger.
    Be prepared to be surprised.!
    Next year will be an absolute cracker.!
    The "outlook" statement, when this year's result is announced, will move you from the food bowl to the buy more button.!
    I am offcourse already "well positioned."
    Hehe....love it when you guys get enthusiastic about a share but noticed on my chart that the squiggly blue line just dropped...nay plummetid thru the squiggly green line which is about to do the same thru the red one and I thought that was a bad sign........just saying

  2. #1362
    always learning ... BlackPeter's Avatar
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    Quote Originally Posted by ziggy415 View Post
    Hehe....love it when you guys get enthusiastic about a share but noticed on my chart that the squiggly blue line just dropped...nay plummetid thru the squiggly green line which is about to do the same thru the red one and I thought that was a bad sign........just saying
    Just wait for market s to open ...
    ----
    "Prediction is very difficult, especially about the future" (Niels Bohr)

  3. #1363
    percy
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    Quote Originally Posted by ziggy415 View Post
    Hehe....love it when you guys get enthusiastic about a share but noticed on my chart that the squiggly blue line just dropped...nay plummetid thru the squiggly green line which is about to do the same thru the red one and I thought that was a bad sign........just saying
    Correct.The market has been expecting more,however the recent acquisitions ,Buy Right Cars and Autosure will only start to really perform from April.
    The non recourse loans via MTF are well ahead of expectations.
    So I repeat my earlier post;"Ground work laid for exponential growth laid."
    Maybe we will have to wait until the interim, to know we are on track,although I think the charts will confirm it very quickly.

  4. #1364
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    Quote Originally Posted by percy View Post
    Maybe they see their business model working in Aussie?
    Their EC Credit business is already very strong in Aussie,and they did state in their last annual report;"EC Credit is a reputable,full service credit management provider in the SME market and we are looking to build on this as well as target the corporate debt collection market,particularly in Australia."
    Being listed on the ASX would give them credibility with customers and lenders, as well as giving them access to Australian capital.
    Thanks Percy, had sort of discounted EC Credit. That does make sense. Whatever it should support the SP, more buyers etc. MHI had a SP re-rating once they listed there as well.

  5. #1365
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    Quote Originally Posted by Roger View Post
    Threw out the Black and Schoals option model and did some fresh clean sheet thinking as you suggested above the other day and reluctantly have to agree with your first post above now that the SP has come down 30 cents in recent weeks. Realistically best case is those 2667 shares are worth say $5 = $13,335 which gives a 33.5% gain over 18 months....who knows I suppose it could theoretically be worth a bit more in Sept 18 more but let's not go there until they get some more runs on the board.

    Worst case is they're issued at a 5% discount to vwap so provided you can sell them for what they're issued to you at the bonds give a 5% capital gain as a minimum.
    The running yield at 6.5% is okay notwithstanding you have to pay a small premium to the issue price of $1.00. Anything you pay over $1.05 at present, (say hitting the offer at $1.065) is a cost of the effective option element, in that case 1.5 cents get's you a look at the possibility of making a capital gain, maybe 33.5% less the initial premium paid now 6.5% = 27% net gain if they're $5 or maybe 20% - 6.5%, net gain 13.5% if they're $4.50. To look at it that way you have to accept that you are okay with getting slightly less than 6.5% on the bond value of your investment for the next 18 months. Some people aren't okay with that and demand a circa 10% return for any type of investment that has a capital risk of any kind to it, (these bonds rank behind bank debt and the new collaterised debt obligations the company is issuing) and I can see their point of view but I am happy with 6.5 / 1.06 5 = 6.1% running yield.

    Throwing all the option pricing theories in the rubbish bin for a minute, (some would say they belong there but I couldn't possibly comment) and using pure gut instinct I think with the shares where they are currently ~ $3.60 your assessment of no more than $1.08 - $1.10 which represents paying a real effective option price right now of 3-5 cents, (remember you are more or less guaranteed a 5% premium so paying $1.05 now is the low water mark in my opinion) for the possibility of a net capital gain of 13.5% - 27% in eighteen months seems about right. My calculations were originally based on a share price of $3.90 so with the shares having come down ~ 30 cents, (glad I sold my shares) in recent times one has to be more realistic about the option value. All that said at current prices in my opinion, convertible bonds on offer for $1.065, a real option cost of only 1.5 cents per bond, they're the better and more one sided investment, (have very limited downside).

    On the other hand non risk averse shareholders might argue that getting the full gain from here $5 / $3.60 = 38.9% without paying any premium up front for their investment gives them a better potential return than the bond investor who stands to make a potential 27%. (Note SP needs to be at a 5% premium to the floor exercise price of $3.75 = $3.95 before bondholders start to participate in the SP uplift).

    The recent 30 cent SP drop has dramatically affected the bonds value because effectively the entire move down was from just before the threshold at which point the bonds start enjoying SP capital gain.
    In effect the bonds were a high conviction BUY when I was buying at up to $1.0825 when the SP was $3.90 but are just a BUY at $1.065 now with the SP at ~ $3.60.
    Hope this almost endless ramble makes some sense to people trying to decide between bonds and shares.
    Following on from my prior analysis of the bonds and what research Roger has done, I've found some time to give my opinion on the value of these beauties using the Black Scholes pricing model. Basically within a convertible bond you have a straight bond and a callable option which can be valued using your preferred option pricing model. The only tricky part with valuing convertible bonds are the different terms to which they get converted at - for this case its the lesser of $3.75 or a 5% discount to the 90-day VWAP, and the assumptions we use in discounting the bond's cash flows and valuing the option.

    My assumptions are the following:
    - TNR standard deviation - 7.94%
    - Div. yield - 3.31%
    - Risk free rate (taken from RBNZ) - 2.48%
    - Default spread - 3.00% (Giving us a YTM of 5.48% on the straight bonds)

    The current derived value of the callable option per bond turns out to be $0.060, with the value of the straight bond being $1.016 (ignoring the 9 days of accrued interest), giving us a current bond price of $1.076.

    Important things to note; this value was assuming a current share price of $3.62, so as at today we use the 5% discount to the share price model. Also the risk free rate and default spread have the most significant effects on the valuation outcome, so adjust accordingly to what you think is best.

    I have included a bond value vs. share price payoff schedule in the link below which shows a logarithmic relationship between the bond value and share price before the $3.75 conversion model, which kicks in at $3.95 ($3.75/0.95). The price of the bond at an underlying share price of $2.50 is $1.062, and it increases to $1.079 at $3.94, at which point the model changes as we start using the $3.75 conversion price. From $3.95 onwards, there is a linear relationship between the bond value and underlying share price and the net payoff is no longer a proportional (5%) discount to the trading share price, but rather a fixed discount of $X.XX - $3.75.

    In summary, the absolute lowest value of the bond is around $1.060 (with no accrued interest) and the upside potential is huge. At a share price of $5.00, we have a bond value of $1.339 and a net payoff of 33.84% from initial investment if we redeem the underlying shares . The current intrinsic value of the bond as of today ($3.62 underlying SP) is $1.076, which is well above the current market price and sounds like a great opportunity.

    Let me know if you'd like a more detailed analysis/copy of my working and I'd be more than happy to help.

    http://puu.sh/v3cks/8803647798.png

    Disc: Loaded up before record date and holding til' maturity.

  6. #1366
    ShareTrader Legend Beagle's Avatar
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    Superb work Fox, I agree 100%. Many thanks indeed for your analysis. We are both well positioned
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  7. #1367
    percy
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    Fox.
    A big thank you.
    I don't think I was too far out with my back of the envelope workings.
    When the bonds were issued at $1.00 I valued the bonds at $1.226 if the sp was $4.60.compared to your proper workings of $1.24 value for the bonds, at a share price of $4.60..
    I love the clarity of your graph.Saves me a good many envelopes.!!

  8. #1368
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    Yes that graph graphically shows why the hound was getting perhaps a little over excited when the shares roared up quickly to ~ $3.90 a little while back.
    Now things have settled down a bit I still think these are a great solid hold with excellent prospects and the shares also have excellent prospects. With quite some justification I believe it is fair to say that both shareholders and convertible bondholders are all well positioned. We know the SP follows earnings growth so if we see ~ 25% earnings growth in FY 18 that should lead to $3.62 x 1.25 = approx. $4.53 share price around reporting time in late May 2018 and everyone will be happy
    Last edited by Beagle; 31-03-2017 at 08:30 AM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

  9. #1369
    percy
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    Quote Originally Posted by Roger View Post
    Yes that graph graphically shows why the hound was getting perhaps a little over excited when the shares roared up quickly to ~ $3.90 a little while back.
    Now things have settled down a bit I still think these are a great solid hold with excellent prospects and the shares also have excellent prospects. With quite some justification I believe it is fair to say that both shareholders and convertible bondholders are all well positioned. We know the SP follows earnings growth so if we see ~ 25% earnings growth in FY 18 that should lead to $3.62 x 1.25 = approx. $4.53 share price around reporting time in late May 2018 and everyone will be happy
    I concur...lol.
    I do have a slightly higher eps growth which may lead to a slightly higher PE which in turn will give a slightly higher sp of $4.60,although I will be more than happy with your $4.53, and the increasing divies, paid quarterly.
    Last edited by percy; 31-03-2017 at 08:43 AM. Reason: Added another "slightly".lol

  10. #1370
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    [QUOTE=percy; the increasing divies, paid quarterly.[/QUOTE]

    You forgot a word or two there there Percy... "fully imputed"

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