TRA - Turners Automotive Group [previously TNR - Turners Limited]

[Snoopy]

Thanks for alerting me to this possibility. TNR could be $5 by that time so effectively converting at 3.75 give great upside potential. 6.5% in this day and age is not too bad either... might have to do some more research......

The 6.5% bond yield mentioned only applies if you can buy the TNRHB bonds for $1, the par issue value. Good luck doing that now!

SNOOPY

[Beagle]

Thanks for alerting me to this possibility. TNR could be $5 by that time so effectively converting at 3.75 give great upside potential. 6.5% in this day and age is not too bad either... might have to do some more research......

You're welcome mate. That's pretty much how I see it too. Potential for the bonds to have a fair value at redemption of $2.25 ($1 capital value plus $1.25 per share discount on new TNR shares issued upon redemption) but no obvious downside as minimum redemption premium is 5%, the discount to new shares issued based on 90 day VWAP. I have seldom seen an investment free hit in terms of bonds, as good as this one. Leverage is the other thing as obviously $2.25 / $1.065 = 111% return whereas $5.00 / $3.75 = 33.3% gain. All the benefits with no downside...kind of like a hound finding a buried bone and then discovering its made of solid gold

Disc: Obviously I wouldn't post information this good if I didn't already have a XXXL holding :-)

[Beagle]

The 6.5% bond yield mentioned only applies if you can buy the TNRHB bonds for $1, the par issue value. Good luck doing that now!

SNOOPY

This thing isn't about the 6.5% coupon yield anymore Snoopy....that's almost immaterial now, (although I am happy to receive the quarterly interest payments), compared to the intrinsic option value.
Even if one completely ignores the option value, (which is clearly a silly idea), the current 6.5 cent premium is almost fully recovered by the minimum 5% redemption kicker so the implicit interest rate is very close to 6.5% taking into account accrued interest since the last quarterly payment on 31 December, provided bondholders elect to redeem for shares instead of cash.

As Blackcap has quite rightly said, nothing wrong with 6.5% these days.

[blackcap]

The 6.5% bond yield mentioned only applies if you can buy the TNRHB bonds for $1, the par issue value. Good luck doing that now!

SNOOPY

ok then make that 6% (if buying bond at 1.06) still not a bad return with potential Yuge upside.

[percy]

Hopefully your kids are one of the beneficiaries

No.They have already received too much.
The trust is my dead friend's family trust.
In fact he was an AIR pilot.
His wife thought I had selected most of his shares for him, so I should keep an eye on them.!!!
Have learnt to be very careful, to trust myself and not the brokers' recomendations. They worry too much about models/weightings of portfolios, rather than share selection,where the big money is made.

[peat]

nice work on quantifying the value of the convertibility Roger which I highlighted on the NZDX thread when we were offering the bonds at par.

http://www.sharetrader.co.nz/showthr...l=1#post637556

[percy]

Please excuse me for not being exact,but I think the "old" bonds converted 30th September,and I take it the "new" two year bonds have just been issued.I say that, as a Trust I help out on applied for bonds.I rang the broker yesterday and The Trust got what was applied for,but I had not seen a contract note.
Yes ,there was a margin there, which I think was taken advantage of,which kept the sp down.
We now have two brokers researching TNR,FNZC,and today Craigs published research. This coverage should bring TNR's story to a wider number of investors.As we know the story is compelling, we remain "well positioned."

Above posted on 7-10-2016.
Bonds brought at $1 are now trading at $1.065.
And remain "well positioned."
And I thought that was a very kind offer from Peat.The trust brought via Macquaries.I did not buy any for myself as my Craigs broker did not have any.
Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.

[winner69]

Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.

Never know - somebody might front up

I was going to mention the greater fool theory but better not

[Beagle]

Above posted on 7-10-2016.
Bonds brought at $1 are now trading at $1.065.
And remain "well positioned."
And I thought that was a very kind offer from Peat.The trust brought via Macquaries.I did not buy any for myself as my Craigs broker did not have any.
Hello hello hello,I think Roger is trying to be a very naughty boy,buying 20,000 TNRHB at $1.065 this morning and trying to sell them at $1.40 this afternoon.!!..lol.

The hound would never admit to such a thing but he has been known to be a fairly cunning on the odd occasion. Rumor has it the cunning dog is keen for PLENTY more at $1.065 or less

Using the following inputs into my favored Black and Shoals option pricing model, (for which I posted a link earlier today) Strike Price $3.95, (must be at or above $3.95 to get greater than the stipulated 5% discount on share conversion $3.95 x .95 = $3.75) Stock price $3.74, (I am using the spot stock price here, others might use a VWAP over 30 days or longer), time to expiry is 620 days, volatility, I am using the same 25-30% rating used in the original independent valuation for which I also posted a link earlier today) and using a risk free rate of 3%, (some would argue using a lower risk free rate for shorter N.Z. Govt bonds) I get a fair value for the pure call option of 47.81 - 57.39 cents per bond depending upon whether one uses the 25 or 30% volatility.

Option pricing isn't well understood by many investors and I don't intend to dig deeper into the subject after this post other than to suggest if people are interested they have a look at the original independent report and then make their own enquiries of their broker or use their own option pricing model. There is a small dilution effect which is referred to in the original report, (new shares are issued) so this needs to be accounted for. Assuming everyone redeems their bonds for shares at the SP is above $3.95 approx. 6.8m new shares will be issued at $3.75 = $25.5m. There are currently 74.5m shares on issue so the dilution factor appears to be just on 9.1% (6.8 / 74.5). In my opinion as new shares are issued the pure call option value noted in the paragraph above needs to be discounted by 9.1% so using that Black and Schoals Option model after accounting for the dilution effect of new shares issued I see fair value of the bond at $1.435 - $1.52 using current spot price for Turners shares.

Inputting the same date using the lowest volatility at 25% and using a current share price of $3.50, (has been at or above this for 60 days) still gives $1.31 per bond adjusted for the dilution.

My conclusion...the market does not understand the value of the option carried within this convertible bond and appears to be pricing it as a pure bond only...well at least until the hound started bidding it up.

[percy]

The hound would never admit to such a thing but he has been known to be a fairly cunning on the odd occasion. Rumor has it the cunning dog is keen for PLENTY more at $1.065 or less

No surprises there.
Helps to make a market being on the bid and also on the offer.
Sort of community service...lol.