Works Finance (NZ) Limited (WKS) Bonds

[sharer]

I'm surprised more interest hasnt been shown in these. At 6.6% interest rate and selling at 7300 for 10,000 worth of bonds for this means a gross return of 9.04% which seems rather succulent to me. If interest rates drop next year as they may well do should still be at at a good yield when compared to other options. Might be time to add a few more.

Or ... having regard to where & with whom they do business, whether their bills get paid, & all the scary press speculation about world money stuff recently,
maybe for this risk we should not offer more than 4500 for 10000 bonds, & hope they continue to be able to pay the 6.6% coupon rate ...

[BIRMANBOY]

Big gap between your 4500 and 7350..Mr. Market is valuing these at 7210 to 7350 in last couple of weeks....what do you know that is making you nervous? They havent missed any dividends for me and they seem to be getting work ...the vans are new...big companies like these are unlikely to go to the wall because there just aren't that many players in the business they do. Risk is everywhere...what makes these stand out in your opinion?

Or ... having regard to where & with whom they do business, whether their bills get paid, & all the scary press speculation about world money stuff recently,
maybe for this risk we should not offer more than 4500 for 10000 bonds, & hope they continue to be able to pay the 6.6% coupon rate ...

[sharer]

Sadly, it may just be delayed post traumatic collapse stress syndrome.
After all, every one of the laudable & positive points made by Birmanboy were recently believed (by most) to apply perfectly to SouthCanterburyFinance !

At another level, i feel more generally that NZ market returns or investment yields do not adequately reflect the risks taken on by investors.

And i prefer to avoid altogether the very fraught question of whether we can trust what we are told, even if endorsed by reputable auditors.

[BIRMANBOY]

So as to your first point re SCF...the only similarity is the word "finance". My guess is that Downer uses the finance to provide capital to fund ongoing works and contracts that it is working on...However the difference is that the results are completed projects, and products and real assets that have value. SCF and all the other Finance sharks produce nothing, manufacture nothing and exist to live off the spread in interest rates from greedy providers and desperate users like property developers unable to get funding from banks. This system works a treat and everybody wins when all components are clicking but as soon as the pressure builds on the lenders to place the money (they have borrowed at 8%) they can make poor lending decisions and suddenly instead of a 10% default rate they are faced with 20% default...thats when the faecal matter colides with the oscillating wind generator. Unsustainable yields are by their very nature ....unsustainable. As someone said ..greed is good...well to a certain extent yes and it is human nature to look for higher as opposed to lower yields. Finance Co's are/ were popular because they satisfied that greedy aspect of our nature but also calmed our fears by actually returning high yields...for a while.....yaaay we beat the system!! Hindsight ..such a valuable lesson to be learned and one hopes that those burnt are not irreparably damaged. So I dont personally think you can compare the two.

Re your second point NZ markets etc do not adequately reflect investors risks...I guess this depends on what expectatations you have for your investment funds. If you are like me..very close to retirement , you may well be quite conservative in what you expect..I am happy when my returns exceed term deposit rates. If you have "high" demands on your investor funds then the NZ market is noticeably short on possible 2,3, 4 or 10 baggers. The risk/reward ratio is such a personal one that everbody has their own view on that. MY view is that the NZ market is perfect for my needs and risk tolerance levels. There is certainly some risk if you look for capital gains returns on your investments but if you are a dividend and or interest devoteee its certainly good enough. (My overall gross yield this last year was a tad over 8% and even ended the financial year with a paper cap gain profit.) I dont think there is any way around the fact that if you want high returns you have to tolerate higher risks. As investors seek higher returns its inevitable that they will encounter more failures and loss of capital. Whether they can recover and find reconciliation in that ultimately defines what type of investor they are or will be. I think this is why most investment manuals urge towards a diversified portfolio which changes weighting according to your position and circumstances.

Re your third point...my old man used to tell me..."believe half of what you see and none of what you hear". Never though I'd agree with him but as they say" he got smarter as I got older

Sadly, it may just be delayed post traumatic collapse stress syndrome.
After all, every one of the laudable & positive points made by Birmanboy were recently believed (by most) to apply perfectly to SouthCanterburyFinance !

At another level, i feel more generally that NZ market returns or investment yields do not adequately reflect the risks taken on by investors.

And i prefer to avoid altogether the very fraught question of whether we can trust what we are told, even if endorsed by reputable auditors.

[sharer]

Well BirmanBoy i have to agree with you that a return in the vicinity of 8% is certainly quite respectable these days.
And when i read that advice: "believe half of what you see and none of what you hear", i couldn't help wondering if your old man and mine might
even have been cousins, the way things often work out in Kiwiland, because mine said exactly the same thing!

[BIRMANBOY]

So I see these have now gone from 7200 to 7800 in the space of one month. Would seem that there is some interest in these and probably still some way to go as well. Current pricing provides 8.46% return.