Use­ful when the mar­ket goes south

Finweek English Edition - - Companies & Markets -

SINCE THE RELEASE of year to endDe­cem­ber 2008 re­sults, the price of Fo­ord Com­pass deben­tures have slowly ticked up – pre­sum­ably as pun­ters fac­tored in the 57,6c/share fi­nal dis­tri­bu­tion. By Tues­day last week buy­ers were pitch­ing at 650c for Fo­ord Com­pass, drag­ging the deben­tures out of its long-stand­ing 600c rut.

The markedly higher bid is un­der­stand­able, with Fo­ord Com­pass yield­ing a use­ful 9% on a pre-tax ba­sis on its fi­nal pay­out. At 650c, the full year pay­out of 93,6c/deben­ture is yield­ing more than 14% – al­though the chances of Fo­ord Com­pass (and we’re tempt­ing fate here) match­ing that pay­out in fi­nan­cial 2009 must be slim. While Fo­ord Com­pass was able to make a bumper fi­nal dis­tri­bu­tion (thanks mainly to pro­ceeds earned from un­bundling dis­tri­bu­tions at Rem­gro and Wesco) the in­vest­ment ve­hi­cle re­mains con­ser­va­tively po­si­tioned.

A large por­tion of its port­fo­lio is in cash (in­clud­ing a size­able hold­ing in hard cur­ren­cies), while nearly 40% of the eq­uity por­tion com­prises for­eign eq­ui­ties. Fo­ord Com­pass also held a size­able short po­si­tion in Gov­ern­ment bonds at year-end 2008. It also held a net as­set value of 743c/deben­ture, which re­duces to 685c/deben­ture once the fi­nal dis­tri­bu­tion (which also of­fers a scrip op­tion) is paid.

Tech­ni­cally speak­ing – and pre­sum­ing the price doesn’t rally up un­til the last day to reg­is­ter for the pay­out (this Fri­day, 6 Fe­bru­ary) – Fo­ord Com­pass should fall back to around 600c on the JSE when the deben­tures go ex-in­ter­est. That would mean a dis­count of roughly 15% on its last stated NAV, which – by pas­sive in­vest­ment ve­hi­cle stan­dards – isn’t ex­ces­sive.

But not only is there an in­come at­trac­tion at Fo­ord Com­pass, there’s also a well- man­aged de­fen­sive hedge against fur­ther mar­ket ruc­tions and a longer term op­por­tu­nity to cap­i­talise on im­proved SA and global mar­ket con­di­tions. At lev­els be­low 600c, Fo­ord Com­pass is one for the bot­tom drawer.

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