Useful when the market goes south
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.