M&G High Income Share Discussion Threads

[oniabsta] 25/3/2013 21:32

Hurdle rate has not been mentioned here, the IT industry standard measure used to assess whether a predetermined price will be paid on maturity, It takes into account expenses and costs. I think it can be misleading to quote big discounts without this.

Talking to the Co. secretary and gleaning some relevant facts (e.g. estimated Mgt.fees till w/up) has enabled (what I believe to be a reasonably accurate) calculation of the hurdle rate for getting back the current share price i.e. 47.125p and the inc share entitlement of 70p.

I reckon the total funds will have to grow by 3% per annum for the current income share price to be returned and 5.85% per annum for the 70p.

In any event after explaining too the co sec that there was a dearth of info on this company including the lack of monthly fact sheets giving (as far as i'm concerned) the all important hurdle rate, I believe State street will now include this with the quarterly accounts.

As always DYOR

I am a holder of inc shares.


Lord gnome the final entitlement of the zdp's is 122.83p. they are not a producing
asset like equity but a liability that the trust has to pay at a monthly rate of 0.76% compound, so the price rises accordingly. (they had the money from them to invest in equities at the start, the gearing).

[lord gnome] 25/3/2013 20:54

Aleman - what is the target finish price of the ZDP shares? In an earlier post you seem to be suggesting that they will be worth a maximum of 123p each at redemption. In this case they have a long way to climb from the current 85.44p in just 4 years.
If everything remained unchanged to 2017, I take it that with NAV at 156.62 (ignoring income) 33.62 would be the redemption value of MGHI and MGHU units with the MGHC being worthless?
In which case we have a highly geared play on a four year bull market and a world economic recovery.

[skinny] 25/3/2013 16:20

Finally added some MGHU this morning.

[aleman] 25/3/2013 15:26

NAV is now 5p higher than when I bought in yet the share have fallen a fraction. When will the market respond? Discount is now 33.8%.

The Board of M&G High Income Investment Trust P.L.C. announce
that the net asset value (NAV) at 12:00 noon today was £392.3 million.

Income Shares * 71.18p
Capital Shares 0.00p
Zero Dividend Preference Shares 85.44p
Income & Growth Units 71.18p
Package Units 156.62p

The net asset values have been calculated on a cum-income basis,
with dividends payable deducted from net assets on the ex-dividend
date. Financial assets are valued on a mid-market price basis.

* The ex-income NAV of each Income Shares is 68.62p

[lord gnome] 22/3/2013 12:26

Joined you today with a small purchase of MGHU. I will switch more cash into these in the new tax year when I can sell a few other stocks without feeding the tax man.

[aleman] 16/3/2013 16:17

THanks, Colonel. For the MGHIs, yes, I expect there will be some unpaid accumulated income to pay as dividend on winding up. Even if you get, say, 72p in 2017, one will have to remember that 2p would be dividend and the rest capital, so calculate tax accordingly. That's my assumption, anyway.

I see the offers (which new investors will pay) are 2.05p different but the bids are only 0.7p different. Either way, there seems a slight price discrepancy with the capital shares and I would probably top up with Us at the moment.

[lord gnome] 15/3/2013 21:31

Aleman - many thanks. I would never have worked that out.

Edit: Thanks also to Colonel A.

[colonel a] 15/3/2013 18:59

Gents,

Here's what's on offer.

M&G HIGH INCOME INV TRUST PLC CAP SHS 1P MGHC
M&G HIGH INCOME INV TRUST PLC INC & GWTH UTS (1 INC & 1 CAP) MGHU
M&G HIGH INCOME INV TRUST PLC INC SHS 1P MGHI
M&G HIGH INCOME INV TRUST PLC PACKAGE UTS (1 ZERO DIV, 1 INC & 1 C MGHP
M&G HIGH INCOME INV TRUST PLC ZERO DIV PRF SHS 1P MGHZ

Aleman, I think the difference in the price people are actually paying for mghi & mghu is actually just above 2p due to the wider actual spread.

I've bought mghi and will be very pleased if I get the full 70p in 4 years.

Am I right in saying that the max is 70p + accumulated income ?

[skinny] 15/3/2013 18:42

Clear as mud - thanks Aleman :-)

[aleman] 15/3/2013 18:19

As in understand it, MGHU are an income and capital share combined, i.e. MGHU = MGHI + MGHC, and the rest of your statement is correct. Zero dividend preference shares (MGHZ) get the first 123p of capital on winding up in 2017. MGHI take the rest up to 70p, with anything over that going to MGHC. At the moment the premium of MGHU over MGHI is only 1.375p at same time as the MGHC shares trade at 2.7p, so I would probably buy the MGHU shares for the income at the moment as you also get the unlimited capital gain above 70p for a tiny extra payment. When I bought a few weeks back, the premium was bigger even though the capital shares were further out of the money so I opted for MGHI and don't get anything over 70p.

Do you follow that?

[lord gnome] 15/3/2013 10:41

Aleman - can you help me out with this one, please? I am struggling to find out any information and the M&G web site isn't very helpful.
As far as I can see, the income shares are MGHI and these pay the divi, but what are MGHU?
The wind up date is March 2017, so four years to run. At current prices, the MGHI shares have a wind up value of 68.64p net of current income. Is that a fair summary? If so, then these are a fair value income stock for the next four years with a yield of 10%+ paid quarterly.

[aleman] 15/3/2013 10:28

Capital shares are up 10% this morning to 2.7p but MGHU are off a touch so the premium to MGHI is only 1.375p.

[aleman] 14/3/2013 15:11

Accumulated income is 2.24p versus 1.95p this day last year.

[aleman] 14/3/2013 15:01

The Board of M&G High Income Investment Trust P.L.C. announce
that the net asset value (NAV) at 12:00 noon today was £390.0 million.

Income Shares *

70.88p

Capital Shares

0.00p

Zero Dividend Preference Shares

84.80p

Income & Growth Units

70.88p

Package Units

155.67p


The net asset values have been calculated on a cum-income basis,
with dividends payable deducted from net assets on the ex-dividend
date. Financial assets are valued on a mid-market price basis.

* The ex-income NAV of each Income Shares is 68.64p.

[aleman] 06/3/2013 15:21

March 2013

M&G High Income Investment Trust P.L.C.

The Board of M&G High Income Investment Trust P.L.C. announce
that the net asset value (NAV) at 12:00 noon today was £387.6 million.

Income Shares *

69.94p

Capital Shares

0.00p

Zero Dividend Preference Shares

84.80p

Income & Growth Units

69.94p

Package Units

154.73p

The net asset values have been calculated on a cum-income basis,
with dividends payable deducted from net assets on the ex-dividend
date. Financial assets are valued on a mid-market price basis.

* The ex-income NAV of each Income Shares is 67.96p.

[aleman] 28/2/2013 16:35

28 February 2013

M&G High Income Investment Trust P.L.C.

The Board of M&G High Income Investment Trust P.L.C. announce
that the net asset value (NAV) at 12:00 noon today was £381.2 million.

Income Shares *

67.40p

Capital Shares

0.00p

Zero Dividend Preference Shares

84.80p

Income & Growth Units

67.40p

Package Units

152.19p

The net asset values have been calculated on a cum-income basis,
with dividends payable deducted from net assets on the ex-dividend
date. Financial assets are valued on a mid-market price basis.

* The ex-income NAV of each Income Shares is 65.47p.

[aleman] 22/2/2013 11:33

I agree that opportunity cost is a factor but it's different for different people and their risk attitude. Some people buy bonds yielding only around 1% or so over 4 years. Others more open to risk wouldn't dream of buying them.

It's an interesting thought that I reckon these shares would have fair value of about 55p if all investors were in the same tax position as me. This means there is potential upside if there was to be any publicity for the shares in a major investment column. At 55p, I'd make the minimum return in the event of a zero capital return as 27p dividends + 15.4p(5p loss x 0.28) CGT credit = 42.4p for a 12.6p loss. I'd make the maximum gain 27p dividend + 70p capital payback - 55p fair value purchase price = 42p. The current income share NAV after 123p FULL 2017 payback on prefs is 26p (based on fund NAV of 149p yesterday). Add in the 27p dividend return and the return if there was no change in asset value from here would be 53p. So at 55p, investors with no spare CGT allowance would have a maximum 23% loss and maximum 76% gain, with their return currently standing 2p under the 55p fair value if there was no asset growth from here. I think the shares are 15-20% undervalued to investors in my tax position.

[colonel a] 22/2/2013 11:27

Aleman,

Your explanation is very clear and makes a strong case.
Although I don't think it correct to ignore the opportunity cost of holding something that breaks even after 4 years.
Or alternatively to consider that getting your cash back after 4 years is breaking even.

But, even a modest growth in the total fund should return the current share price so for the yield I'm sold, if/when the spread narrows a bit I'll buy some.

[aleman] 22/2/2013 10:15

Another point worth remembering for some investors is that any capital loss could be offset against capital gains. This effectively reduces the capital loss by 28%. THat's 13.265p when buying at the current price. Add that to the 27p of dividends and my minimum return will be 40.265p. THat makes my maximum loss 7p while my maximum gain is nearly 50p. These shares are highly effective for my tax planning to give me very good odds off making a good return. (Granted, I may struggle to offset tax due on capital gains, which could be as much as 6p, if my gain of 50p is 27p income and 23p capital.)

[aleman] 21/2/2013 23:37

I'm not looking at it wrong. I'll try explaining it slightly differently.

If they pay out 27p in dividends, capital only needs to return 20.375p in 2017 to reach a total breakeven from the current price. THe total fund would only need to be 143.375p (123p final payout of prefs + 20.375p income share payout) for breakeven and it's currently at 148.61p. Income shares are already showing a 5.235p (11%) profit with 4 years of potential growth ahead. I grant you 2.8% per year isn't much and, yes, they could go down from here but the odds are it will more likely increase over 4 years. The range of potential gain in 2017 is from -43% (27p dividends only) to +105% (70p capital + 27p dividends) and you are currently sat at +11% after assuming a FULL FINAL123p pref payout off the current price. If you think assets will probably grow a bit in the next 4 years, that +3% annual return rises sharply. It think it looks pretty enticing, epecially with just over 2 years to an election with the B of E continuing to pump QE into the system to stoke inflation and weaken the £. But it's definitely still a gamble within the range listed above.

[robizm] 21/2/2013 22:07

Aleman u are looking at it wrong .The nav of 67p is only because they have not taken the full value of the zeros yet. If the trusts assets don't grow by 2017 the income shares wont pay 67 p.

[aleman] 21/2/2013 20:59

Dividends to come look like, say, 1.35p (next quarter to March 2013)+ 5.8(1.55 + 1.4 + 1.4 + 1.45 for March to March) + 6.2 + 6.6 + 7.0 = 26.95p for the 4.25 years' worth of dividends until winding up on March 2017. Then you get back the capital excess over the zeros, which currently stands at 63.82p according to today's published figure (and does not include the 1.89p accrued income). Total return 90.77p for 47.375p outlay today, if NAV were to hold until then. The gearing due to the prefs priority call on capital makes the income shares risky but that's over 90% profit on offer at today's figures. The question is, will total NAV of the invested fund assets rise enough to stop the rising allocated figure for the prefs nibbling into the income shares' NAV allocation? Who is to know? .. but the forward yield of 11.8% for the next 4 payments (1.35 + 1.55 + 1.4 + 1.4 = 5.6) - and thereafter increasing - is tempting. I make it you should get back about 57% of your outlay as dividends (growth assumed at 0.1p each quarter over the same quarter the previous year), then capital on winding up between 0 and 70p (0 to 148% of purchase price) depending on how NAV performs, with it currently at 135% of the 47.375p mid-price (I've been buying close to mid). You end up with a return of 57% to 205% of the current price, with your return currently looking like 192%.

Definitely a gamble ... but with appealing odds, I think.

[colonel a] 21/2/2013 15:47

Aleman,

Took a look at these on the basis of being a greedy ....

The Zero's seem highly priced offering just under 6% {which must be considered almost a cert I guess}.
Perhaps people are keen to use their capital gains allowance ??

But if my reading of the interim report is correct the NAV of the income shares is just what's left when the final payment assigned to the Zero's is shrunk by 9.5% per annum.
9.5% might be a reasonable figure if the whole fund was doing well and looked like it could pay out all three classes but as things stand it seems extremely optimistic.

But still a very interesting gamble.

[aleman] 20/2/2013 16:50

Even more generous now - 30% discount at 67.68p.