Grainger Share Discussion Threads

[alexx] 23/12/2008 10:52

j
I think you could call doubling in price already a very good run up, it's just that it fell such a long way previously. Still think it may get into trouble at some stage but perhaps not soon.

[jdschwartz] 23/12/2008 10:12

Technically the down trend should be broken when this tests £2 mark so the probability is that this could have another good run up.

[coby4] 20/12/2008 11:08

and another 150,000 directors purchase

[jdschwartz] 18/12/2008 21:29

I agree 100% with you coby4.
I know a bit about property and as rates get lower(including the libor which is ticking down nicely day by day), the rental yields get better.
Borrowing is part of the business as it offsets taxation.
The important figure is the L2V. Which is 60 something % I recall. But valuation in the short term is only really important for remortgaging purposes and not for capital gain/resale as that is not where the main income is coming from here.
Over the next year there will be some great bargains to be had also and Grainger is well placed to mop them up at a huge discount to market price to benefit from pound cost averaging like the best investment.
The next technical test is £2.

[coby4] 18/12/2008 11:40

as jdschwartz says the balance sheet isnt entirely straighforward. the vast majority of the portfolio is tenanted and tenanted by generally elderly people. therefore whilst the value of the tenanted assett is strongly discounted there is a big potential profit when the tenant dies and its sold empty. the company is meeting its covenants and will hopefully be able to take advantage of lower interest rates. their prelim says acquisitions have been drastically curtailed and running costs reduced. in these difficult times i think the fact they secured an addition £228m of funding is a good sign.

2009 will undoubtedly be difficult but consensus seems to be that house prices will stabilze towards the end of the year and increases be seen in 2010.

if the banks are getting there return theres no chance of pulling the plug

[kibes] 17/12/2008 22:04

Market capitalisation £154 million, debts £1.6 billion which are probably not covered by their assets in the current dire market. Nothing complicated about that is there? There are certainly people who will buy thinking that this has a great dividend. They are wrong in my opinion, the danger is that the banks will pull the plug and sell everything off for whatever they can get. But that is probably not imminent so there might be a dividend or two yet. Sooner or later the Board will decide they had better start paying off debt instead of paying dividends.

[jockthescot] 16/12/2008 16:29

That's assuming the dividend yield isn't cut?
You could have used that argument with RBS when they were yielding 13% 4 months ago, but not so now.

Jock

[jdschwartz] 16/12/2008 15:55

I wouldn't short GRI at this price mate.
They are not a typical property co.
Interpretting a GRI balance sheet is non-standard. It is complicated.
This is now worth buying on dividend yield alone as you can now borrow cheaper than the dividend yield following the most recent rate cuts.

[coby4] 15/12/2008 16:35

cos all the bad news has been overpriced in for some time now

[rd1881] 11/12/2008 16:10

why does price keep ticking up? i have a short on this but has spike recently. is it just before co goes ex-div?

[jdschwartz] 11/12/2008 11:49

dividend yield anyone?

[kibes] 04/12/2008 18:18

kiwihope - I agree the issue is mainly about whether they will meet their covenants. From the final results the covenant details are as follows:

'Covenants
Our core facility has two covenants covering loan to value ("LTV") ratio and interest
cover. Under the first, a LTV of 80% could lead to
default of the agreement. At 70% LTV, purchasing restrictions apply. To a large extent the
business is currently operating under the
restrictions by cutting back on new acquisitions. LTV on the core facility at 30 September was
66% although this was reduced to 64% shortly
after the year end by the early conversion of 78% of our convertible bond. We are able to take
action to help keep the LTV ratio down, the
main one being asset sales. We estimate that if we are able to maintain sales proceeds in 2009
at the same level as achieved in 2008 then UK
asset values as used for covenant purposes will have to fall by c.24% in the year ended 30
September 2009 for us to reach 80% LTV.

Under the second covenant, our interest cost must be covered 1.25 times by net cashflow
before interest. As at 30 September the ratio
stood at 2.2 times (2007: 2.8 times). This covenant is calculated by reference to the previous
12 months results and, given the cash inflows
that we have already achieved to date, we are very confident that this covenant will be met at
the next testing period in March 2009.'


So according to the first covenant, they are in default if loan to value reaches 80%. They are currently at 64%. This looks rather uncomfortably close to me given the way property values are falling. I don't share their confidence about asset sales in 2009.

On the second covenant they look to have plenty of headroom (interest cover 2.2 versus a requirement of 1.25).

[kiwihope] 04/12/2008 13:58

Keeping an eye on this one as a possible buy. I agree they have large debt and I need to look at that further. But providing they can meet their covenants I can't see the banks pulling support. In fact, are they allowed to?

I need to see what the outer is - obviously a rise in property values would help but that may be some way off. There are lots of 'distressed' property companies about now - not ALL of them will go bust.

As for debts being larger than assets meaning a company is insolvent - that's rubbish. There are many listed companies with negative book value. Solvency means a comapany is able to meet its liabilities AS THEY FALL DUE. Provided Grainger meet their covenants they are plainly solvent.

[alexx] 04/12/2008 09:53

Took my own advice and got out yesterday, looking like a good thing at the moment. Still short MJW & PDX. Need another short now.

[coby4] 03/12/2008 21:10

and plans to defer interest payments for up to 2 years, take some of the excess supply out of the market - could be good

[coby4] 03/12/2008 17:05

end year figures released with trading update for activity in last couple of months, dont imagine there will be any news from them for a while. rate cut tomorrow, maybe halifax report for november will confirm nationwide's of slow in price drops?

[alexx] 03/12/2008 11:20

Still have my short open but don't feel very enthusiastic about it. The problem is that I can't see bad news appearing in the short or even medium term.

The falling asset value, or the possibly inflated? book asset value, may be a key weakness but when will any news about it actually cause a problem to the share price?

[coby4] 02/12/2008 17:55

that's the kind of purchase that shows some faith.

Broadhursts was a buy as well by the way

[alexx] 02/12/2008 13:10

and now 250000 buy by Henry Pitman

[alexx] 02/12/2008 10:16

17000 sell yesterday by Robin Broadhurst

[kibes] 01/12/2008 11:09

coby4 - yes I agree the rental income looks secure and the lenders would be crazy to take control of the properties, they will get nothing like the underlying value if they try to sell them. But banks are getting jittery and could easily panic like they have with Woolies. The underlying value of the assets was greater than their debts but despite that the banks have pulled the plug. But in the fire sale which follows they probably won't get their money back.

[coby4] 29/11/2008 17:46

but they secured substantial extra funding in the last year when others have found it difficult to do so - got to be a good sign? if they can carry on servicing the debt in the short term why would there lenders want to take control of over 10,000 properties? mostly either rent protected tenancies or tied into their property reversion schemes which would limit the field of buyers. bit more director buying would be nice

[kibes] 28/11/2008 12:56

coby4 - how can you value properties with long term sitting tenants which right now nobody wants to buy? Just based on the rental income I suppose. The attraction of their business model is these properties when they eventually become vacant will be worth much more. But will Grainger still be around to benefit from that or will debt kill them first? It all depends on their banks playing ball which is extremely questionable in the current climate.

[pyman] 28/11/2008 11:29

well - 2 directors buying - 37,500 shares .

[coby4] 28/11/2008 09:50

they claim the portfolio is worth more than the debt - presumably there has to be some independent confirmation of their valuation? they also say that there is a much larger reversionary value although this could only be realised if the properties were vacant. as most of it has sitting tenants this isnt easily achieved. definite upside if (big if) market sentiment changes and access to mortages improves