JPMor. I&G Share Discussion Threads

[kenny] 14/7/2014 14:44

Skyship - surely you intended to state that a 4.84% fall in the markets takes us to redemption value of 103.6p. We would need a much bigger fall - which is not recovered by November 2016 - to bring us down to only receiving the current price in the market of about 96p.

[skyship] 11/7/2014 14:16

Here are the recent CAPITAL share NAV movements resulting from the recent FTSE moves:

# 6866.....8.44p
# 6823.....7.66p
# 6738.....6.35p
# 6718.....5.84p

So, after the close yesterday @ 6672, I calculated on a straight comparison basis that the NAV return today would be 5.03p. And so it proved - 5.03p.

So, using the same progression, the NAV falls to 0.00p @ 6386; a figure rather higher than I thought - no doubt due to the gearing - as pointed out by others!

So a further fall of 4.84% is all it takes to wipe out the Capital share surplus.

No matter, still happy with JIGI at its current yield and discount.

[skyship] 08/7/2014 07:26

Tilts - I quite rightly always accept your comments as Gospel; but also wished to establish the position with the Company in the hope that they might indicate when/where the excess might be paid, ie as increased dividends (surely the most likely) or as a rump payment in Nov'16.

[tiltonboy] 07/7/2014 18:29

SKYSHIP,

I am disappointed that you felt the need to check with the company, after I had informed you of the position;)

[envirovision] 07/7/2014 17:39

It is always nice when ones questions are replied punctually upon, that said I guess one would expect that of them. Thank you for posting that Skyship and sharing this information.

[skyship] 07/7/2014 14:23

I asked the company the two questions below re that 1.72p Revenue Reserve. They today confirmed both are correct, so that provides a little further upside:
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As the current payout is covered by income receipts, presumably the quarterly dividends will need to rise; or the excess RR will need to be paid out at the end of the term. Is that correct?

Is it also therefore correct to say that the current 1.72p of RR can effectively be viewed as an addition to the 103.6p Final Entitlement for the Income shares.

[skyship] 07/7/2014 09:15

Here is how I see it as of 4th Jul'14. I'm still not certain about the allocation of the 1.72p Revenue Reserve mentioned by Tiltonboy; a little piece of hidden upside perhaps. I'll post further on that when I have clarification from the Company.

INTRODUCTION:
Finding value stocks with a yield is proving more and more difficult; so I'm pleased to have come across JPMorgan Income & Growth Trust plc (JIGI).

From their website: "JIGI is a Split Capital trust which invests in a portfolio of approximately 60% UK equities and 40% global equities and bonds, with the aim of providing leveraged long-term capital growth for holders of capital shares, or an attractive income for holders of income shares."

The Company's investment objectives are to meet the final capital entitlement of the Income Shareholders (103.6p on 30th Nov'16) and to provide them with a regular quarterly income (1.10p/Qtr; 4.40p/year); as well as to provide capital growth for Capital Shareholders.

THE VALUE:
The reason for buying the Income shares at the offer price of 94p is that as at 3rd July the Trust holds a portfolio valued at a net £70.3m. To pay out the full entitlement of 103.6p to the Income shareholders the Trust needs £63.8. The excess capital accrues to the benefit of the Capital shareholders; but also effectively provides a cushion against Market falls for the Income shareholders.
That cushion of currently £6.5m means that the 103.6p entitlement is currently protected from a 9.2% Market fall before being chipped away by any further falls. In effect the Income shareholder return is protected from falls in the FTSE100 back to c6230.

The 4.4p dividend provides a current yield of 4.68%. Add the redemption yield to maturity of 4.04% and the Gross Redemption Yield = a very acceptable 8.72%.

THE LIMITATIONS:
1. Assuming the Trust hits the Nov'16 requirement of £63.8m to pay out the Full Entitlement, then the GRY will have been 8.72%; with perhaps some small upside or downside due to a dividend variation. HOWEVER, to all intents and purposes that 8.72% will not be exceeded; so for many investors the return may not be high enough.
2. As with any equity investment there is of course an element of RISK. I've explained the mitigating factor of the Reserve built up for the benefit of the Capital shareholders. This Reserve needs to be monitored should Markets decline.

SUMMARY:
JIGI offers a prospective return which is extremely attractive versus, say, the ever-reducing GRY returns from Zero Dividend Preference shares, where 4%pa is now hard to achieve. That 9% "Cushion" protecting the 8.7% return suggests to me that JIGI merits a corner of a SIPP. In my case not the Maximum 10% allocation; but I'm certainly comfortable with a 6.5% allocation.