Tuesday 26 June 2018 by FIIG Research Company updates

StockCo now available to retail investors

The StockCo AUD 8.75% October 2021 callable bond is now available to retail investors in minimum parcels of $10,000

StockCo

The StockCo AUD 8.75% October 2021 callable bond is now available to retail investors at minimum investment of $10,000.

Coupon type Rate Maturity rate Next call date  Yield to worst  Factsheet 
Fixed 8.75% 6 Oct 2022 6 Oct 2019 5.91%pa View Factsheet
Note: yield is accurate as of 26 June 2018, subject to change


About the bond

In 2016, StockCo issued AUD47m fixed rate 8.75% notes due 2022 (AUD30m was issued initially in October 2016, increased by an additional AUD17m in March 2017).

The company is a niche provider of specialty agricultural finance. It provides short term “finishing” finance facilities for pasture and feedlot based cattle and sheep producers. Established in 1995 in New Zealand, StockCo Australia has been in operation since 2014, and has financed livestock worth over AUD450m.

Finishing financing is considered a lower risk form of stock financing given it is short term, and secured against an asset which naturally increases in value.

Livestock assets are a highly liquid form of collateral. Security over the assets is registered in all instances on the Personal Property Securities Register. StockCo’s standard loan documentation also includes guarantees from individuals or related entities.

Businesses such as StockCo are susceptible to risk from bad debts and potential fraud. However, so far in Australia there have been no write offs. The historical loss rate of the New Zealand business with over NZD1.1bn of livestock funded over 20 years is 0.4%.

Read the full research report available on the FIIG website to all investors.

Strategy – should you buy or sell?

We provide a brief summary of the strategy report that looks at StockCo as a potential short to medium term option for investors, and contrast this for sellers who are looking to take profits.

Rationale for buyers

Although maturing in 2022, StockCo has expressed its intention to call the bond at the first available opportunity in October 2019, in part tied to its current plan to establish a securitisation structure aimed at lowering its funding cost. The issuer call price for the October 2019 call date is $103.00, and although this is lower than the purchase price today, the bond offers buyers monthly cashflows with a high coupon rate of 8.75%pa and an attractive yield to next call of 5.91%pa (see table above).

Rationale for sellers

Investors of the bond have earned strong returns on the bond to date, particularly those who purchased at issue for $100.00. The bond is currently trading at a healthy premium over par ($100.00) which may be attractive to the following investors:

  • Those wanting to crystallise gains before the bond decreases in price or prior to the end of financial year
  • Those looking for longer term investments beyond 2019, since StockCo’s intentions to call are now known

For wholesale investors, we recommend switching into other AUD high yield for reinvestment, such as the Virgin AUD 8.25% 2023 bond that offers yield to worst of around 7.85%pa.

Read the full strategy report from our Portfolio Strategies team.

Please contact your relationship manager for more information.


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