I subscribed to a free trial of Morningstar's research, and they...

I subscribed to a free trial of Morningstar's research, and they have recently published their opinion on SEVPC. The salient comments are:

- If SEV is still sitting on a big pile of cash at the step-up date in May 2010, and no major investment is imminent, there is a high chance that they will redeem the TELYS3 for $100 each. They note that the interest SEV is earning on the cash will not offset the interest payable to TELYS3 holders at the stepped up rate of BBSW+4.75%pa. They suggest that rolling over the TELYS3 into debt is another option, as bank finance may come cheaper than the stepped up rate given that SEV has a sound balance sheet.

- TELYS3 is only for "higher-risk investors" as SEV's investment objectives are "opaque", as is the internal structure of Seven Media Group.

- Morningstar values SEVPC at $94 with a "fair yield margin" of 6.75%. They assume an 80% chance of redemption at the step-up date.

- Conversion of TELYS3 into ordinary shares is unlikely given that the earnings yield is higher for SEV than SEVPC, so conversion would cause dilution of SEV shareholders.

*****

On today's closing share price and BBSW, we're looking at a 9.5% yield to maturity (i.e. 9.5% return through dividends and capital gain in the next ~7 months).