sevpc, page-22

G'Day Boomeronrations

You are spot on with the peer comparison as is the previous poster on the status and value of a perpetual hybrid security, of which SEVPC now clearly is. If Stokes cannot bring himself to return the other childrens play money when he has >$1B surplus cash and "nothing in the market of value to buy" (his own admission) then after the cash disappears into Westrac et al it aint never coming back.

I believe that the margin above BBSW is 0.05% higher for AAZPB than future SEVPC but lets call them even. The market values AAZPB at ~$85 as a perpetual, in the same boat as SEVPC now, though management does plan to redeem AAZPB at some stage. Both would class as similar "medium risk" in the hybrid industry with similar gearing ratios etc though completely different businesses. I would think that a personal view on realestate and media/mining would determine one's own view of risk (eg some people still think a CRE storm is yet to be unleashed here as it was overseas and wont touch RE with a barge pole. Or, some think China is a bubble waiting to burst and that won't be healty for Westrack, Coates etc which are very senstive to economic growth).

Personally, I think AAZPB is safer and more likely to be redeemed than SEVPC. The realestate portfolio of ALZ is highly sensitive to interest rates (it is really a rent vs cost of capital game) and when overseas investors start looking for secure, realestate backed financing opportunities management will swap AAZPB for tax deductible, cheaper CMBS debt (or the like). My discussions with management as a pesky retail investor some while back was clear that they considered the hybrids temporary and were a bit embarrassed that redemption might drag out a few years. That said, they are probably a few years off rebuiling the balance sheet and regained confidence to redeem so don't hold your breath.

SEVPC is looking interesting and will be good value bewteen $85 - $90. SUNPB is very likely to redeem in 3.5 years and is trading at $95 with a full 1% lower margin rate. I think SEVPC will struggle to get back above $90. They remain a opportunity to diversify hybrids away from the realestate market for those already heavy CRE.

A note for would be hybrid investors from someone who has followed them for a while. They are quite illiquid and prone to significant price drops in periods of market drops. For this reason they can be a "value trap" if bought too high as one can easily lose more capital than interest over a holding period when you want your capital back. This is known by all investors so without the certainty of redemption the market will only pay for "extreme value" to make up for the capital loss risk given very little upside gain of perpetuals. The market is full of <10% divi opportunities so any price for SEVPC yielding <10% is quite unlikely. If the economy rolls over the reserve bank will cut rates again and the sudden interest we've seen in floating rate securities the last 6 months will evapourate and the share prices with them.

goodluck