Shares of IBI Group (IBG) have fallen off a cliff, and therefore may be substantially undervalued. Unfortunately, the company carries a decent amount of debt, which means even though the stock's potential upside is large, so is its potential downside!
IBI's debt, however, also trades at a large discount. As a result, investors in the debt are offered substantial upside without the same level of risk as that borne by equity holders. In particular, the company's 7% debentures, due at the end of 2014, currently offer investors a yield to maturity of 30% in a company that is profitable if you ignore intangible asset write-downs. Interestingly, this debt is also currently covered by the company's net current assets, as discussed further below.Read more...
14 comments:
Question for you...what broker do you use for buying Canadian bonds? IB doesn't provide Canadian bonds, and Fidelity has said they don't have any IBI Group bonds in their inventory.
Best,
PSDFinancier
Hi PSD, I can't really help you there as I use Canadian brokers and they all have them. A US-based investor may be able to help.
Hi Saj,
Has your view of IBI debentures changed after yesterday's earnings report?
Is someone desperate to get out today or is the sell-off justified.
Regards,
FV
Hi FV,
The write-downs took me by surprise. I don't know if the sell-off is justified. I hope they can increase cash flow!
The current asset can still cover the debentures due in 2014, right?
These bonds can be redeemed with equity - at the company's option. Likely scenario given cash position.
If the bonds are redeemed with equity, will they be redeemed at market value of the share? Or the initial value? Thanks.
Hi mf,
At 95% of the market value of the shares on the redemption date.
Hi: I'm a small, inexperienced investor. My Advisor sold me this in my RSP (big mistake). My book value is $8000. My market value is $2560. I am down $5440, or 68%. What to do? Just sell it and move on with life? Since it's in my RSP, I can't even claim a capital loss. I am very upset. HELP!!!
Hi Toronto,
I'm sorry that happened to you. Not knowing your whole situation though, I'd be hard pressed to give you helpful advice. Myself, I do own some of this company's debt though.
"At 95% of the market value of the shares on the redemption date."
.... this is wrong....
Read the prospectus. Is 1/95%....so IBI delivers the trustee more than the face value
Hi CreditRisk,
I suspect we mean the same thing. The 95% I refer to is the *price* at which the shares delivered would be calculated, the 1/.95 you refer to is the *number* of shares per bond par value.
Hi Saj,
IBI seems to have turned things around and debenture holders have been rewarded for their patience.
Do you still hold the 7% debentures maturing 06/19?
The maturity date is not that far off but with market risks increasing I was wondering how you look at those debentures today? Any chance IBI buys them back at an earlier date? They are trading slightly above par but I assume that is due to the yield and current outlook for the company.
Thanks,
FV
Hi FV,
I gave up on these too soon. I would certainly sell them above par if I still owned them.
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