Remember I am not Australian, so BBSW isn't a familiar entity to me.
My question is where can I go to see a time graph of BBSW?
You can probably do a google search to find out. I don't have one myself. I roughly know what the rate is following the Australia Reserve Bank cash rate.
If the dividend paid swings wildly based on BBSW, don't you think NFNG is going to reflect those swings as well? BBSW was above 7% for a while and now comes down to around 3%. That's a major change in the dividend paid. Why shouldn't the security reflect that?
It does. Since it is an interest rate security, the interest rate will have an effect on its price. So does the credit rating, date to maturity, whether it is secured or in-secured etc.
I agree credit rating affects price too, but typically those are gradual changes. Going from a 7% to 3% change on BBSW in a few months is huge.
I probably won't argue with you about the magnitude of change in Cash Rate to the price of a floating rate security. But you can take a look at a credit rating downgrade by a rating agency to a corporate note/bond and see what is the effect of that on the price of that bond/note.
As for price, in the last year the NUF stock went from $17 to $9, about 45% down. In a similar timeframe NFNG was down 35%, so a little safer yes but not much, and you do cap your upside.
You have taken this out of context. I said I bought this as a bet on the Chinese takeover after the profit downgrade. When I evaluating the trade, price of NUF is at 10.50, and NFNG at 75AUD. There were two analysts report downgrading NUF's result even more than the management, saying there are more downsides due to the price of materials (which turn out to be correct).
If a takeover offer comes, I don't think they will go higher than 15AUD (the last offer was 17AUD) so it could be a 43% gain. For NFNG the gain would be 25AUD/75AUD = 33.3% gain. So in my analysis, the upside is not much more. I don't know whether the takeover offer will come or not, or at what price (remember it is a bet).
For the downside, again I don't know how far the share price can go down if the offer didn't come, and there is another profit downgrade. I do notice that the market is not very forgiving for two subsequent profit downgrades. For NFNG, as long as NUF is profitable (even there is profit downgrade, it is still making a profit) then it most likely will pay distribution. Checking the dividends history of NUF, it has been paying dividends for the last 8-9 years. So I think NFNG's distribution is not that much at risk. For the yield, NFNG is yielding around 6.5% at price of 75AUD. And the sentiment is that interest rate is not going any lower (or at most 0.25% lower). There is even talks that it is going to rise so the yield can only be improved. So I figure the downside should be limited (unless the company is being downgraded, which then I doubt the price of NUF would do much better than NFNG).
I'm really not clear at this point on what the "reset" option entails. In the case of reset do they still have to markup by 1.9%? Since as you point out they are in effect resetting the base rate every six months anyway, why even have a "reset" option? It sounds like a trick.
Again, "Reset" in the prospectus is referring to the
margin. They don't control the BBSW so they can't "reset" the base rate.
They are apparently paying an unfranked dividend and not interest. I was saying it is more risky than a *bond*. The problem is you have the reward profile of a bond (gain capped at $1) but the risk profile of a stock (unlimited loss, no accumulation of interest, perpetual risk of capital never being returned, and very poor credit hierarchy protections).
Unlimited loss?? I wouldn't loss more than what I put in. Would there be any different if I hold NUF when it goes bankrupt? Don't take this out of context.. I am using this to bet on takeover offer for NUF.
That's right, but that's not as strong as it sounds. With most income securities, the dividend on the stock stops *until the preferred or income security has all of its dividends paid in arrears in full*. With NFNG, it says very clearly that the board can simply say "We don't feel like paying you anything this time." and they owe you nothing. Next six months and everything is reset like nothing happened. As an investor, what did I get in exchange for that? I cap my upside to $1, and I have a very similar risk to the primary shareholders for dividends.
Again, base on my view. The upside is 33% vs 43%. (I could be totally wrong and there could be 3-4 people coming and bid it to over 20AUD. But the problem is, no one know.. Otherwise I don't even need to evaluate). So doesn't matter where the price cap is, the return should be evaluate on % return, not in dollar terms. They have to stop paying NUF holder before the stop paying NFNG. So in a bad scenario, I would be better off with NFNG than NUF. It is a balance of risk and reward approach that I am taking
Given the debt level, that doesn't give me any comfort. NFNG probably sees no recovery in an Administration.
As a short-term one to 12 month trading play on a Chinese takeover of Nufarm, it's interesting.
So it has negative equity? I think the Chinese will take them out if they are in big trouble. That's why the bet..