"Lee Wild, interactive investor:Neil Woodford, thank you very much for joining us today. You've taken some criticism for your fund's recent underperformance. How do you cope with that personally?Neil Woodford, fund manager, Woodford Investment ..."
Well, I am somewhat perplexed by this large share price increase! I accept that the fine was less than a worse case scenario of £300m. However a 17 for 24 rights issue is a lot of new shares. I expected the price to fall back somewhat. The shorters have got their fingers burnt. Clearly the future appears to be bright too.
I was playing around with the recorded shorts from this source
The latest current shorts are 8.17 percent. Some of them have been short since the £20/30 days so still have some headroom if you look at the historical. It makes interesting reading. I'd say that c. 5 percent of shorts are still showing a profit. Of these Lansdowne are very interesting. They have been short since 2012 and have hardly changed?
Nothing surprises me but this could be connected to a large swap involving bonds or some other piece of paper and does not reflect (necessarily) the true nature of the trade. There could be a corresponding long position in the bonds from one of the impenetrable 'derivatives' that Investment banks can invent [most Investment management companies cut their teeth in Investment Banking] If the figures are correct the position has hardly changed since 30 Sept 2014 (2.29>2.19). I am suspicious of this trade which would have been opened c. £13 and held practically unchanged for over 7 years through the rises until today?
Ignore Lansdowne and you get roughly 2.5 percent of shorts still in the money. Remember that the recorded shorts only show those above .50 per cent so my figure is lower than the true figure.
I expect capitulation by those remaining short in the next 2 months.
*based on my experience of Italian Lira trades that covered BTP's (Treasury Bills), futures, deposits, FEX swaps etc.. most of which I barely understood anyway except that the likes of Goldmans, Salomons and the large US banks did. I once suggested to a trader at UBS that you need to be a 'rocket scientist' to understand some of the derivatives. He replied, "I studied particle Physics at Stanford". In the end it all comes down to interest rates and cash flow.
Dandigirl, I sold my bonds! At a yield of 5.70% I think that is good enough for now with the SP now at 931p. Probably still worth holding, but I am gambling that I can buy back in a t a few points lower in due course. If I am wrong, no big deal as I have some other places for the cash.
Additionally, I own the stock by proxy in that I am an investor with both Woodford and a little bit of Barnett.
For clarity I'm talking about the brief period when you can trade the rights. This will affect the existing shares and I see profit taking in the rights pulling the regular shares down before they're amalgamated. Far too clever for me and I haven't arbitraged for 18 years.
Have you seen who the shorters are up against? Woodford, Invesco, Deutsche, Schroders,
Blackrock, Marathon ..... I know who my money is on.
They still hold an indigestible amount of stock and they are clever enough not to drive the price up. If they'd completely closed out the price would be considerably higher than it is today.
I think they're wrong and if I was them I'd wait until the febrile traders take their pennies from the rights which will bring the quoted price down.
WRT shorters - clearly some of them make a lot of money out of it, and when they drive prices down it can present long term buying opportunities for the rest of us. They do seem to make some very good calls (Carillion) but sometimes they don't (Ocado) so as you say they're just as capable of staring into headlights as the rest of us.
I wonder if some of the short positions aren't being closed specifically because of the rights issue. When existing shares go ex-rights I think the sp should fall (same market cap but more shares will soon be in circulation). When a share goes ex-dividend holding a short position means you have to pay the dividend, but I'm not 100% sure what effect a RI has on an open short position. I would think they would have to buy the rights entitlement attached to the shares they hold, but as that will be a very big hit and there are still many large short positions I'm wondering if I've missed something. Maybe someone more knowledgeable can advise?
I started buying PFG back in 2010 (c.£8). At that time it was reportedly the second most shorted share at the time. I bought for 2 reasons. My SIPP provider was charging me commission on sterling balances that were earning zero interest and I refused to pay commission for putting money into a bank and being charged half a percent p.a. for the privilege. As for the shorting, I worked in the City a long while and I knew trends well and having grown up on an East London council estate reckoned I knew as much about 'the provvie', if not more, than hedge fund traders. They [hedge funds] nearly always move in packs and like the reputation (unearned imo) of being 'masters of the universe'. Algorithms have their part to play here and can be self-fulfilling; until they ain't. Once rid of the manager I then had to keep sterling balances somewhere. I chose PFG and was very happy with the result. Over the years the amount reduced somewhat but it was never meant to be long term but that's what it became. The dividend was more than useful so PFG owes me nothing.
PFG clearly made mistakes but I don't think they were ever likely to be existential for a company that has survived 2 World Wars. I've been following NSF and wouldn't touch them with the proverbial. They have gloated about picking up agents from PFG. Well done and they would have taken the best but follow the logic through. In an increasingly controlled and litigious market these are the same agents who objected to being told they weren't running their own companies and would have to become 'employees'. They tried to destroy their old company and maybe told those they took with them that the debts owing to PFG could be 'forgotten'. Well afraid to tell them but that isn't the case. PFG sell on their bad debts to companies that specialize in 'collections' and some of them make 'wheel clampers' appear caring and considerate.
The CCD part of PFG was becoming out-dated and I really hope that the pain they've suffered hasn't been in vain and the new model allows for a more gradual transition. I don't like 'self-employed' agents because they set their own guidelines and methods There will always be some who make their own 'regulations'. It won't be treated like the gig economy when future scandals (and they will) break out. I'll bet there are some 'customers' who will miss the old 'provvie' when things start to go pear shaped.
*still over 10 percent of shares shorted. Some will have shorted higher up than current sp but that looks like being eroded imo. If they were really confident then the shorts would increase with the recent jump. Good luck with that. Hedge fund traders are as capable of staring into headlights as ordinary PI's.
Rounding down done at the end, as suggested. The only reason why is that it is not possible to own a fraction of a share as they are denominated in single units. In the case of bonds, they are in all sorts of minimum denominations and in some cases you cannot own less than 100,000 (to prevent retail purchases). In the case of funds, you can own fractions as all you are owning is a fraction of some big thing. I hate owning, for example, 9,542.1153 units of anything and end up selling the fractions as they annoy me!!! I suppose its just a different form of madness, but at least I admit it.
I emailed PFG's investor relations with the same question but from past experience it could be days before I get a response so thought I'd ask here too. Thanks chaps.
The reason I asked is due to needing to set aside the correct amount of cash in the account from which I bought PFG to take up 100% of the rights allocation but the cash left in that account is being targeted for something else and I want the maximum amount of those too. Greedy, that's my trouble.
You made me think for a moment.
I believe the rounding is done at the end of the calculation.
So the maximum number of RI shares you can apply for is (x)*24/17
Where x is the number of shares you hold on the offer date. And the odd fractional share entitlement will be rounded down.
The rights issue is 17 new shares at 315p for every 24 held. Clear enough, but at what point are the fractions rounded? Two examples using a fictional number of 1,367 shares:
1) Rounding done last.
1,367 / 24 = 56.9583 x 17 = 968.2911 so a maximum of 968 rights issue shares.
2) Rounding done first.
1,367 / 24 = 56.9583 so 56 x 17 = a maximum of 952 rights issue shares.
So in this hypothetical example there's a difference of 16 rights issue shares. I can't find any mention of how the fractions will be dealt with in any of the literature so which of the above two calculations is correct?
Woodford has build his stakes since the old 400p days, and again since the 1,500p and 2,500p days.
Last year he basically increased during the downspike to 425p where the Sp was massively supported.
He bought more during the week closing around 589p.
And when the Sp rose to 800 ish and 900ish (even at 940p!) he topped up substantially.
My guess now is that he increased his holding last week Friday during that 550p downspike. And now he has enough shares )
Like dandigirl, I have limited interest in the equity. I hold PFG7 retail bond.
But it seems to me that the smart money has decided that there is no profit on the short side in the near term.
The price action certainly has a goodly element of a short squeeze in it.
Im sure that there might be money to be made shorting this stock at some point. But at the moment their is a lot of trend supporting momentum on the long side.
Ive no idea of your entry point, or level of conviction. And I certainly would not express a view as to when to take a hedge. (Daily is looking marginally over bought).But you might want to consider it as an option.
On a fundamental level, did PFG not have a market cap of ~£3bn last year before the poo hit the fan. One could argue that most of the problem is quantified and behind them. Certainly they may be less profitable going forward. But a valuation in excess of £2bn does not seem in plausible.
amazing bounce yesterday but i find it very hard to see value at 2bn
a 17 for 22 rights with no business benefit????
the money goes for either compensation or higher contingency capital...
that is not a good place for a business to be
and the FSA is going to be all over them for the next few years......
they will , just using common sense, not be as profitable as before,
and they will not be allowed to grow agressively
so i find it very hard to see how they can have even a market avergae rating.
profits at best 3 years out will be 200m,
thet are only expecting a 10% return on equity
so i dont see value at 2bn valuation post rights.
at a simple level as well the fact that the regulator forces them to have extra contingency surely sends a signal that the regulator is worried about the health of the UK consumer (at the lower income end)
this area is also critical politically so i think the days of excess profits are over
All IMHO, DYOR + BoL
PFG is in my portfolio (SHORT)
" Is the dividend worth it over the profit? How many years of dividends would you need to match the profit?
Profit is a profit at the end of the day. "
Good questions and I don't disagree with your stance. I've swing traded a lot in the past (not PFG) with good results but I think the risk here is not being able to get back in at the ~650 level. On my original buy in price I can easily see a yield of 5+% from 2019 onwards along with a further paper profit so as tempting as a quick and healthy capital gain is, I'm sticking with my original intention of a long term investment for the income and as things stand I'll take up my full 17 for 24 rights.
I bought yesterday to average down not much as was drip feeding. I've been in numerous stocks over the years that have had a rights issue or open offer and none have risen 75%. This is a rare one off in my time investing in the markets.
Conversely it could have down a significant amount.
One detail l missed is the amount of stock short here l didn't anticipate such a short covering but that helped sell out with healthy profit.
My finger was poised at 8.00 - contract note time is 8.03. Yes, the 5.125% 23's.
They are still below par - and I agree they are still worth a buy.
I like to think that the company has steadied now and able to continue to regain its health.
From this bond holder's perspective, the RI is just brilliant.
Let us see what IPF has in store for us on Thursday for I am a holder of their bonds too. I fear the news may not be quite as handsome.
Bought into these after the plunge from ~2000 at just over 650 and almost sold at 900 but thought I'd hold long term and wait for the divi to be reinstated. Then the sp plunged off another cliff to below 600. Kicked myself. Hard. Then today the sp almost doubles. This is behaving like bitcoin!!!
Still not selling. Still want the divi (eventually), but what a wild ride. Wow.
"It's almost a year to the day since former LSE:PFG:Provident FinancialÂ boss Peter Crook unveiled his ill-fated plan to overhaul the doorstep lender's collection model. Shares at that point were changing hands at an impressive 2,917p and not far ..."
Dandigirl, you got them at 88? Are these the 5.125% of 2023s? What time did you get them? These are the ones I own and I tried and failed to get them at 88 this morning at about 8.15am. They are now over 94. Yesterday they were about 83.5.
But I am happy that the bond holders have been rewarded for an intelligent purchase. That said, they are now yielding about 6.25% which is actually still quite cheap.
I own the stock by proxy as I have a holding in Woodfords funds. I am glad that his annus horribilis now has a little sunshine over it. Also, looking at the shorts, a lot of them have been placed in recent weeks. I shed few tears for those guys.
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