6 July 2012
Analysts
Damien Williamson 613 9235 1958
Barry Ziegler 613 9235 1848
William Spraggett 613 9235 1733
Whitefield Resettable
Preference Shares (WHFPB)
Authorisation
John Gleeson 612 9255 7220
7.00% fully franked fixed for 6 years looks compelling
As one of Australia’s oldest listed investment companies with origins dating back to
1923, Whitefield has launched a Resettable Preference Shares (WHFPB) offer.
Fixed
Interest
WHFPB appears highly compelling on the risk return scale, on the key metrics of:
7.0% fully franked yield (expected 10.0% gross): Fixed until Nov 2018 reset date
Low risk business model: Whitefield operates as a conservative investment
company with no debt and a portfolio typically exposed to the top 100 ASX listed
industrial companies, one third of which is weighted to the four major banks.
Low gearing: The maximum WHFPB issue size of $30m only represents 12.1% of
Whitefield’s $247m of net assets at 31 March 2012. This places Whitefield in a
strong financial position to pay pref dividends and fund conversion / redemption.
Conversion certainty at a set future date: WHFPB investors have the right to
convert via the issue of a Holder Exchange Notice at each reset date and on trigger
events such as Whitefield’s gearing (net debt + prefs / equity) exceeding 35%.
Issue overview
Issuer
Whitefield
Issue ASX code
WHFPB
Face value
$100
Estimated offer size
$30m
Dividend rate (fixed)
7.00%
Franking (expected)
100%
Dividend frequency
Half yearly
Dividend payments
Non-Cumulative
Minimum application
$5,000
Conversion discount
Up to 3.5%
WHFPB compares favourably with recent fixed rate issues. Seek was unsuccessful
with its recent 6.02% fully franked step-up pref offer, noting it was inferior to WHFPB
on all four measures above. The 10.0% grossed up yield also compares favourably
with stepped-up perpetual preference shares such as Transpacific (TPAPA) and Seven
TELYS4 (SVWPA), especially given the security price volatility associated with
perpetual securities, the high debt levels and cyclical nature of the issuer’s earnings.
30 Nov 2018
Whitefield has also provided an allocation of up to $15m (50% of issue size) to existing
shareholders registered at 14 June 2012.
Record date: entitlement offer 14 June 2012
Key risks of the issue include new issues that may offer more attractive issue terms
and margins, placing downward pressure on the security price; rising interest rates
may make fixed rate securities less attractive; limited liquidity from the relatively low
issue size, and dividends are non-cumulative. (Refer risk section page 5)
Reset date
Timeline
Announcement of offer
Lodgement of prospectus
15 June 2012
4 July 2012
Bookbuild
10 July 2012
Offer opens
11 July 2012
Annual General Meeting
16 July 2012
Offer closes
1 Aug 2012
Issue date
9 Aug 2012
ASX listing
16 Aug 2012
Figure 1. WHFPB versus other fixed rate and perpetual step-up securities
Yield
Security
Coupons
Maturity
12.00%: Transpacific step-up pref
(8.40% fully franked)
Perpetual stepup pref
Discretionary, non- Issuer option to redeem at
cumulative
HY distributions
10.0%
10.50%: SVWPA (7.35% fully franked)
10.00%: Whitefield reset pref
(7.00% fully franked)
As above
Reset pref
As above
As above
Discretionary,
Holder exchange option
non-cum ulative at year 6 reset date
8.0%
8.60%: SEEK Notes
(6.02% fully franked)
Step-up pref
(perpetual)
Discretionary
non-cumulative
Issuer option to redeem
at year 5 call date
7.25%: Heritage 5 year bond
Senior bond
Mandatory
Mandatory redemption
12.0%
6.0%
6.25%: AFIC Notes
5.20%: WBC 5 year term deposit
4.0%
2.0%
Convertible note Mandatory
w ith call option
Mandatory redemption (yr 5)
if not previously converted
Term deposit
Mandatory
Mandatory redemption
5.10%: NAB Feb 2017 (OTC)
Senior debt
Mandatory
Mandatory redemption
2.65%: 5yr Australian Govt bond
Govt bond
Mandatory
Mandatory redemption
NOTE: ALL SECURITIES ARE FIXED RATE EXCEPT FOR TRANSPACIFIC AND SVWPA WHICH ARE FLOATING RATE
SOURCE: COM PANY DATA , YIELDBROKER, IRESS, BELL POTTER
BELL POTTER SECURITIES LIMITED
ACN 25 006 390 772
AFSL 243480
DISCLAIMER AND DISCLOSURES THIS REPORT MUST
BE READ WITH THE DISCLAIMER AND DISCLOSURES
ON PAGE 6 THAT FORM PART OF IT.
Page 1
Whitefield Convertible Resettable Preference Shares
6 July 2012
Whitefield Resettable Preference Shares (WHFPB)
Key security features
WHFPB has some issue terms which vary slightly from a standard issue.
include:
These
7.00% Fully Franked Fixed until 30 November 2018: WHFPB holders will be
entitled to a non-cumulative fixed rate dividend of 7.00% per annum, which is
expected to be fully franked. Half yearly dividend periods end 31 May and 30
November.
First reset date 30 November 2018: At the first reset date, if Whitefield wishes to
amend the WHFPB terms, it needs to provide holders with details of the new terms
at least 50 business days prior to the reset date. Whitefield may also elect to
convert or redeem WHFPB at the reset date. The reset date also provides
WHFPB holders the option to elect for Holder Exchange, where Whitefield has the
option to convert WHFPB into shares or redeem for cash. All future reset dates
post 2018 will occur at three year intervals.
Dividends are subject to Whitefield’s solvency: The Whitefield Directors have
the discretion not to declare a WHFPB dividend if they determine payment of this
dividend would result in Whitefield becoming, or being likely to become insolvent.
Under this scenario, WHFPB dividends are non-cumulative and Whitefield has no
liability to make this payment. WHFPB holders have no claim in respect of the nonpayment of dividends. Overall we find it difficult to foresee a scenario where this
would apply.
Non payment of WHFPB dividends to result in holder exchange and dividend
stopper on ordinary shares: Under the scenario that Whitefield does not pay a
scheduled dividend while solvent and there is no legislation preventing the
payment, the Holder Trigger Event provides investors the right to request Holder
Exchange. In addition, Whitefield is restricted from paying any dividends on
ordinary shares.
Holder Conversion allowed under a Holder Trigger Event: While holders have
the capacity to request conversion under events such as a takeover, non payment
of a declared dividend (above) or suspension of trading of Whitefield shares for 20
consecutive days, WHFPB holders may also request conversion if Whitefield’s
gearing (net debt + prefs / equity) exceeds 35%. Whitefield also has a conversion
right under a Gearing Event if Whitefield’s gearing exceeds 25%. Under an
extreme stress test such as the market decline witnessed between 30 September
2007 to 31 March 2009, assuming the WHFPB issue was undertaken in
September 2007, Whitefield’s gearing as outlined in Figure 2 would have increased
from 12.1% to 23.8%.
Figure 2: Gearing sensitivity to GFC impact on Whitefield’s NTA
30-Sep-07
31-Mar-09
31-Mar-12
Pref issue (12.1% of Sep 2007 NTA)
$0.65
$0.65
$0.65
Post-Tax NTA (Net Tangible Assets)
$5.37
$2.73
$3.28
-49.2%
-38.9%
Change vs 30 Sep 2007
Gearing
12.1%
23.8%
19.8%
S&P/ASX 200 Industrials Index
7,156
2,649
3,793
-63.0%
-47.0%
Change vs 30 Sep 2007
SOURCE: COMPANY DATA, IRESS, BELL POTTER
Page 2
Whitefield Convertible Resettable Preference Shares
6 July 2012
Whitefield Resettable Preference Shares (WHFPB)
Issue specific terms
WHFPB has some issue terms which vary slightly from standard issue terms. These
include:
No cash top up if WHFPB dividend franking is below 100%: This risk appears
very low given Whitefield had a franking credit balance of $21.19m at 31 March
2012, enabling it to pay fully franked dividends of $49.44m or $0.65 per ordinary
share. Given the ordinary annual dividend is $0.17 fully franked, this surplus
franking balance equates to almost four years of dividends under the highly
unlikely scenario that no franking credits are received. We note the annual
WHFPB dividend payment will be a maximum of $2.1m.
WHFPB issue is conditional shareholder approval at the 16 July 2012 AGM:
Whitefield is seeking shareholder approval for the WHFPB issue, in order that
Whitefield has additional capacity to issue further shares under without
shareholder approval under the 15% threshold in Listing Rule 7.1.
Conversion may be into a new share class: If WHFPB conversion occurs during
the middle of a Whitefield ordinary dividend period, Whitefield may issue a new
class of ordinary shares to reduce the next ordinary dividend on a pro-rata basis.
This is to reflect the number of days the new security is on issue for the dividend
period. Once the new security goes ex dividend, the new security will be reissued
as the existing ordinary shares.
Conversion discount of up to 3.5%: In order to minimise the dilution upon
conversion, Whitefield will not apply a conversion discount if Whitefield’s VWAP
(volume weighted average price) on the 10 business days before conversion is
below 90% of Whitefield’s Net Asset Backing (NAB). If the VWAP is above 90% of
NAB, a conversion discount of up to 3.5% will apply, with the lowest conversion
price set at 90% of NAB. As Figure 3 highlights, Whitefield has continuously
traded at greater than a 10% discount to pre-tax NTA over the past 18 months.
Figure 3: Share price and NTA returns versus trading premium / discount over 10 years
$200
30%
Prem/Disc (RHS)
Pre-Tax NTA (LHS)
Share Price (LHS)
$175
20%
$150
10%
$125
$100
0%
$75
-10%
$50
-20%
$25
$0
May-02
May-03
May-04
May-05
May-06
May-07
May-08
May-09
May-10
May-11
-30%
May-12
SOURCE: COMPANY DATA, IRESS, BELL POTTER
Page 3
Whitefield Convertible Resettable Preference Shares
6 July 2012
Whitefield Resettable Preference Shares (WHFPB)
One of Australia’s oldest listed investment companies
With a history dating back to 1923, Whitefield is one of Australia’s oldest LICs. The
assets of the company consist exclusively of ASX listed industrial securities, which
targets to generate an investment return over the long term that exceeds the All
Industrials Accumulation Index.
$232m investment portfolio at 31 March 2012
Whitefield’s $231.6m investment portfolio at 31 March 2012 comprised $3.2m cash
and $228.4m of ASX listed securities across 63 industrial companies. Of the portfolio,
32.7% if comprised of the four major banks.
Figure 4: Whitefield Investment Portfolio at 31 March 2012
Company
$m
%Portfolio
1
Commonwealth Bank
22.79
9.84%
2
Westpac
19.24
8.30%
3
ANZ Bank
17.93
7.74%
4
National Australia Bank
15.84
6.84%
5
Telstra
9.75
4.21%
6
Woolworths
9.03
3.90%
7
Wesfarmers
8.97
3.87%
8
QBE
8.42
3.64%
9
Macquarie Group
8.02
3.46%
10
CSL
7.78
3.36%
11
AMP
7.50
3.24%
12
Seven Group Holdings
6.96
3.00%
13
Crown
5.23
2.26%
14
Asciano
4.85
2.09%
15
Brambles
3.31
1.43%
16
Toll
3.19
1.38%
17
News Corp
3.17
1.37%
18
Westfield Group
3.13
1.35%
19
UGL
2.98
1.29%
20
InvoCare
Other (~43 ASX listed companies)
Cash
2.95
1.27%
57.46
24.80%
3.17
1.37%
Total Investment Portfolio & Cash 231.64
100.00%
SOURCE: COMPANY DATA, BELL POTTER
WHFPB to rank above ordinary equity
With respect to the payment of dividends and in the event of a company wind up,
WFHPB will rank in priority to ordinary shares, but will rank behind the 8% Preference
Shares, of which $23,790 are on issue.
Figure 5: Whitefield Investment Portfolio at 31 March 2012
Ranking
Higher Ranking Secured Debt
Existing Instruments
Senior Unsecured Debt
None
Unsecured Subordinated Debt
None
8% Preference Shares
Lower Ranking
Amount
None
Preferred equity
7% Reset Preference Shares
Ordinary Equity
Ordinary Shares
$0.02m
$30.00m
$247.79m
SOURCE: COMPANY DATA, BELL POTTER
Page 4
Whitefield Convertible Resettable Preference Shares
6 July 2012
Whitefield Resettable Preference Shares (WHFPB)
Investment risks
Key investment risks to consider include:
•
Decreases in market value and earnings of Whitefield’s investment portfolio
may reduce the ability of Whitefield to pay scheduled dividends and redeem
WHFPB, especially if this is associated with a material increase in gearing;
•
Dividends are non-cumulative and may not be paid in circumstances such as
the risk of becoming insolvent;
•
Whitefield does not propose to provide a cash top up to dividends if it has
insufficient franking credits;
•
Adverse movement in credit spreads as a result of a tightening in the
availability and cost of credit;
•
Rising interest rates will generally make fixed rate securities less attractive;
•
New issues may offer more attractive issue terms and margins, placing
downward pressure on the security price;
•
Low liquidity, increasing the potential adverse movements in the security price
if large volumes are traded; and
•
Adverse changes to Government legislation, including the ability of Whitefield
to distribute franking credits.
Page 5
Whitefield Convertible Resettable Preference Shares
6 July 2012
Research Team
Fixed
Income
Bell Potter Securities Limited
ACN 25 006 390 772
Level 38, Aurora Place
88 Phillip Street, Sydney 2000
Telephone +61 2 9255 7200
www.bellpotter.com.au
Staff Member
Title/Sector
Phone
@bellpotter.com.au
John Gleeson
Research Manager
612 9255 7220
jgleeson
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Emerging Growth
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shaddad
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Emerging Growth
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joshea
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Emerging Growth Associate
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Janice Tai
Fixed Income
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