Provident Financial 7% 04/10/2017 – Buy
Provident Financial Plc is issuing a new 5 1/2 year sterling bond with a 7% coupon, which will commence trading on the 4th of April, complimentary research attached.
Rated BBB by Fitch, we feel this bond looks good value against the 1.1% offered by the benchmark Treasury gilt and the ~3% offered by the average corporate bonds with the same maturity.
With the general consensus forecasting a long period of low interest rates, the issue provides added attraction. The relatively short maturity of the bond will also mean less volatility in secondary market prices. And the senior ranking of the bond combined with the steady course steered by Provident Financial’s management through the credit crunch suggests that the new bond offers a good risk/return ratio.
The Provident Financial 7% April 2020 is priced at 105.7 – a 6.1% yield to maturity. Considering the 7% 4th October 2017 bond is shorter, we believe the bond should trade at a premium to par upon admittance to trading in the secondary market.