One of the best ways of losing money over the past few years has been investing in football clubs. Fans buy the shares not on the basis that they might or might not be a good investment but through tribal, not to say blind, loyalty.
Owning a rugby club has not been an easy way to riches, either. Wasps, one of the better-known names in the game and owner of one of the biggest grounds in the sport — and one of the country’s biggest convention centres, to boot — is raising between £25 million and £35 million through the issue of retail bonds offering a coupon of 6.5 per cent, among the highest returns available on the London Stock Exchange’s quoted Orb market.
Wasps bought the Ricoh Arena in Coventry in the autumn. It needs to repay the £13.4 million loan it took out as part of the £20 million purchase. The bonds issue will do this, without requiring Derek Richardson, the Irish businessman and owner of Wasps, to sell any of his equity.
This should raise question marks. The most obvious course would be for Wasps, along with its new acquisition, to float on the Alternative Investment Market and seek fresh funds that way. The trading record of the companies involved may well have precluded this. The prospectus shows that Wasps lost £392,000 at the attributable level in the last financial year. The Ricoh Arena lost more than £2 million. There were good reasons for this, not least the fact that Coventry City Football Club decamped from the stadium for a while. At its new home, Wasps will be better placed, but no one is suggesting much better than break-even this year.
Anyone buying into a seven-year retail bond wants, at a minimum, certainty that the company issuing it will be in existence in seven years’ time. Wasps almost certaintly will be — those non-rugby conference and hotel facilities provide two thirds of the revenues — yet that yield, though attractive, is not the only such available on the stock market. Phoenix Group, the insurance consolidator, is up there; various infrastructure funds offer a similar return. The usual high yielders, Vodafone and the pharma and tobacco stocks, are not far behind and offer much less risk.
My advice Avoid
Why Though the coupon is attractive, the company is not yet in profit and there are far safer sources of income on the stock market
Minimum investment £2,000
Speaking of assured incomes, as we were in the context of Wasps, one of the best dividend providers on the market issued a first-quarter trading update. Foresight Solar Fund does just what it says, investing in solar power assets.
Net assets, the best measure of value, nudged up a touch to 101.1p, so the shares, up ¾p at 103¼p, are trading at a small but justified premium to that. All ten of the assets in its portfolio managed to get in under the wire, receiving accreditation ahead of the March 31 deadline for a change in the subsidies available from the state for green energy.
Foresight has various other possible purchases under consideration. It has shuffled back its view on future power prices, which has reduced that net asset figure, but this has been more than offset by better efficiencies within the plants in the portfolio.
All this means that the dividend yield, the main reason for holding such stocks, seems safe enough. Foresight is paying a 1.52p first-quarter dividend in June; a total of 6.08p is promised for the year, offering a yield of 6 per cent.
My advice Buy
Why Income is among the best on the market
Dividend for 2015 6.08p
The behaviour of the Tullow Oil share price yesterday was distinctly odd. Last month a serious problem blew up, a border dispute between Ivory Coast and Ghana that threatened production at Tullow’s Ten project, its second-biggest asset.
At the weekend the Hamburg-based International Tribunal of the Law of the Sea ruled in Ghana’s favour, which means that the country can continue to exploit its oil reserves in the area. This is not the final ruling — that is expected in late 2017 — but it does mean that the two countries will be under pressure to settle their differences by then.
The judgment is entirely in Tullow’s favour, then, although it is not a party to the dispute. There is a block on the drilling of further wells, but the Ten project is 55 per cent complete, with all ten wells required already drilled. There is no reason why first oil should not proceed by the end of 2017.
This will mean that the company should be producing 100,000 barrels a day net from west Africa, including the Jubilee field in Ghana. which is already flowing. These are low-cost fields, about $8 a barrel.
I chose Tullow as one of my picks for this year because I felt that the price had fallen too far and that this might prompt an offer for the company. Tullow has since refinanced its debts and announced a round of cost and capex cuts.
The oil price has recovered from $58 to $64 a barrel since then. Shares in Tullow, though, started higher, but ended down 7¾p at 410¼p, about where they were at the start of the year. That looks cheap.
My advice Buy
Why Shares do not reflect core value of Tullow’s assets
Production by 2017 100,000bpd
And finally...
Shares in Lok’nStore — shame about the name — have moved ahead strongly since I tipped them at the end of 2013. The self-storage business produced another positive trading update at the halfway stage, with occupancy rates and pricing both ahead. The company is growing fast, as is the market it serves, while the premium to net assets, the main measure for such businesses, is non-existent, unlike its quoted rivals. Lok’nStore also pays a decent dividend, unlike many other AIM-quoted companies.
