GCI, MFG, NAB Capital Notes 6

Our Q&As are emailed in our Saturday Morning Report, find the answer to this question below.

Ask a question

The Latest Q&A

Question asked 18/06/2022

GCI, MFG, NAB Capital Notes 6

Hi James & Team, 1)what is the risk in buying GCI below the NTA? 2) Any comments on the $ 1 billion NAB Capital Notes 6 issue in terms of demand & investment case as a fixed income alternative. 3) Heard one commentator value MFG at $30. How accurate is that when it is trading around $12? Your general advice is much appreciated. Thanks

Answer

Hi Sidney,

GCI is the Gryphon Capital Income Trust which invests in mortgaged backed securities targeting a rate of return at the RBA cash rates +3.5%. The risk is that if the assets that underpin the NAV have not yet priced the current economic climate and that there is a lag effect before this is shown via the NAV. That’s the risk however we’ve seen before that liquidity can drive big discounts in these securities which ultimately create opportunity. Our favoured in this space is MXT which is 15% below NAV.

We liked the NAB Hybrid at the time of issue. It’s a standard tier 1 bank hybrid and demand was very strong. The bookbuild was something like 2.5x oversubscribed from what I hear. Since then though, credit markets have changed, spreads have increased and this note is likely to open a few dollars below the $100 issue price.

Magellan (MFG) at $30 depends on the multiple the market is prepared to pay for it. On its historical P/E of 18.7x, it’s worth $27.41. Currently it is being priced on 8.5x. $30 we think is a stretch, but possible if they start attracting FUM again.

chart

Magellan (MFG) P/E band

LAST UPDATED 18/06/2022 09:45

Latest Reports

Afternoon report 24/04/2024

The Match Out: CPI dents equity rally ahead of ANZAC Day

Equities followed the US market higher this morning, also adding a little premium thanks to a handful of positive quarterly reports that were announced after the North American markets closed. That all took a back seat as inflation data printed late morning, CPI coming in hotter than expected which sent the market into a spin, falling ~0.6% at the time before finding some relief. In the end, the index closed little changed, a good result given the circumstances though largely thanks to support from the Big 4 banks.

Morning report 24/04/2024

Portfolio Positioning: Bonds fell, dragging stocks along for the ride, both are now basing in our opinion

Bond markets have struggled over recent weeks as inflation appeared increasingly “sticky,” but it hardly registers on the chart compared to their weakness through 2021/2 and mid-2023. We believe the local credit markets have come back to realistic levels as the RBA awaits further economic data to deliver clarity on the underlying strength and direction of the local economy. Traders have gone from being far too optimistic on rate cuts into Christmas to becoming almost pessimistic; the US futures markets have gone from pricing in three cuts to 1.77 cuts, or one definitely, and probably two.