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Tesco Needs Your Cash

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With my stock broker;

Tesco Personal Finance PLC has launched a 5.2per cent Sterling 2018 Bond.

We would like to give you the opportunity to invest in this 5.2per cent Sterling 2018 Bond issued by Tesco Personal Finance PLC prior to the Bond listing on the London Stock Exchange.

The price per Bond is GBP100 per GBP100 nominal. The minimum investment is GBP2000 and in increments of GBP100 thereafter.

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Also a news article 7th Feb 2011

http://www.telegraph.co.uk/finance/personalfinance/investing/8308703/Tesco-tempts-investors-with-5.2pc-corporate-bond.html

Tesco Bank is issuing a 5.2pc bond aimed at private investors.

This is the first such bond to be issued by Tesco Bank and can be bought and sold by investors exclusively through stockbrokers or wealth managers with a minimum purchase of £2,000. It can be held within a stocks and shares Isa or a Sipp.

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Although 5.2% is reasonable, if fiat currencies are going devaluing against commodities, how much real return (loss) are you getting (losing).

And when viewed in combination with their gold-buying scheme, doesn't it just make you lose faith in the pound even more?

Whilst there are other factors to take into account (investor relations, brand image, loss-leading for customer loyalty, profit on gold price, altruism, diversification, ...), looking at these two schemes together (1. buying gold for cash; 2. borrow your cash until 2018), on the face of it a financial bod at Tesco has decided that GBP will fall against gold by more than 5.2% YoY over the next 7 years and that gold is a better investment than a 5.2% bond.

Now, when thinking about who's advice or lead to follow, who do you trust more? A profitable corporation, or politicians and the BoE that do/say the popular thing to get re-elected?

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Although 5.2% is reasonable, if fiat currencies are going devaluing against commodities, how much real return (loss) are you getting (losing).

And when viewed in combination with their gold-buying scheme, doesn't it just make you lose faith in the pound even more?

Whilst there are other factors to take into account (investor relations, brand image, loss-leading for customer loyalty, profit on gold price, altruism, diversification, ...), looking at these two schemes together (1. buying gold for cash; 2. borrow your cash until 2018), on the face of it a financial bod at Tesco has decided that GBP will fall against gold by more than 5.2% YoY over the next 7 years and that gold is a better investment than a 5.2% bond.

Now, when thinking about who's advice or lead to follow, who do you trust more? A profitable corporation, or politicians and the BoE that do/say the popular thing to get re-elected?

Tesco aren't buying gold to hoard, still less are they funding gold buying with this bond. In other words there's no evidence to conclude,"a financial bod at Tesco has decided that GBP will fall against gold by more than 5.2% YoY over the next 7 years".

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However, it is not covered by the Financial Services Compensation Scheme (FSCS). In the event that Tesco Bank defaults or becomes insolvent, customers may lose some or all of their investment

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If the coming years show a steady rising in the BoE rate, 5.2% might not look too attractive.

Particularly when your money is locked in a bond with no compensation possibility.

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Successful retail (as our own SNACR has on occasion either directly or indirectly implied, for those with the wit to listen) is about velocity.

In other words, if TSCO are selling a certain stock of bonds, they're not doing it to sit on the cash - they're doing it to write a spread, between what the stock is costing them (their own cost of capital) and what they can obtain at the retail end.

In other words, this is an interest rate swap writ large and broad.

Nothing more, nothing less.

What I choose to take from this is that even the almighty TSCO can't see growth, anywhere, globally - until 2018, being optimistic (otherwise they'd borrow to buy or build, not borrow to swap).

This may or may not imply a top for their equity - watch inside buying patterns, and short the backside off it accordingly (in the case where inside buying fails to materialise).

Edited by ParticleMan

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Successful retail (as our own SNACR has on occasion either directly or indirectly implied, for those with the wit to listen) is about velocity.

In other words, if TSCO are selling a certain stock of bonds, they're not doing it to sit on the cash - they're doing it to write a spread, between what the stock is costing them (their own cost of capital) and what they can obtain at the retail end.

In other words, this is an interest rate swap writ large and broad.

Nothing more, nothing less.

What I choose to take from this is that even the almighty TSCO can't see growth, anywhere, globally - until 2018, being optimistic (otherwise they'd borrow to buy or build, not borrow to swap).

This may or may not imply a top for their equity - watch inside buying patterns, and short the backside off it accordingly (in the case where inside buying fails to materialise).

What can they obtain at the retail end and what level of debt are they servicing?

I know their profit margins are generally slim (4-5.5% range), and in off-setting that against RPI; could they be using the debt issue to pad out their margins?

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Although 5.2% is reasonable, if fiat currencies are going devaluing against commodities, how much real return (loss) are you getting (losing).

And when viewed in combination with their gold-buying scheme, doesn't it just make you lose faith in the pound even more?

Whilst there are other factors to take into account (investor relations, brand image, loss-leading for customer loyalty, profit on gold price, altruism, diversification, ...), looking at these two schemes together (1. buying gold for cash; 2. borrow your cash until 2018), on the face of it a financial bod at Tesco has decided that GBP will fall against gold by more than 5.2% YoY over the next 7 years and that gold is a better investment than a 5.2% bond.

Now, when thinking about who's advice or lead to follow, who do you trust more? A profitable corporation, or politicians and the BoE that do/say the popular thing to get re-elected?

what on earth has this got to do with gold? get out more...

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Successful retail (as our own SNACR has on occasion either directly or indirectly implied, for those with the wit to listen) is about velocity.

In other words, if TSCO are selling a certain stock of bonds, they're not doing it to sit on the cash - they're doing it to write a spread, between what the stock is costing them (their own cost of capital) and what they can obtain at the retail end.

In other words, this is an interest rate swap writ large and broad.

Nothing more, nothing less.

What I choose to take from this is that even the almighty TSCO can't see growth, anywhere, globally - until 2018, being optimistic (otherwise they'd borrow to buy or build, not borrow to swap).

This may or may not imply a top for their equity - watch inside buying patterns, and short the backside off it accordingly (in the case where inside buying fails to materialise).

Despite working in the money markets end of finance, I cannot understand what you mean about it being an interest rate swap - how does it share those characteristics.

Furthermore, how does issuing a bond imply that a company cannot see growth anywhere.

Can you clarify your thought process and how you came to your conclusion?

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This is a bond to fund Tesco Bank right? not a bond to fund Tesco retail?

Tesco Bank is free to lend money to Tesco Retail. Even if this is a way to fund the bank, they would lose money on it until the money is all lent out, so inevitably much will end up funding Tesco's retail arm.

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Tesco's December 2019 bonds have a gross redemption yield of 4.56% so the personal finance arm is offering a decent premium.

I too received this offer a few weeks ago from my broker, but I'll just stick to an ETF for corporate bonds and cough up the 0.2% TER.

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Despite working in the money markets end of finance, I cannot understand what you mean about it being an interest rate swap - how does it share those characteristics.
Tesco's December 2019 bonds have a gross redemption yield of 4.56% so the personal finance arm is offering a decent premium.

There you go - if memory serves those same notes have a 5.5% coupon (at par).

Then there's their RPI-indexed notes to consider...

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Successful retail (as our own SNACR has on occasion either directly or indirectly implied, for those with the wit to listen) is about velocity.

In other words, if TSCO are selling a certain stock of bonds, they're not doing it to sit on the cash - they're doing it to write a spread, between what the stock is costing them (their own cost of capital) and what they can obtain at the retail end.

In other words, this is an interest rate swap writ large and broad.

Nothing more, nothing less.

Um .. this is going into banking. Money to lend.

What I choose to take from this is that even the almighty TSCO can't see growth, anywhere, globally - until 2018, being optimistic (otherwise they'd borrow to buy or build, not borrow to swap).

This may or may not imply a top for their equity - watch inside buying patterns, and short the backside off it accordingly (in the case where inside buying fails to materialise).

Tesco the retailer is buying and building.

I'd see it as more positive for equity that they're going into banking, with the fantastic retail network they're building it on the back of. Except of course for the prodigious pollution of murky banking pools with bailouts and interventions.

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Successful retail (as our own SNACR has on occasion either directly or indirectly implied, for those with the wit to listen) is about velocity.

In other words, if TSCO are selling a certain stock of bonds, they're not doing it to sit on the cash - they're doing it to write a spread, between what the stock is costing them (their own cost of capital) and what they can obtain at the retail end.

In other words, this is an interest rate swap writ large and broad.

Nothing more, nothing less.

What I choose to take from this is that even the almighty TSCO can't see growth, anywhere, globally - until 2018, being optimistic (otherwise they'd borrow to buy or build, not borrow to swap).

This may or may not imply a top for their equity - watch inside buying patterns, and short the backside off it accordingly (in the case where inside buying fails to materialise).

Thanks for that Particle Man, probably more technical than it needed to be but I get the picture.

Answered my question; why on earth would Tesco offer bonds at 5.2 when they can probably borrow at way less.

Can you say what sort of rate a blue chip like Tesco would be able to borrow at?

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Although 5.2% is reasonable, if fiat currencies are going devaluing against commodities, how much real return (loss) are you getting (losing).

Considering inflation is heading upwards towards 5% this isn't much of a premium. Although if you bet that near 0% interest rates are going to around for several years at least you won't lose too much of your purchasing power investing in this.

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This may or may not imply a top for their equity - watch inside buying patterns, and short the backside off it accordingly (in the case where inside buying fails to materialise).

Good point - the directors have been selling last year. http://www.thegrocer.co.uk/articles.aspx?page=articles&ID=207255

Tesco directors have cashed in almost £19m worth of company shares in the past three months, data from Digital Look has revealed.

The sell-offs are among the largest in the FTSE 100 in recent months, with only two other companies having more director sales over the same period.

TSCO CHART http://bigcharts.marketwatch.com/charts/big.chart?symb=uk%3Atsco&compidx=aaaaa%3A0&ma=1&maval=200%2C50&uf=128&lf=1&lf2=2&lf3=0&type=2&size=2&state=8&sid=122894&style=320&time=12&freq=2&comp=NO%5FSYMBOL%5FCHOSEN&nosettings=1&rand=6137&mocktick=1

Largely flat - a top maybe

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Tesco will be borrowing this to finance lending. Looking at the Tesco Finance website, I see they are indicating 7.4% for a personal loan. They are borrowing at 5.2%, so making a margin here. This margin looks a little small, so what they'll be doing is extending out the maturity profile of their debt....without logging into Bloomberg to check, I bet they have a number of bonds issues, mostly of shorter maturity and paying lower interest rates. So Tesco's all-in cost will be way under 5.2%, so margins are probably ok.

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  • 311 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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      • Even
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      • up 5%



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