Seven Group is chaired by well-known WA businessman Kerry Stokes and owns a 35% stake in Seven West Media (owner of the Seven Network, some radio stations, magazines and WA Newspapers) as well as a 68% interest in Caterpillar Australia, an investment fund with holdings in ASX listed stocks and various properties.
Recent newspaper reports have focussed on the company’s listed hybrid securities, or TELYS4 (ASX code: SVWPA) which have been subject to substantial price declines in the past month. TELYS4s were trading at $80 per security at the start of July and dropped as low as $62 on 20 August, down 7.8% on the day. Volume of trade on the day was five times more than average, however the value of trade was only $1.75 million.
It has been reported there is a rumour doing the rounds that Seven Group may not pay the next hybrid distribution and that some investors were getting nervous about this, hence the sell-off. YieldReport should point out it has seen no basis for this nor any comment from the company itself. In any case, it is worth noting the distribution, while discretionary, is also subject to what is called a “dividend stopper” clause in the terms of the issue. A dividend stopper is a clause which stops the issuer, in this case Seven Group, from paying dividends on its ordinary shares unless the distribution/interest on the hybrid is paid first. A cessation of ordinary dividends would affect Kerry Stokes personally as he is the largest Seven Group shareholder. Seven Group has been paying six monthly ordinary dividends at a rate of 20 cents per share and so a pause in payments would cost him around $80 million cash and $34 million in franking credits for every year.
It’s been suggested the fall in the price of TELYS4 is feeding into the price of the ordinary shares. An analysis of the trading of the two securities may call that proposition into question. A diagram of weekly traded prices over the last 12 months shows how the ordinary shares (ASX code: SVW) fell first, then recovered and then led the hybrid securities (ASX code: SVWPA) down, not the other way around.
Seven Group has debt of $800 million and $1 billion of listed and unlisted assets on its balance sheet and is due to report its annual results in late August. The hybrids have a running yield of 7.5% fully franked or the equivalent of 10.7% before tax at the current price.