sevpc, page-7

Pleased to say I picked up some SEVPC yesterday for $80.45. They're looking like a very good short-term play. (Yes, I call a year short-term.)

Here's how my sums look:

We're up for two more dividend payments before the Step Up Date next May - i.e. approx. $4.50 fully franked (= 5.6% of the current price).

In May 2010, SEV will have three options:
1. They can exchange each SEVPC into $100 cash: i.e. capital gain of 24% in one year.
2. They can convert SEVPC into $100 worth of SEV ordinary shares discounted by 2.5%. We can then sell these shares on market for a capital gain of ~25%.
3. They can keep the TELYS3 trading and increase the interest rate margin by another 2.25%pa of the face value. This equates to 2.8% using the current SP as the denominator.

I think option 2 is unlikely given that Stokes himself holds no SEVPC, so issuing $500m worth of ordinary shares would massively dilute his holding. Option 1 would make sense as SEV is sitting on bucketloads of cash and certainly doesn't need the SEVPC money for working capital. Even option 3 wouldn't be such a bad outcome for holders as this would be quite a nice interest rate, especially for those of us who bought the TELYS3 at a discount to face value.

Would be keen to hear all of your thoughts.