I personally do not care about rate...

I personally do not care about rate rises.............................
I care about the div
It puts bread on the table

@Michaelirish,

You are right to an extent.
But the fact is that interest rates do impact TCL's valuation, in two ways:

1. In terms of the cost of funding (and don't forget that TCL carries a significant amount of debt (>$12bn, a multiple of almost 8 times EBITDA), and

2. In terms of the rating of TCL's stock (viewed by the market - wrongly, I believe - as a bond proxy)

Why I believe valuing TCL as a bond-like security to be a flawed approach is that, unlike bonds, which have a yield to maturity the varies around a cyclical mean, TCL's yield to maturity rises each year.

So, as long as the rise in bond yields does not exceed the rate of increase in TCL's distributions to such an extent that the spread of TCL's Yield over Bond Yields does not fall below 100bps (a figure derived from the long-term average spread, as discussed in the post below), then TCL's capital value will remain under-written, I believe.

(https://hotcopper.com.au/threads/tr....3032360/page-8?post_id=20547296#.WMp-Q2996Uk)


When I started acquiring TCL in Oct/Nov last year, the spread of TCL yield over the 10-Year Bond Yield had blown out to an all-time high of 270bp.

Despite the subsequent 15% appreciation in TCL's share price as well as the 100bp rise in the 10-Year over the past 6 months, the TCL vs the 10-Year yield spread is still 170bp, as shown in the workings below (which are a marking-to-market of the data contained in the post of 1/11/22016), which is well above the 100bp long-term average.

So, despite, the dramatic rise in bond yields over the past 6 months (they've risen by a whopping 50%), the stock is still undervalued, by my analysis.


Series A: TCL Average Share Price ($/share)
2004: 6.05
2005: 7.12
2006: 6.88
2007: 7.15
2008: 6.09
2009: 4.45
2010: 4.92
2011: 5.20
2012: 5.97
2013: 6.51
2014: 7.93
2015: 9.96
2016: 9.75
Current: 11.10

Series B: TCL Dividend (c/share)
2004: 30.25
2005: 42.5
2006: 52.0
2007: 55.5
2008: 39.5
2009: 23.5
2010: 26.5
2011: 29.0
2012: 31.0
2013: 34.5
2014: 40.0
2015: 44.25
2016: 48.0
Current: 51.5 (Upgraded forecast since interim result)

Series C: TCL Average Dividend Yield (%) [Series B divided by Series A]
2004: 5.0
2005: 6.1
2006: 7.6
2007: 7.8
2008: 6.5
2009: 5.3
2010: 5.4
2011: 5.6
2012: 5.3
2013: 5.3
2014: 5.1
2015: 4.5
2016: 4.9
Current: 4.6 (Forecast)


Now, we want to compare this historical dividend yield with corresponding bond yields, which are as follows:

Series D: Australian 10-Year Yield (Annual average, %)
2004: 5.6
2005: 5.2
2006: 5.6
2007: 6.0
2008: 5.4
2009: 5.5
2010: 5.3
2011: 4.8
2012: 3.2
2013: 3.7
2014: 3.4
2015: 2.8
2016: 2.1
Current: 2.9


So, Series C minus Series D yields the following:

Series E: Historical Spreads: TCL Dividend Yield vs Bond Yield (%)
2004: -0.6
2005: 0.8
2006: 1.9
2007: 1.8
2008: 1.1
2009: -0.5
2010: -0.2
2011: 0.5
2012: 1.9
2013: 1.2
2014: 1.4
2015: 1.5
2016: 2.7
Current: 1.7