A common complaint about the London Stock Exchange's ORB retail bond market is a lack of opportunities for diversification, with bonds issued mainly by financial services companies and those carrying higher levels of risk such as property developers. The addition, therefore, of a new bond issued by the iconic transport and infrastructure company
The bond issue will allow Stobart to retire some of its existing bank loans from M&G and keep its average interest rate at 5 per cent. In general, the balance sheet looks in good shape, with net debt of £223m giving a debt-to-equity ratio of 50 per cent. The debt profile is also overwhelmingly long, with a maturity of over five years. Furthermore, Stobart will have no problem meeting coupon payments as the cash its operations generate is more than 12 times its current interest charge. In addition, the company's position will be further strengthened next year by the first revenue contribution from the acquisition of Autologic, which will add about £145m to total sales.
The money raised will also go towards developing assets such as its Carlisle airport project, which has finally received the go-ahead after a re-tendered planning application. Chief executive Andrew Tinkler said the investment into Carlisle airport will allow Stobart to develop passenger and freight operations in the future. Stobart's recently opened airport at Southend has handled 365,000 passengers since it opened in March this year and the company has a target of between 2m to 2.5m passengers a year.
The Stobart bonds would make an interesting addition to the shares, which are a current buy tip (126p, 26 Jan 2012), by complementing the dividend yield on the shares with security of capital.
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