16 October 2015

Investors are getting increasingly excited about the £2bn Lloyds Share Offer set for next Spring. A standout conversation I had recently saw me asked ‘what can I do now if I don’t want to wait?’

Investor: That Lloyds deal looks fantastic James. I’d be happy with a 20% return over a year.

James: You’re interested in applying for the potential maximum £1,000 worth of Lloyds shares, with a 5% discount, a 10% 1-for-10 share loyalty bonus and 5% in dividends? Not a problem.

Investor: Yeah, I think the shares are undervalued. I’ll subscribe to the deal.

James: You’re not alone being bullish on the stock. But have you got a maximum price you’d be willing to pay for Lloyds shares next Spring? Remember we can’t know the price in advance.

Investor: Well I know the brokers are saying 90-100p. I think that’s fair.

James: OK. But what would you do if Lloyds shares were already trading at 100p next spring?

Investor: I’d still subscribe but I’d be disappointed to miss a rally from 75p today. Whatever, I still think they are worth more than 100p. And £1,000 isn’t as much as I’d normally buy, so I wouldn’t be worried.

James: You have a clear idea of what you think the shares should be worth today (100p) and what you think they are worth longer term (100p+)

Investor: Oh defiantly more than 100p – I wouldn’t apply for something I thought might fall would I?

James: Of course not. And it sounds like you’d buy more than the £1000 if you could.

Investor: Yeah. I’d prefer to buy £10,000 worth, that’s my normal investment size.

JA: Well if £1,000 of Lloyds isn’t enough for you, and you think the shares could be 100p by next Spring, what if I offered you the means to get £10,000 worth of Lloyds today at 73p (4% from the lows of its 2 year 70-89p range)? That way if the shares rally in the meantime you could benefit. And you can still take up the offer for another £1,000 next Spring and benefit from that 5% discount on the price at the time. If they do hit 100p as the analysts predict, a 37% rise from today would net you £3,700. They could always fall, but I can talk you though ways to limit losses.

Investor: You make a good point James. It is a long wait until next Spring. For just a £200 return after another year. And no guarantee. In the meantime it sounds like a better opportunity could almost be had if the shares hit broker targets before the spring. What do I have to do to get involved here? I don’t want to just be one of the herd next Spring, I want to be the man with the stick today. And maybe back with the herd again in the Spring.

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The question for investors and traders alike today: Is this a great deal? The 5% discount and 10% loyalty bonus relate to future prices (higher? lower? Nobody knows). The price today is a given. Do you wait for your limited allocation next Spring and then another year to book your returns? Or do you see an investment opportunity today with the share price well below 100p. A year is a long time in the markets. A lot could happen in the 6 months until Spring. Nobody has a crystal ball but it’s always helpful helps to discuss your options with somebody on the ground and in the know, especially when committing cash to the financial markets.

Whether you want to wait or trade; to register your interest in Lloyds shares and we can discuss your options together next week.

James Abbott, Senior Trader