Hewitt zeros in on Utilico ZDPS

Peter Hewitt snapped up some stock this week in the first major new issue of a zero dividend preference share in recent years.

Utilico plc, an investment trust, issued two tranches of shares, one winding up in 2014 and the other in 2016, both with Gross Redemption Yields of 7.25% at issue. Hewitt has taken holdings in both tranches within his F&C Progressive Growth Fund.

"This issue has been very well received by the market," said Hewitt. "It began as a £50 million issue but it was increased to £75 million. Even at this level it was oversubscribed to the extent that subscriptions were scaled back."

"The yield is clearly attractive given interest rate expectations and the issue was very conservatively financed. The shares that redeem in 2014 are 2.5x covered and the 2016 shares by 1.8x. Both shares have traded up since issue."

"The success of this issue shows that investor demand for well financed zeros is strong, providing they are attractively priced. With base rates on the rise and bond yields moving upwards, issuing a zero is a competitive form of financing in terms of cost and the absence of any interest charges to service. Let's hope more issues will follow," he concluded.