The Interpublic Group of Companies, Inc. (IPG) is a global provider of advertising and marketing services. With over 40,000 employees in all major world markets, they and their subsidiaries specialize in consumer advertising, interactive marketing, media planning and buying, public relations, and specialized disciplines. The company went public in 1971, and goes by the ticker ‘IPG’ on the New York Stock Exchange. Interpublic operates in more than 90 countries worldwide providing large-scale advertising and marketing solutions for clients.
Some Interpublic companies are included in the following chart:
At Durig Capital, we have developed a process to find what we believe is the best bonds for our clients — We review, select, purchase and monitor Corporate Bonds. Enclosed is our review along with supporting documents showing why we believe it makes sense with our Corporate Bond clients’ portfolios. We reviewed 10,000 individual Corporate Bond listings to find the best bond currently for our investors. The following includes our selection criteria.
Step 1 – Yield Curve at 3-7 Years Out.
We went out on the yield curve just enough to receive higher returns in yield but not far enough that if inflation starts to increase, which is a small but real probability due to our country’s largest deficit spending, it could lead to a loss of principle. To protect our client in this worst case scenario we would just plan to hold to maturity.
Surprisingly, we are seeing a well-funded company giving 3 + years to the primary call are yielding higher than borrowing on 30-year mortgages at 4.59% (quoted at Bankrate.com). Not that we are a proponent of this, but the math is telling us that it’s better to invest in these IPG bonds than to pay down your mortgage at current rates.
Step 2 – We like companies that are profitable.
The second quarter, 2010, net income attributable to IPG common stockholders was $105.3 million, resulting in earnings of 22 cents per basic share. For the last year, net income attributable to shareholders was $93.6 million, or 19 cents a share, compared with a net loss of $265.2 million, or 52 cents a share, for the prior year.
Step 3 – We like companies with low debt to cash ratio.
IPG’s current debt is $1.94 billion. Their cash and short term investments was $1.91 billion last quarter lowered from $1.95 billion at the end of 2009. If they applied their current cash and investments to their current debt, they would basically still have a cash balance, and additionally they are making many positive small steps in the right direction. Their current balance sheet can be viewed here. For an advertising company approaching $6 billion in total revenue, cash currently exceeding debt, and being profitable, it’s a wonder why the short term callable debt is yielding so high.
|Yield to: Next call|
|Yield Worst: 07/15/2013@ 105 5.872%|
|Yield Par Call: 07/15/2015@ 100 6.360%|
|Yield Maturity: 07/15/2017@ 100 7.172%|
As you can see by the above table, if the bonds aren’t called then the yield only increases — First to 5.872%, then 6.360% for the 5 year call at par, and then higher again at maturity, giving these bonds a much better return if they’re not called. It’s our belief and conviction that they will be called in 2013 simply yielding the 5.872% in just over three years.
Step 4 – We like high yields.
Interpublic Group currently has a 5.872% yield to it’s three year call. In comparison to the corresponding 3 year Treasury yielding 1.01%, Interpublic Group has a staggering 4.821% additional yield, which comes to a whopping 481% spread.
Step 5 – We currently like shorter maturities.
Interpublic Group bonds’ first call is on 07/15/2013, or in just over 3 years.
The yield to maturity is just as attractive, being at the rate of 7.172% in just over 7 years.
This is a good 5.872% yield to call for just over 3 years. If they don’t get called, it’s even better. Even having a lower rating and with many sell-able parts or businesses (plus, the large cash coverage, profitability, and decreasing debt), these bonds should act similar to other bonds like Unitrin and Fidelity National Financial that we have recently reported on.
We believe, with the lower debt level and profitability, they have already earned a bond upgrade this year. Additionally, we believe they’re well situated for another upgrade in their bond rating and, with both their amount of cash and understanding their history, we expect an early call. You can find other Corporate Bonds listed on our web site here.
Price: $ 1152.78
Ratings: Ba2/ BB
Continuously Callable starting at 07/15/2013@105
|Original Issue Discount||LONG TERM|
|Day Count Basis||30/360|
|Payment Delay||0 DAY DELAY|
|First Coupon Date||01/15/2010|
|Last Coupon Date||01/15/2017|
|First Settlement Date||10/23/2009|
|Bonds In Default||NO|
The Interpublic Group web site is available here.
Disclosure: Durig Capital believes the information on this report is true and accurate when written, but doesn’t guarantee the content.
To know more about this Interpublic bond call our fixed income specialist at 971-327-8847