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| Delicious Combo! |
Reading the answer given to Bursa in August 2011, BJF made some interesting assumptions when pricing both their rights and their warrants.
At the then going price of 81 sen, the rights issue was priced at a 13% discount of 65 sen. The TERP was quoted at 75 sen. With that berth of 10 sen, it was assumed that shareholders will pick up the rights.
As for the warrants, since they have been given free, they wanted to impute a value on it as well. So, they decided that it should be priced at 70 sen giving the tradable value per warrant at 5 sen apiece higher than the 65 sen rights.
Let us used their logic to appraise the current price of BJF. will this be a true reflection or a mirage?
Let us take RM1.40 for convenient calculation. Let us also give it a 13% discount. That would work out to a fair support price of RM1.22 sen. Let us exercise the rights at 65 sen at 1000 shares. Total investment will be RM1.22+0.65=RM1,870 for 2000 shares. That means per 1000 lot is adjusted to RM940.00. At the theoretical support price of RM1.22, you stand to gain RM240.00. Selling off 2 lots of 1000 units will fetch you RM480.00 gross profits.
Will buyers invest in this counter when their shares are adjusted truly to at RM1.22 sen? Looks okay to me since you would still be taking in 28 sen of profit (29%) in such a short window of time.
Let us look the warrants. It will be priced at 70 sen still. So to convert, add 70 sen. Total outlay will be RM700 to change for 1000 shares. If the ex-price is RM1.22, then the TERP of each warrant should be 52 sen.
To a layman this is a bonanza of 52 sen per share. That is another RM520 for the piggy bank.
When the rights offer letter are traded, the opportunity to sell presents itself.
First you collect the 28 sen from selling the rights and then a potential 52 sen from the warrants. The take home will possibly be RM800.00 for one lot of 1000 shares.
Let us see what happens on 17 July or is this the warped and fickle workings of an infantile mind?
3 comments:
Hi, Thanks for sharing this in lay's man term. For exercising the rights, based on ur calculation does it means paying the current stock price with rights price entitles us to get 2 shares? Hence exercising a 1000 rights will cost share price+rights price * 1000 but you get 2000 shares?
It depends on the rights issue that one is entitled to. In BJF, it is a 4 new shares for 5 that you currently hold,
When BJF ex-all, it should open more than the adjusted price of 96.5 as the true value is about RM1.06.
When the rights was trading in OR form yesterday, it went down on market weakness to close at 59 sen.
If you add the last price before ex of RM1.43 to the Rights OR of 59 sen, then the true value will be RM2.02 or RM1.01 for the new rights.
Currently,the new price is just 6 sen from the price traded today of 95 sen.
If market sentiments improved, both BJF and the OR and then the new rights should trade at more favourable prices.
Also free-float is about 18+%. so the stocks can be manipulated before the new rights get traded.
Thank you for the explanation. So do company usually mail the forms to shareholder to purchase rights or we have to fill in the form posted on bursa?
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