BJFoods-Sellers Dumping Options?

A Cup of Kindness

I wonder why?

With just 18 trading hours to go, yet we see sellers dumping their shares down to RM1.33 this evening. 1,370 lots of 100 units changed hands. Day seller? Anyway, small potatoes.

The question is what gives?

Who are these sellers? Why are they selling at the 13th  hour when they can buy the new rights at 65 sen only on 12 July?. Or is it they know something we do not?

As I know, it is a rights issue and one has to pay another RM650. Plus the investment of  RM1400 you have to pay on a cum purchase, it will add up to RM2.050. this means for 2000 share, you could make a gain of  30 sen per lot. For 2 lots there should be a RM62 sen gain (RM600)

Then, there is the warrants given gratis with a conversion rate of RM0.70 per lot. This is also trade-able. To convert into 1000 BJF shares, you need to pay 70 sen or only RM700.00.

If the mother share continues to trade about RM1.30 ex, it means you will stand to gain 60 sen profit per new BJF shares on converting grossing  a profit of RM1,200 for 2 lots of 1000 new shares.


The  theoretical gross profit then should amount to RM 1,800 at the end of the exercise with the price staying at RM1.30.


To ensure the uptake of all the rights, it is pretty sure that the 'powers that be' will try to keep the share price at RM1.30 or above to show a ringgit for ringgit return on the rights issue.


Let us assume that you only bought 1000 shares at RM1.36. What would you gain in terms of new shares and warrants and what could be your returns?


The factor to be used here is 0.8


As you will only get 800 shares per 1000 shares held, you will have to pay RM520 for the rights. You will also get 800 free warrants.


As you have bought the mother share cum rights at RM1.36, it means you have paid about RM1,400  for the shares (plus overheads). If you add this amount to the rights issue price outlay of RM520, it will add up to RM1,920. That means cost  per share to you will be RM1.06 sen; with a safety trading margin of  0.27 sen.


When the share goes ex on 12 July, watch out for any premiums. If it goes up beyond the last trading price on11 July , then you can get back you capital by selling off the mother share to let the new rights at 65 sen ride the high wind.


It it does not, be an investor and pray hard that Starbucks will do the magic by August 2012.


Also, throw the warrants for good measure if you do not want to take on an option for future gains.