Forum Archive Index - November 2000

["nel moore" <moorenel@hotmail.com>]

Thanks for all the comments re the rights issue.
  It appears to me from what has been said that holders of FFS having bought 
in at higher than current prices will be working against themselves by 
taking up the rights issue and pushing the share price down further.
I wonder if in fact many will see it like this and wont bother taking up the 
issue?  I for one am now unsure that there is much point.
What a fiasco the whole FCL stable looks at present.
Or is that too pessimistic?
Nel

>From: Derek <dkw@paradise.net.nz>
>Reply-To: sharechat@sharechat.co.nz
>To: sharechat@sharechat.co.nz
>Subject: Re: Re: [sharechat] FFS Rights
>Date: Thu, 09 Nov 2000 18:22:36 +1300
>
> >Thanks Derek
>
> >Can you explain for me the maths for working out that the FFS price 
>should
> >in theory drop to 28 or 29 cents? Is this something to do with head share
> >dilution coupled with time until expiry of the rights? (Thanks for your
> >patience and please excuse my ignorance.)
> >=======================================
> >Peter Riches
>
>Hi Peter, no problem.
>
>I see Harry has replied to you, here is my follow up as well.
>
>The assumption that I believe is generally made is that the current share
>price takes into account the fact that a rights issue is about to occur. In
>other words the current price is equal to the sum of all securities held
>after the issue.
>
>FFS will issue 2 new shares for each share held at a cost of 25c for each
>new share.
>The theoretical price of fully paid shares after the issue can be
>calculated by taking the current share price, adding the amount that needs
>to be paid to take up the rights issue per share ((current price 34c) so
>34c + 2 * 25c =  + 84c) and dividing by the final number of shares that one
>share will split in to (in this case 3). 84/3 = 28c
>
>Therefore you can expect that the shares will trade at 28c after the issue.
>
>The rights can be expected to trade at 28c - issue price = 28-25 = 3c
>
>Note that the sum of the new shares 28 + 3 + 3 equals the current share
>price (34c).
>
>If the market has under-estimated what FFS post the issue is worth and say
>for example that FFS will be trading at 29c after the issue (note that this
>is only 1c more than 'theoretical') then if you bought at the current price
>of 34c then you would have made  100 * (29 + 4 + 4) -34  / 34  =  8.8%
>
>If they trade at 30c post-issue then you'd have made 17.6%
>
>If on the other hand the market has over-estimated what FFS post issue is
>worth and say for example that FFS will be trading at 27c after the issue
>(note that this is only 1c less than 'theoretical') then if you bought at
>the current price of 34c then you would have lost  100 * 34 - (27 + 2 + 2)
>  / 34  =  9.1%
>
>Therefore there is very high gearing in FFS at the moment if you wish to
>buy now and sell immediately after the rights are issued.
>
>The above assumes that the difference between the rights and the head
>shares remains 25c and this may not be the case since gearing is alot
>higher in the rights (but the time that they will be traded is short) they
>can expected to be trading at a small premium.
>This would work in your favour were you to buy at the current price.
>
>But there is also the possibility that some people are waiting for the
>split to sell so watch out for that one.
>
>However I must retract my comment that the downside appears minimal, here's
>an extract from the Herald:
>"Fletcher Forests shares could fall as low as 10c if the company does not
>resolve a dispute with its Chinese forestry partner Citic, says a broker
>report."
>
>The link to the full article is on the front page of sharechat.
>
>bye,
>
>Derek
>
>(bought some more FFS today at 33c)
>
>
>
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