26c will be the low point for apn

I can't risk sticking my neck out here. I think this stock is the cheapest I can find at this time. Everyone is worried about a rights issue so much, that APN has underperformed all the media stocks that have already had rights issues. Check the graphs of APN versus SWM, FXJ and TEN over the last year. All of the others have had rights issues yet APN has underperformed them all.

The fall in APN's share price on Friday to this new low is, in my view, largely artificial. APN was dropped from the S&P 200 and that occurred on Friday. After 4PM EST, 16 million APN shares changed hands, compared to 4 million shares trading for the whole of the rest of the day. IAU, LNC and MAH were also dropped from the S&P 200 and they all traded heavily and fell heavily on the close as well. Fund managers, who mirrow the indices, sell the shares that are dropped from the S&P indices and buy the ones added to the indices and they do it on the day that the change occurs as announced by S&P. Incidentally SWM was dropped from the S&P 100, which tends not to be as volatile on the change, but they had a bad day on Friday too. SWM and FXJ both rose more than 50% from their lows over the last six weeks or so although both appear to have topped out now. But for those two stocks to rise so sharply while APN has fallen sharply just doesn't make sense to me.

When Kerry Stokes announced at the Seven West AGM that SWM would be trying to equal its previous year's profit in the current year, the company was trading on a Price earning ratio (PE) of around 5 and it jumped from $1.07 to $1.68 in the weeks following the announcement. APN advised a week ago that their profit forecast was $51 to $54m putting them on a PE of around 4 at the time of the announcement and they have fallen since then from 32c to the current all time low of 26c for which the price earning ratio is an amazingly low 3.2. I honestly thought that APN would rise on that announcement like SWM has done.

APN has managed to avoid a rights issue so far while all the other main media stocks have had them. I would certainly prefer that they don't have a capital raising because debt is much cheaper than equity right now. But if they do,I will just take it up. The stock has already fallen more than the others so how much further can it fall and how low can that PE go.

I also feel that rights issues are not quite as destructive right now as they have been earlier in the year. Shareholders in Ten are better off now than they were prior to the announcement of this latest capital raising if you take in the value of their entitlements. It is the same for Macmahons, too.

APN traded at 94 cents in March this year and at $2.54 in 2010 and they are 26 cents now. In my view the fall is way too much for a company that's profit is down by a third on the previous year but still OK.

Consider this to be my xmas gift. Pity we can't hide these posts if we get them wrong :)

Merry Xmas

GPASAS