Tinwins asked “wish i understood how the campa worked” CAMPA are...

Tinwins asked “wish i understood how the campa worked”

CAMPA are a converting preference share with a fixed dividend of 18c pa plus franking (present gross yield 18.2%). They convert at end April 2017 - each CAMPA converts to 1.387 CAM’s.

Using current prices (1.41/0.88), the effective return on CAMPA to May 2017 is 11.2% pa - compared to CAM’s 7.8% (assuming it maintains the same dividend rate on the ords). If CAM’s share price can get back to $1 by April 2017, IRR increases to 17.4% pa, compared to CAM’s 14.8%. CAM share price will have to be higher than 1.70 before the CAM return beats CAMPA, and then the return on each will be more than 45%pa so still “quite acceptable”.

The advantage of CAMPA over CAM is the preference dividend (CAMPA must be paid first and there is a dividend stopper on the ords if CAMPA’s dividend isn’t paid in full), plus the better overall return.

Why CAM are buying back the ords instead of the preference stock eludes me. As always, DYOR.