Interest in the shares is likely to continue prior to the record date for the rights issue, but after this date, how low is the price likely to fall?
Over the last 6 sessions, the sum of the VWAP works out to about 3.65c (weighted for daily volume)…every day it trades above this level now will only increase this number.
This is significant and in my opinion helps explain the interest in the options as the price has corrected.
So how low will she go?
It might all come down to what the punters have paid and what the VWAP ends up at in the lead up to the record date.
Example 1…(assume VWAP = 3.6c)
Buy: 100,000 shares at 3.6c Buy: 50,000 shares at 1.5c (rights entitlement) Total outlay: $4,350 Shares in hand: 150,000 Options in hand: 25,000 (free attached upon rights conversion) Average buy price: shares 2.9c (options free)
Example 2…(assume VWAP = 4.0c)
Buy: 100,000 shares at 4.0c Buy: 50,000 shares at 1.5c (rights entitlement) Total outlay: $4,750 Shares in hand: 150,000 Options in hand: 25,000 (free attached upon rights conversion) Average buy price : shares 3.16c (options free)
Example 3…(assume VWAP = 4.5c)
Buy: 100,000 shares at 4.5c Buy: 50,000 shares at 1.5c (rights entitlement) Total outlay: $5,250 Shares in hand: 150,000 Options in hand: 25,000 (free attached upon rights conversion) Average buy price: shares 3.5c (options free)
It might be safe to assume that the above-mentioned “average cost” is expected to be the worse case fall-back price for each scenario.
Another view, might be the importance of the closing price on the rights record date, which should have an important psychological effect…for example a 4.5c close, after adjustment for the rights issue, should result in the price only falling back to say 3.5c.
Example 4…(record date price 4.5c)
Buy: 100,000 shares at 4.5c Buy: 50,000 shares at 1.5c (rights entitlement) Total outlay: $5,250 Shares in hand: 150,000 Options in hand: 25,000 (free attached upon rights conversion) Average buy price: shares 3.5c (options free)
Example 5…(record date price 5c)
Buy: 100,000 shares at 5c Buy: 50,000 shares at 1.5c (rights entitlement) Total outlay: $5,750 Shares in hand: 150,000 Options in hand: 25,000 (free attached upon rights conversion) Average buy price: shares 3.8c (options free)
In the end, the post record date price may well settle somewhere between the above mentioned technical and psychological figures.
On the upside, the rights issue is non-renounceable…this is designed to keep the amateurs and traders out and as such, will attract mainly professionals, who generally have a longer term view.
On the downside, the free attached options will also have value, resulting in a slightly lower “average buy price” paid for the shares.
Interestingly, the options should possibly see some additional activity directly after the record date, as many of the new recipients of the free options buy more to add to their new but unmarketable parcels.
Cheers!
RRS Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
