equity raising

Share price predictably off today with the announcement of an equity raising. The question is whether holders should sell or take up their entitlements under the 1 for 3.25 offer at 50c.

AUO is saying that the first half will be poor and lists a number of reasons why. They make a big point however of stating that the second half will be very strong and forecast $15-18m after tax profit for the full year to 31 December.

At a share price of 60c, the AUO market cap is $97m. The equity raising will bring in $29m (pre costs). Using the lower end of the forecast profits range of $15m, this implies a full year p/e of only 8.4x.

Given that the profit for 2004 is mostly (only?) coming from the second half, the real ongoing p/e might be only about 4-5x.

My conclusion then is that the AUO story remains very attractive - I will take up my entitlements.

Good investing!