1. CALCUALATING EX RIGHTS SHARE VALUEThere were a few comments...

1. CALCUALATING EX RIGHTS SHARE VALUE

There were a few comments recently by HC members on their calculation of the value of IMP shares on an ex rights basis. Someone indicated that a few back of the envelope calculations indicated that he/she thought that $0.027 or $0.028 would be a fair value. For a reference point I think we should at least consider using the accepted financial management equation of:
Mx = NMw+S ÷ (N+1) to value the shares ex rights.

2. THE NEED TO DETERMINE THE SHARE MARKET TRADING PRICE (CUM RIGHTS) TO DO THE CALCULATION i.e. (Mw in the above equation.

Before making the calculation you need to decide what value you are going to use for share price value of Mw. This is the biggest variable to determine the ex rights value. What would the market price be, that truly reflects the value of IMP shares trading with rights, taking into consideration the initial success of the drilling program, and the optimism in the market of the increased share value? Dates to note are:

18-04-06- Date of announcement of rights issue
09-05-06 - Last day for trading with rights entitlement
16-05-06 - Record date for rights issue
06-06-06 - Closing date for rights issue
15-06-06 - Expected date trading of new shares

Prices to note are:

$0.014 - 18-04-05 - Closing price on announcement
$0.020 - Average price from 18-04-06 to 09-05-06
$0.033 – 09-05-06 - Last day of trading cum rights.

So if might be useful to make calculations for the share price (ex rights) based on market share values of $0.014, $0.20 and $0.033.

3. COMPARING THE 3 POSSIBILE VALUES

So the calculations for these prices using the formula
Mx = NMw+S ÷ (N+1) would be:

$0.014 (Price on 18-04-06 at end of trading on day of announcement)
Mx = 4 $0.014 + $0.008 ÷ (4 +1) = $0.013

$0.020 (Average trading price of shares during 15 days Rights offer was available)
Mx = 4 $0.020 + $0.008 ÷ (4 +1) = $0.018

$0.033 (Final share price on 09-05-06 on last day of trading cum rights)
Mx = 4 $0.033 + $0.008 ÷ (4 +1) = $0.028

So the ex rights share price using this formula should be between $0.013 and $0.028.

But of course as we all know, the market is not always fully informed, and it depends on what the punters think, and possibly manipulation of the share price that might go on behind the scenes by the big players.

So based on these calculations, and taking into consideration the following five points –
WHAT WOULD BE A PRUDENT RE ENTRY PRICE?

1. The market now has all the good news it is going to get before the announcement of the gas flow rates at the end of May

2. On the 16th May everyone will finally accept trading in the shares is ex rights even though it has been since the morning of 10th May

3. An extra 49% of shares will be issued by the rights offer and convertible notes capital raisings (507,667,827 in total)

4. That profit taking is likely to occur at random by the big players in the market

5. That no significant unforeseen gas or oil strikes are made and announced

I feel that in the coming months we are likely to see some big rises and falls in the price of IMP shares, and there may be fortunes won and lost by some. Selecting the appropriate entry and exit prices will therefore be critical so as not to loose your shirt.

So guys what’s your opinion of a prudent entry price?