The introduction is written for any new holders who aren't aware of old circumstances.
Following the Covid shutdown in March and April, CLT was forced to raise money to meet it's debt covenants.
In May CLT did a very heavy CR. 2.7 for 1 entitlement at 3c fully underwritten by Thundering Herd (TH). TH acquired too many shares and are now selling some at a huge profit.
Anyway, just after the CR, the shutdown ended, and trading resumed with a bang in June and has accelerated since. So much so that the $5m+ raised has never been utilised. Furthermore to help conserve cash, during the Covid peak, directors wisely took a pay cut to which some were voted, at the AGM, to receive options in lieu. Three directors each received 5m oppies at 3c (same price as CR) with conditions: 1m after SP maintained 5c for five consecutive days, 2m when SP achieved 10c and a further 2m at 15c for 5 days. (SP was about 4c when these conditions were introduced). Expiry from memory in 2023. Now we see 2 directors have already converted the first tranche when 5c was achieved.
Why convert early? General reasons can be to vote, sell, participate in a pro rata entitlement or to have most exposure to dividends or a capital return. To me the only one that makes sense is the last one at this time.
CLT were paying a 1.25c divvie up to a couple of years ago when trading became subdued. It needs to be remembered that there were, at that time, only about 25% of the number of shares on issue. Nevertheless, CLT is over 50% owned by Deputy Chair's private company (Wentronic) so as always cash received is always welcome.
Now I read somewhere that management were looking at how to utilise the $5m just raised. Choices were to buy another investment, (there may still be some cheap-- but hopefully good-- companies out there) or are looking at CAPITAL MANAGEMENT. (Their words).
I believe that there is a strong chance that capital management could include a return of funds by either divvie or capital return to shareholders. (Share buy-back is another doubtful? possibility) I originally thought a divvie was possible at end of FY, but these early conversions have me wondering if it will be announced at HY. Companies holding too much cash is never a good idea.
Separately, public companies in which a major SH has too much control never achieve their full potential as far as the SP is concerned. For one, there is not enough free float to get a decent quantity at a price and two, instos don't like to see too much control in one hand. This is one reason former Chairman Wendt (50% owner), relinquished control to become deputy chair. And the fact that TH are releasing more shares may interest some small instos. Nevertheless small retail investors and day traders will be responsible for CLT's movements in the short term. I do, however, believe this has quite a way to run and a divvie will certainly assist this retiree investor to add.
Good luck to all.
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