margin calls

AFR today (Tue) reports that a number of lenders have reduced the LVR on Allco as a result of recent volatility. I suspect this is what drove part of the downturn yesterday and may continue to do so for the next few days as punters and lenders reduce their positions.

I guess we will know one way or the other next week when the results are due. I'd say that if the stock starts to increase early next week it will be a good sign. If we see the price go off much more, it's probably going to be bad news.

With the directors having so much at stake, both reputation and economic, I would say they have a vested interest in delivering some very good news next week. They have agreed with margin lenders not to sell down any more of the pricipals holding until after the results announcement. This signals to me the fact that they expect the share price to rally and thus remove the need for any more sales to cover margin calls.

Last time the stock dropped significantly, Kinghorn took the opportunity to increase his stake. Maybe we will see him take the current low price to increase it even more. I would view any increase in his holding in the next week or so as a very positive long-term sign.