The premise for our exchange was on the basis for conservation...

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optimistus

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22/02/21

21:48

Post #: 51228962
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Originally posted by madamswer: ↑

"If they want the $50m (or $100m) they could reduce the distribution further or do a Capital Raising. The asset would go up in value so I'd be happy either way."

At the current level of 23cp (assuming an annualisation of the FY2021 interim dividend), that equates to around $16m of annual distributions, meaning that if they wanted to effectively raise capital by reducing the distribution, it would require cancelling of the distributions for a full 3 years (to merely conserve ~$50m, the lower figure you quoted.)

As for the merit of a capital raising, (you say you'd be happy because the asset would go up in value anyway), how does the fundamental value of an asset increase when the equity capital being raised gets deployed at a rate of return which is lower than the cost of that equity?

"I'm happy to wait but if you think CDP is such a crappy prospect why don't you sell?"

It an insignificant position for me.

Besides, like I said; I am not in a position to sell it myself [*], otherwise I would already have done so some time ago, because I clearly don't believe CDP presents a good long-term investment proposition.

[*] I have carved out a sliver of my family's capital to a younger family member to manage; for the past few years he had been learning about finance and valuation and last year he stepped up to learn about portfolio management. He owns CDP and I don't care to influence him because the investment returns he generates need to be of his own doing.

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The premise for our exchange was on the basis for conservation of Capital for a major refit.

Presumably management would only deploy the Capital IF they judged the rate of return on that Capital to be sufficient to justify the investment. It's possible they have a number of more modest renovations and developments in mind rather than the substantial refit you suggested. Are you suggesting they could not achieve a decent rate of return from redeveloping the Hungry Jacks site (and similar such projects)?

I'd be surprised if the management hasn't considered well in advance the amount(s) required for the suite of possible renovation projects, timing and likely source(s) of funds along with the likely rate of return.

I thought CDP might be a touch more parsimonious on the last distribution so I've taken their generosity (with our money) as a sign of confidence.

Weren't you muttering something earlier about the need to rein in dividends? Maybe you should ask your new charge to write to management.

CDP Price at posting: $4.23 Sentiment: Hold Disclosure: Held
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