Warrants?

[justakiwi]

Trying to get my head around warrants. If I'm understanding it correctly, a company issues free warrants to current shareholders - which they can then exercise at a set later date to purchase ordinary shares at a set (presumably) discounted price? But these warrants can be traded on the open market if the holder doesn't want to exercise them, so the buyer can then exercise them at exercise date?

There are currently Kingfish warrants currently trading for $0.065.

Found some info on them on the Kingfish site as below:

Exercise Price will be $1.32


Adjusted for dividends declared during the period up to the Exercise Date. The final
Exercise Price will be calculated before the Exercise Date, and we will advise you at least 20 days before the Exercise Date.

As an example, if the warrants are allotted on 10 May 2016 and the aggregate amount of the quarterly dividends declared by Kingfish between 10 May 2016 and 5 May 2017 is 10 cents, then the Exercise Price would be $1.22 (i.e. $1.32 less $0.10).


I'm thinking it might not be such a bad idea to buy some. Depending on what the final exercise price is it could be good (and affordable) way to build my holding. Question would be - if I do decide to do this should I buy them now and take the risk they could drop in price between now and exercise date OR should I wait till closer to the time?

Good idea or not?

[kiora]

Trying to get my head around warrants. If I'm understanding it correctly, a company issues free warrants to current shareholders - which they can then exercise at a set later date to purchase ordinary shares at a set (presumably) discounted price? But these warrants can be traded on the open market if the holder doesn't want to exercise them, so the buyer can then exercise them at exercise date?

There are currently Kingfish warrants currently trading for $0.065.

Found some info on them on the Kingfish site as below:

Exercise Price will be $1.32


Adjusted for dividends declared during the period up to the Exercise Date. The final
Exercise Price will be calculated before the Exercise Date, and we will advise you at least 20 days before the Exercise Date.

As an example, if the warrants are allotted on 10 May 2016 and the aggregate amount of the quarterly dividends declared by Kingfish between 10 May 2016 and 5 May 2017 is 10 cents, then the Exercise Price would be $1.22 (i.e. $1.32 less $0.10).


I'm thinking it might not be such a bad idea to buy some. Depending on what the final exercise price is it could be good (and affordable) way to build my holding. Question would be - if I do decide to do this should I buy them now and take the risk they could drop in price between now and exercise date OR should I wait till closer to the time?

Good idea or not?





Theoretically looks OK but reality may be different.There may be an arbitrage for a reason.Look at previous warrants and how they performed as well.The Warrants may end up worth nothing and you will have blown your dosh

[justakiwi]

Look at previous warrants and how they performed as well.The Warrants may end up worth nothing and you will have blown your dosh

Stupid question but how/where can I see the performance of previous warrants?

[kiora]

Stupid question but how/where can I see the performance of previous warrants?

google.com
kflwa

[justakiwi]

google.com
kflwa

OK, I shall rephrase that ;) What am I looking for in terms of warrant performance? The final exercise price previous warrants went for or what?

[stones]

Email Kingfish. Maybe they can help. I remember paying 90 something when the price was in the 80s but if you hang onto them you should reap Ok. Patience is a virtue...

[macduffy]

I hesitate to join this discussion because the subject of warrants is so wide - but......

- I wouldn't buy an option in a company that I would not select to buy shares in.

- Past performance of warrants - in any company - is no guide as to how any other warrants might perform.

- There is often a "time value" element in the value of the warrant, i.e. the longer until first option to exercise, the greater the "apparent" value in the warrant. Two elements at play here - the time value (DCF) of money and the uncertainty factor.

- Is there an extended period to exercise or is it a limited, one-off date? i.e. does one have a choice in the matter of timing?

- Is the market in the warrants sufficiently liquid to enable sale, if necessary?

[justakiwi]

I hesitate to join this discussion because the subject of warrants is so wide - but......

- I wouldn't buy an option in a company that I would not select to buy shares in.

I recently purchased 1000 Kingfish shares which is why I am thinking the warrants could be a good way to increase my holding at a discounted price.


- Past performance of warrants - in any company - is no guide as to how any other warrants might perform.

Yep, I've pretty much got the "past performance is no indication of future performance" message drummed into my head already ;)


- There is often a "time value" element in the value of the warrant, i.e. the longer until first option to exercise, the greater the "apparent" value in the warrant. Two elements at play here - the time value (DCF) of money and the uncertainty factor.

- Is there an extended period to exercise or is it a limited, one-off date? i.e. does one have a choice in the matter of timing?

There is no specific date for when you can first exercise warrants but the website says "a form will be sent to you well before the Exercise Date" - whether that's a month or two months or whatever, I have no idea. Exercise date is 5th May 2017 and that's the cut-off date. If one hasn't exercised their warrants by 5pm that day the offer automatically lapses.


- Is the market in the warrants sufficiently liquid to enable sale, if necessary?

I don't know how one measures "sufficient liquidity" but we are only talking small amounts of money here. I have no idea if there is a minimum order for warrants but at the moment I'm thinking of around 500 warrants. They are trading today for $0.065 so if I bought them at that, and for some reason decided down the track not to exercise them but to sell them - we are not talking a lot of money. On the other hand, if I did buy them and exercised them at what ended up being a significantly discounted price (at exercise time) it would be a good way to increase my little holding at a lower cost than buying ordinary shares at the market price.

[huxley]

Options?! When you started your thread you were lamenting the "low" returns currently available from term deposits.. Looks like you've really turned the risk dial up to 9000 from that point!

Good luck !

[justakiwi]

Options?! When you started your thread you were lamenting the "low" returns currently available from term deposits.. Looks like you've really turned the risk dial up to 9000 from that point!

Good luck !
I'm not sure if you're being sarcastic or not - don't know you well enough to judge that yet, but 500 warrants at $0.065 = $32.50 plus $30 brokerage = $62.50. If I decide not to exercise them down the track, that's what I've lost (wouldn't be worth selling them). If I do decide to exercise them at (who knows) say $1.22 and the share price is around what it is now, then I can add an extra 500 shares to my Kingfish holding, for around $600. Which means a few more "bonus" shares at dividend time.

I'm a beginner. I am trying to get my head around my options and weigh up the pros and cons of any action (or inaction) I take. This just seemed like a way to add to my holding without paying market prices.

Of course, I could be blonder than I thought and all of this could be a really bad idea.

[kiora]

I'm not sure if you're being sarcastic or not - don't know you well enough to judge that yet, but 500 warrants at $0.065 = $32.50 plus $30 brokerage = $62.50. If I decide not to exercise them down the track, that's what I've lost (wouldn't be worth selling them). If I do decide to exercise them at (who knows) say $1.22 and the share price is around what it is now, then I can add an extra 500 shares to my Kingfish holding, for around $600. Which means a few more "bonus" shares at dividend time.

I'm a beginner. I am trying to get my head around my options and weigh up the pros and cons of any action (or inaction) I take. This just seemed like a way to add to my holding without paying market prices.

Of course, I could be blonder than I thought and all of this could be a really bad idea.

If others thought it was a good idea they would have already done it :mellow:

[777]

If others thought it was a good idea they would have already done it :mellow:


How do you know they haven't?

[huxley]

How do you know they haven't?

therein lies the risk...

[justakiwi]

therein lies the risk...

I'm sorry but I'm not getting it. How is this any more risky than me deciding to go buy another 500 shares on Monday at the current market price? I would have thought it was actually less risky. Worst case scenario I waste $62.50 (if I bought 500 warrants and didn't exercise them). Best case scenario I end up with an extra 500 shares at a significantly cheaper price than whatever the market price is on exercise day. If I was talking thousands of warrants then yes, it would be pretty risky, but I honestly don't see a huge risk in what I'm thinking of doing.

What am I missing :confused:

[mfd]

The market for this should be reasonably efficient, so the pricing should be such that buying warrants doesn't increase your likelihood of profit (otherwise others would have spotted the opportunity and driven the price up). Unless you think you know better than the rest of the market (I certainly don't), you're relying purely on luck for this to work out in your favour. You're most likely just adding unnecessary complication. The other phrase to remember is 'there's no such thing as a free lunch'.

[kiora]

The market for this should be reasonably efficient, so the pricing should be such that buying warrants doesn't increase your likelihood of profit (otherwise others would have spotted the opportunity and driven the price up). Unless you think you know better than the rest of the market (I certainly don't), you're relying purely on luck for this to work out in your favour. You're most likely just adding unnecessary complication. The other phrase to remember is 'there's no such thing as a free lunch'.

But their can be hidden gems :)

[stones]

I'm sorry but I'm not getting it. How is this any more risky than me deciding to go buy another 500 shares on Monday at the current market price? I would have thought it was actually less risky. Worst case scenario I waste $62.50 (if I bought 500 warrants and didn't exercise them). Best case scenario I end up with an extra 500 shares at a significantly cheaper price than whatever the market price is on exercise day. If I was talking thousands of warrants then yes, it would be pretty risky, but I honestly don't see a huge risk in what I'm thinking of doing.

What am I missing :confused:

I dont think you are missing anything - you seem to have analysed the situation reasonably well. On past history the warrants having been converted to shares get rewarded with a good divi though share price doesnt move too much.

[Not too Flash]

Looking at Kingfish warrants - exercise date is only 3 months away - estimated at $1.22 - current share price $1.36 - 14c difference

Thinking of buying a few thousand @ 6 cents - to hopefully double money

Any fish- hooks ??

[Snow Leopard]

Looking at Kingfish warrants - exercise date is only 3 months away - estimated at $1.22 - current share price $1.36 - 14c difference

Thinking of buying a few thousand @ 6 cents - to hopefully double money

Any fish- hooks ??

This looks too good to be true but the only issue I can see (apart from a possible decline in the NZX and thus KFL) is that in order to realise your gain you may have to front up $1.22 a warrant come May and actually convert to head shares, which you can then sell.

So you will need ready cash at the time.

Best Wishes
Paper Tiger

[Snow Leopard]

Dilution - we are probably forgetting about the dilution caused by the warrant to share conversion. Must do some real sums before posting further.

Best Wishes
Paper Tiger

[Snow Leopard]

Exhibit A:
http://i7.photobucket.com/albums/y269/TheTigerWithNoName/SharetraderImages/NZX-KFL/NZX-KFL-20170214-1.png

The next dividend will lower ALL the NTA row values by the same amount so do not worry about it.
Otherwise we assume the NTA does not change.

The current exercise price of a warrant [$1.32 - 8.44c of divvies] is $1.2356, add in you 6c to buy the warrant and your total buy price is effectively $1.2956.

When those KFLWD all become KFL then the NTA of the KFL drops by
3c a pop [$1.3853 > $1.3559] and we will assume so does the buy and sell.

So maybe you can sell for $1.33 what you bought for $1.2956.

But prices rise and fall and there maybe other stuff involved because I am not up to speed on the KFL fee structure, etc.

Best Wishes
Paper Tiger

[macduffy]

But prices rise and fall and there maybe other stuff involved because I am not up to speed on the KFL fee structure, etc.


And you will need to make an assumption as to how many warrants will actually get exercised and how many will expire, worthless, in "bottom drawers".

:confused:

[Not too Flash]

Thanks very much for your input - especially from the striped one who have enjoyed reading and has taken sometime to help.
I note that about 79% converted in 2015 when the difference was 5c so the dilution may not be quite as much as 3c
Might take a small punt on the warrants as the length of time between stumping up to exercise and the selling may be short

Cheers

[Snow Leopard]

Happy to help - I thought it might have been something I could use to make money myself but...

doing some more sums I do not see that the risk reward ratio particularly stacks up:

Buying 10,000 KFLWD gives a nominal weighted return on equity employed of 18.5% at $274.89 profit, which is not a lot [and you need another $12,100 for (say) a week in May]

Buying 170,000 KFLWD and those numbers are 20.7% & $5,132.21 but you would need $205,547 for May and that (for me at least) is awkward.

If the NTA (and the price you can sell for) goes up over the next three months then you obviously make more :t_up:.

But a 3c drop in a realizable sell price and it is break even only :(.

So not a game I am going to play but well spotted.

Best Wishes
Paper Tiger