steve fleming
31-07-2011, 10:03 AM
In my experience, quite often a capital raising event by a company ( ie a rights issue, option conversion or SPP ) creates an excellent buying opportunity - especially for micro-caps.
This is because there is ab-normal selling pressure and a lack of corresponding buying.
Selling generally occurs pre-issue as holders sell to fund their entitlement or conversion, or post-issue as holders rebalance their portfolio. Selling may also ocur by underwriters who want to maximise their take-up. Inevitably the share price will fall to be pretty close to the price of the raising, esp for illiquid micro-caps. So its a good opportunity to increase your stake or buy in, if you can't take part in the c/r or you can't get enough in the c/r.
The key is the selling generally is not fundamental related - and post issue generally the share price increases as the company is able to depoly the funds raised in value adding opportunities.
There are other advantages - including they are often priced to enable major shareholders to signifcantly average down the cost of their holdings.
Some micro-caps (sub $10m m/c) that personally interest me at the moment that are currently going through c/r's:
ATJ (promising green automotive parts maker)
- 1:1 rights issue @2c, price fallen from 5 to 1.8 currently
MLA (medical and vet device supplier )
- option conversion @2c, price fallen from 5 to 2.1 currently
ROB (Shell back door play)
- 2:3 rights issue @0.5c, price fallen from 2 to 0.7 currently
I personally have found buying around the time of a c/r generally very rewarding, its another strategy to use to take advantage of market mis-pricing, so just putting it out there.
There are heaps and heaps of others out there at the moment, so feel free to add any interesting other buying opportunies.
This is because there is ab-normal selling pressure and a lack of corresponding buying.
Selling generally occurs pre-issue as holders sell to fund their entitlement or conversion, or post-issue as holders rebalance their portfolio. Selling may also ocur by underwriters who want to maximise their take-up. Inevitably the share price will fall to be pretty close to the price of the raising, esp for illiquid micro-caps. So its a good opportunity to increase your stake or buy in, if you can't take part in the c/r or you can't get enough in the c/r.
The key is the selling generally is not fundamental related - and post issue generally the share price increases as the company is able to depoly the funds raised in value adding opportunities.
There are other advantages - including they are often priced to enable major shareholders to signifcantly average down the cost of their holdings.
Some micro-caps (sub $10m m/c) that personally interest me at the moment that are currently going through c/r's:
ATJ (promising green automotive parts maker)
- 1:1 rights issue @2c, price fallen from 5 to 1.8 currently
MLA (medical and vet device supplier )
- option conversion @2c, price fallen from 5 to 2.1 currently
ROB (Shell back door play)
- 2:3 rights issue @0.5c, price fallen from 2 to 0.7 currently
I personally have found buying around the time of a c/r generally very rewarding, its another strategy to use to take advantage of market mis-pricing, so just putting it out there.
There are heaps and heaps of others out there at the moment, so feel free to add any interesting other buying opportunies.