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View Poll Results: Should the 2018 Picks Comp allow for the impact of rights issues?

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  • Yes

    14 51.85%
  • No

    13 48.15%
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  1. #11
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    Never participated in this but for what its worth I think if you make a prediction in January for the performance of a stock over the year the potential for rights issues (or not) over the year should be considered at the time you make your selection.

    Never a good idea to over complicate a parlour game...unless everyone promises to stay sober!

  2. #12
    Antiquated & irrational t.rexjr's Avatar
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    Any rights are valueless unless taken up (bought) or transferred (sold) are they not? Neither of which is possible once comp is underway. In a similar light I assume one can’t opt for DRPs. At some point to convert them, cash is required. Cash we don’t have as it can only be spent on not staying sober.
    Last edited by t.rexjr; 06-12-2017 at 10:38 PM.

  3. #13
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    Quote Originally Posted by Paper Tiger View Post
    I see that you can complicate it even better than I can.

    If you are going to buy an 2,000 new shares @ $1.10 ($2,200) then you need to sell sufficient existing shares to provide that $2,200.
    So if the market price at that time is (for example) $1.15 you sell 1,913 shares to buy 2,000 shares and you gain is 87 shares.

    End of year = 10,087 shares at $1.2 = $12,104.35 or 21.0435%

    [Then remember to handle the interim dividend on 10,000 shares before 30-jun and the final dividend on 10,087 after 30-jun)
    Quite like this model PT. Simple.
    dividend handling is easy...

    If we do it, will do it that way...

  4. #14
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    Quote Originally Posted by winner69 View Post
    Snoopy had a good suggestion as to how to handle rights

    Can't quite recall what it was but it was good
    The discussion may be found here.

    https://www.sharetrader.co.nz/showth...-Contest/page2

    To put this in the context of Sylvestor's theoretical Heartland cash issue of June 2018

    $10,000 worth of base shares at $1 per share means each share is worth $1 at the start of the year (I prefer to think on a 'per share' basis).

    On 30th June 2018, new shares were offered at $1.10, in a ratio of '2 for every 10' (one share for every 5 held). Put another way, this means that for every 1 share held, each shareholder was entitled to 0.2 of a new share at a price of $1.10.

    Translating this into algebra for any time after the cash issue, leads to the following equation for determining the equivalent rights issue value adjusted price from any future subsequent market price 'P' on any future date.

    P + 0.2(P-1.10)
    =1.2P-0.22

    Note that in the equation above, the $1.10 rights issue price is subtracted out of the equation. Thus the end result only reflects the market premium to the cash issue price that applies on competition close date. The $1.10 that the investor put in to buy each new share is not counted.

    As an example, with an end of year 2018 market closing price of $1.20, this equates to a 'rights issue adjusted closing price' of:

    1.2($1.20) - 0.22 = $1.22 (*)

    All of the above assumes that the new shares are retained by the investor. If the new shares are sold by the investor then you could treat that sale price above the cash outlaid as an 'extra dividend' as some others have suggested. But then of course you have the extra complication of determining what the sale price is....

    SNOOPY

    (*) This is slightly different to Sylvestor's answer of 19.7%. Sylvestor has taken into consideration the 'time value of money' and doubled the annual percentage return on the rights shares because they were held over only six months, which I haven't done. But he has also included the full return on the new capital required to take up the new shares. That's not 'wrong'. But I don't think it is within the spirit of the rules to introduce new capital into the competition for only those competitors who happen to pick a share with a rights issue that comes up later. I prefer my approach where the new capital is subtracted out. That means my calculated return is from the 1st January shareholder capital only, which is I think the fairer approach.
    Last edited by Snoopy; 07-12-2017 at 03:47 PM.
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  5. #15
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    bumping......

  6. #16
    Reincarnated Panthera Snow Leopard's Avatar
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    Exclamation Does not work like that in the real world

    Quote Originally Posted by Snoopy View Post
    ...
    On 30th June 2018, new shares were offered at $1.10, in a ratio of '2 for every 10' (one share for every 5 held). Put another way, this means that for every 1 share held, each shareholder was entitled to 0.2 of a new share at a price of $1.10.

    Translating this into algebra for any time after the cash issue, leads to the following equation for determining the equivalent rights issue value adjusted price from any future subsequent market price 'P' on any future date.

    P + 0.2(P-1.10)
    =1.2P-0.22

    Note that in the equation above, the $1.10 rights issue price is subtracted out of the equation. Thus the end result only reflects the market premium to the cash issue price that applies on competition close date. The $1.10 that the investor put in to buy each new share is not counted....
    The issue I see with your approach Snoopy is that to achieve this you effectively have to make an interest-free loan for the entire value of the rights issue to the contestant.

    They are getting new shares for nothing and they get the upside of any leveraged gains (or the downside of the loss).

    Best Wishes
    Paper Tiger
    om mani peme hum

  7. #17
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    Don't forget to vote this poll stays open until December 16th, so will make a decision then. Great comments discussion so far too...

  8. #18
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    Quote Originally Posted by Paper Tiger View Post
    The issue I see with your approach Snoopy is that to achieve this you effectively have to make an interest-free loan for the entire value of the rights issue to the contestant.

    They are getting new shares for nothing and they get the upside of any leveraged gains (or the downside of the loss).

    Best Wishes
    Paper Tiger
    I agree it would be unwise to make an interest free loan part of the competition. But I am not suggesting that.

    My equation for the 'one in five' ( 1/5 =0.2 ) rights issue takes the market price for each new share and removes $1.10 from that price.

    P + 0.2(P-1.10)

    That $1.10 is the price that the rights holder must stump up for new shares. So yes, you can say that I am giving the shareholder $1.10 to take up each new share. But in the same breath I am removing $1.10 from the post rights issue valuation. I am giving the shareholder $1.10 and taking away $1.10 so the net effect of the transaction should be zero, as far as any new share capital is concerned..

    The only thing the shareholders get for nothing is the gain in share price over and above the application price, which is as it should be IMO. Of course if subsequent to the share issue the share drops in price then the decremental loss (downside change from $1.10) is leveraged which is again as it should be.

    There is no windfall for cash issue participants though. Remember the share price usually drops on such an announcement!

    SNOOPY
    Last edited by Snoopy; 16-12-2017 at 02:55 PM.
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  9. #19
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    Hi all...

    Well, it looks like the "include rights issue" vote has won by the slenderest of majorities. So we will do that.
    I think Snoopy's and PT's comments to NOT introduce extra capital, as it goes against the spirit of the comp, are very pertinent and well made. As is the comment that rights DO affect the value of the head share, so need to be taken into account.

    The Snoopy approach of recognising upside/downside for the remainder of the year, without increasing capital, seems reasonable to me. While keen on the "time value of money", I see the Snoopy formula is based off the initial capital. In the spirit of the rules, this seems reasonable to me...so will adopt the Snoopy formula as the calculation.

    Cheers
    Sylvester

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