IFT - Infratil

**Caesius** · 11-10-2007, 01:39 PM

Originally Posted by Toddy

Caesius

What did you think of the update. It certainly sparked some interest in the TPW share price. It was great timing as the report was released on the same day as the Medredian/Mighty Power/Genises financials with market updates etc.

Its been a busy few days for IFT. I cannot see alot stopping Lloyd from being successful with his AIA board seat bid.

Yes the Director's role with AIA interested me. Regarding the report the most interesting thing for me was the value of TPW versus the NZ dollar. I haven't had an in depth read yet though.

I'm pondering topping up on IFT smalltime soon? Which represent better value at this stage? Looking at IFTWB:

IFT - IFTWB exercise price = 3.10 - 1.62 = 1.48 > IFTWB price at the moment.

I've noticed that while before IFTWB's would have a 15c-20c "premium", lately they have been sitting just below their "true" value.

I hear that IFTWC's are overpriced and I haven't really got enough cash to make buying the heads worthwhile...Dilemma lol

**k1w1** · 11-10-2007, 07:35 PM

Dont forget IFTIZA if you want to get really confused.

**Rif-Raf** · 11-10-2007, 09:35 PM

Originally Posted by Caesius

Yes the Director's role with AIA interested me. Regarding the report the most interesting thing for me was the value of TPW versus the NZ dollar. I haven't had an in depth read yet though.

I'm pondering topping up on IFT smalltime soon? Which represent better value at this stage? Looking at IFTWB:

IFT - IFTWB exercise price = 3.10 - 1.62 = 1.48 > IFTWB price at the moment.

I've noticed that while before IFTWB's would have a 15c-20c "premium", lately they have been sitting just below their "true" value.

I hear that IFTWC's are overpriced and I haven't really got enough cash to make buying the heads worthwhile...Dilemma lol

Yes, I've also noticed the B warrants have been trailing the heads of late. To me the calculation is simple at todays 1.46+1.62 = 3.08 i.e a 1 c discount to the heads at 3.09
However to buy a parcel of X, you only have to outlay approx. half the amount and have got the use of the money for just under 2 years, however there will be no dividends on the warrants while the heads receive divvies of around 2%
So if the cost of money is say 9%, then if you do the maths in ballpark terms the B's would be worth paying a premium of at least 10c to the converted price.

discl. long on B warrants

**gisborne_gold** · 11-10-2007, 10:08 PM

Based on my version of the Black-Scholes method of valuation, with IFT trading at 3.09, my view is that IFTWB are fairly priced at 1.46 which is close to my valuation of 1.48. In this case, with IFT being a low-volatility stoch, this valuation is close to the intrinsic value, as posted by Rif-raf.

In contrast, I value IFTWC at 0.33 yet it continues to trade at more than twice that; currently at 0.71.

Disclosure: Hold IFT and IFTWB.

**Rif-Raf** · 11-10-2007, 10:31 PM

GG, I was interested in your post and thought i'd find this model. I found this http://www.blobek.com/black-scholes.html link and used the calulator and got 1.70 (This was based on strike of 162, price 309, interest 9% and days 635,) I tried using different voilatility rates 10-40% but didn't make much difference a few cents.
Then I took off dividends of 12c so I got to $1.58
What numbers did you use to get your 1.46?

Thanks

**gisborne_gold** · 12-10-2007, 11:19 AM

Rif-raf, I appreciate your interest.

Price volatility of the underlying share is critical to option and warrant valuation. In the case of IFT, I calculate volatility to have been around 19% for 5 years or more. More recently it's been slightly higher, 20-22%.

The other factor to take into account is the IFT dividend yield which affects the cost-of-capital part of the calculation. Try subtracting dividend yield from your bond interest rate and use a net cost-of-capital.

The third factor seems to be that there are two main forms of the Black-Scholes calculation, one of which yields slightly higher valuations than the other in certain circumstances. You may have stumbled on an example of the higher-valuation form. I prefer the other, giving more conservative valuations and it appears to be consistent with market behaviour, at least in most of the situations I've looked at. Try this link, for example: http://www.tradingtoday.com/black-scholes

**Rif-Raf** · 12-10-2007, 12:57 PM

Thanks GG, I tried that link and used 19% volatility, but get same answer 1.70 less cost of capital component. This is a really useful tool

**gisborne_gold** · 13-10-2007, 10:03 PM

Rif-raf, you're right, the online calculators are yielding valuations of 1.58 and in one or two cases 1.70 for IFTWB, which differs from the more conservative 1.48 valuation I came up with the other day. Take your pick.

A key point is that these warrants are worth more than the intrinsic value of 1.47 because of the potential increase in value which derives in part from the IFT stock price volatility.