Barramundi ( BRM )

[Catalyst]

Oh dear, BRM's top holding Pharmaxis is down 71% today after receiving a negative response on one of its proposed drugs. Doesn't look good for the warrant holders now.

[Anna Naum]

Was 12% of the fund (obviously less now)

[winner69]

Was 12% of the fund (obviously less now)

Last SSH said average cost was 273 ... 11 mill shares $31m ouch

Shows diversifiaction works eh .... 12% of protfolio down 70% is only a 8% loss

And less to pay out next time they pay out 2% of NAV

[Beagle]

Pharmaxis announcement to the ASX was 2 hours 4 minutes before BRM's notice to the NZX and during that time this morning there was extremly heavy and unusal selling of BRM shares. Pharmaxis are their biggest holding by far and they appear to have been aggressivbly buying very recently. What are they doing taking such a large overweight position in a high risk medical research company ? Is this prudent investment ?

Further I find it highly unusual that Pharmaxis were on a trading halt yesterday pending this hugely material announcement but BRM did not see fit to inform warrant holders looking at excercising their warrants on the same day ? This can't be best practice. Very grumpy.

[ratkin]

Surely those selling Brm were simply people who had seen the earlier notice put out by pharmaxis?

More disturbing is that a director of Pharmaxis sold about half a million shares
just before the stock went into a trading halt .

[Beagle]

Surely those selling Brm were simply people who had seen the earlier notice put out by pharmaxis?

More disturbing is that a director of Pharmaxis sold about half a million shares
just before the stock went into a trading halt .

Thanks for that interesting information.

[Voltaire]

Pharmaxis announcement to the ASX was 2 hours 4 minutes before BRM's notice to the NZX and during that time this morning there was extremly heavy and unusal selling of BRM shares. Pharmaxis are their biggest holding by far and they appear to have been aggressivbly buying very recently. What are they doing taking such a large overweight position in a high risk medical research company ? Is this prudent investment ?

Further I find it highly unusual that Pharmaxis were on a trading halt yesterday pending this hugely material announcement but BRM did not see fit to inform warrant holders looking at excercising their warrants on the same day ? This can't be best practice. Very grumpy.

Roger, I understand your grumpiness but I think some of your criticisms of the managers are unreasonable. The selling of BRM earlier today was clearly by those BRM holders aware of the PXS announcement (I was one of them, I have alerts recorded against the sp of the larger BRM holdings and receive relevant announcements by email, so I waited for market opening to see the extent of the impact on the PXS sp and then reacted accordingly).

The BRM managers won't have been aware, prior to today, of whether the PXS announcement was going to be positive or negative (unless you take a much more jaundiced view of things than I do) and so won't have been in a position to make an informed announcement to the market re BRM warrant exercise. It's not clear to me that they should be obliged to report merely that one of their major holdings is in a trading halt - Presumably that announcement would encourage as many people to exercise as it deterred so I'm not sure the net result would have been much different.

As to the prudency or otherwise of BRM's investment in PXS - it's near certain there would have been no complaints had the investment paid off and the sp rocketed upwards.

There is good transparency/communication around the BRM holdings and the rationale for those investments - in the end responsibility for accepting or rejecting that particular risk/reward mix must lie with the BRM shareholder.

Discl. Sold out of BRM today, still hold BRMWB

[Catalyst]

The big question now is whether or not the BRMWB's will be in the money come 27 October 2011? Strike price = 75c

It could be very close.

Reduction in NAV after PXS's big drop today = 0.943 x 12% x 75% = 8.5c (PXS represented 12% of BRM and suffered a 75% drop since 18 May NAV announcement of 94.3c undiluted)

NAV today = 0.943 - 0.085 = 0.858 undiluted (assuming all other investments stayed the same)

Take off two quarterly distributions before 27 Oct = 0.858 - 0.02 - 0.017 = 0.821 undiluted

Generously assume the two chaps running BRM can generate a 5% return over the next five months = 0.821 x 1.05 = 0.862 undiluted

Diluted NAV = (0.862 x 109.3m shares + 0.75 x 45.3m warrants exercised) / (109.3m + 45.3m) = 0.829

Assume current 11% discount will remain = 0.829 x (1 - 11%) = 0.738

[percy]

The big question now is whether or not the BRMWB's will be in the money come 27 October 2011? Strike price = 75c

It could be very close.

Reduction in NAV after PXS's big drop today = 0.943 x 12% x 75% = 8.5c (PXS represented 12% of BRM and suffered a 75% drop since 18 May NAV announcement of 94.3c undiluted)

NAV today = 0.943 - 0.085 = 0.858 undiluted (assuming all other investments stayed the same)

Take off two quarterly distributions before 27 Oct = 0.858 - 0.02 - 0.017 = 0.821 undiluted

Generously assume the two chaps running BRM can generate a 5% return over the next five months = 0.821 x 1.05 = 0.862 undiluted

Diluted NAV = (0.862 x 109.3m shares + 0.75 x 45.3m warrants exercised) / (109.3m + 45.3m) = 0.829

Assume current 11% discount will remain = 0.829 x (1 - 11%) = 0.738

Catalyst.
Thanks for doing the numbers.

[Beagle]

Voltaire - I thought I could rely on BRM to manage the portfolio in a prudent, careful and well diversified manner. I fail to see how taking such a large holding in an extremly risky drug development firm is consistent with good prudential management. Perhaps its being managed with the primary focus of trying to substaintially outperform the market in the hope of the manager looking to earn performancee fees, capitalise a share of the profits for the managers and if it all goes wrong what the heck, the shareholders wear all the risk. It looks like recklessness investment to me.

I believe the vast majority of investors would prefer to see a far more diversfied investment base with no more than 5 % in any one stock, preferrably no more than 3%. Of course that would involve a lot more work and research for the Barramundi investment team...

I remain of the view that given the material effect on the SP warrant holders shoudl have been informed that Pramaxis was in the trading halt especially given that a yes or no has had such a dramatic effect on the SP, clearly a case of substaintial pending uncertainty where warrant holders would normally have been best to sit on their hands and not excercise, (if the company had been reasonable enough to inform them) Good upside, limited downside for warrant holders = do nothing and possibly excercise later, I am sure you would agree. Of course its in Barramundi's interests for warrant holders to excercise, that almost goes without saying so there was a vested interest on their part not to highlight the risk.

I have taken my concerns up with the company.