ECF's new warrants, a fine example on new shareholder value creation.
How it can pay to pay attention and understand more about warrants which often can add shareholder value. Recent examples.
EAST COAST FURNITECH PUBLIC COMPANY LIMITED (ECF, 2.36) Recently issued free warrants to its shareholder of record -and through that added nearly 9% of new shareholder value. Here explained in simple language. An example of new value created beyond just a rising SET index.
Here is from a posting I made at our member web site lounge, explaining an actual real example on new shareholder value created through the issuance of free warrants and how the market is currently evaluating the whole. This free article is released to all registered users.
ECF is a high growth exporter of quality rubber furniture, 70% to Japan. A successful company with promising future high growth. I viewed it as a buy at the price of 2.70 and again in recent days at 2.92. ECF just issued free new warrants to shareholders of record, July 23 ’14. Where every current shareholder got one new free warrant, for every 2 common shares held on July 23.
Consider the new shareholder value ECF just created, as explained below. It helps that the SET is in a bullish phase -but nevertheless a good example of opportunities to individual investors here.
To understand the warrants and what it means, consider this simple "back of the envelope" calculation, through the real example ECF, gone XW today. XW stand for ex-warrants and is the day means after you no longer have the right to the free warrants.
Assume an investor bought 100,000 ECF as I viewed to do in our member lounge posting at the price back then of 2.92.
1) 100,000 ECF bought at 2.92 = 292,000 Baht.
Next the shareholder will receive within a few weeks 50,000 free new warrants to convert 1 for 1, into new shares at a price of 0.50 per new share, hence:
2) Assuming he/she converts into new shares, 50,000 at stated conversion price of 0.50 per new share, so 25,000 Baht cost of these new shares.
292,000 + 25,000 (for new 50,000 shares) = 317,000 Baht total cost for a total of 150,000 ECF shares now owned.
This investor now has 150,000 shares of ECF, after the warrant conversion.
150,000 shares divided by the 317,000 Baht total cost = 2.11 Baht, new cost per share.
Since the price of ECF is currently around 2.38 on the XW date, this so represents a 0.26 Baht profit per share at this moment, or near 40,000 Baht paper profit to this investor, in this real example.
ECF company has 520 mill. total shares outstanding, you can so easily see how this created some 100 million Baht of new shareholder value presently.
Of course the stock price can & will fluctuate and the new warrants wont trade for another month or so. On the other hand there is liquidity as one could always part-sell out part of the 100,000 original held shares. This morning alone nearly 20 mill. ECF shares trades between the price of 2.42. and 2.30. ECF closed at 3.08 yesterday, the day before going XW.
Also, warrant holders will have to go through the motions to convert to new shares, as was thankfully described in detail through an actual example, by another member here. Warrant conversion into new shares is fairly easy to do with most brokers if you are on location in Thailand, but more paperwork via mail/email.
ECF I just one example, CHO warrants was another of late with a different twist. CHO-W1 traded at a huge discount to the underlying stock price and so was the better choice, as compared to the stock -as pointed out. CHO-W1 have gone up over 196% since earlier this year when I included it in my then published model portfolio. CHO stock price, also in that model, moved up 129% during this same time period.
This shows how with some reflection & understanding one can find real values on the SET far beyond owning stock indexes. I have no doubt in the future there will be more such opportunities to the trained eye, which I here then share. Members are always welcome and do contribute.
Warrants issued in the right way at the right time can be a real financial tool in creating new shareholder value, CFO's often get/should deserve high salaries in understanding and advocating this if warranted. Yet, still too many do not get it...Thai listed companies remain shy regarding issuing of warrants, due to lack of understanding sometimes at the shareholders value peril.
Best Regards,
Paul A. Renaud.
www.thaistocks.com
