Member Info for Poleaxe

"so effectively, a RI increases your short exposure due to the new shares?"

Actually, I think it increases longs exposure two, about double. In other words, even if you don't plan on taking up your rights you are exposed to them from Monday.

"So can anyone explain why this hasn’t nose dived???"

Can you explain why it should have nose dived? The fundraising was flagged on 15 July so the market has had plenty of time to adjust.

"so effectively, a RI increases your short exposure due to the new shares?"

Yes, I think so. About double I think.

Overall you should be no better or worse off they trade ex on Monday, because the drop in the value of the original AML shares. However, the nil paid shares will be geared in that a 1p change in AML will result in a 1p change in the AMLN nil paid shares, therefore a 5p change in your overall position.

Assuming you're short via spread bet or CFD then I'd expect any short positions held at close on Friday will receive an additional short position in the 4x nil paid rights on Monday morning, taken out at zero. The nil paid rights might trade in the range 60p-70p.

"If AML somehow manages to make a profit in the future, there will be far more shares around to spread that profit, hence the eps is diluted."

Which is why P/E is probably a better measure?

Saying a loss isn't a loss until you sell is a bit like saying the moon doesn't exist until you look at it!

There again, I know there are some very clever people who do say that.

"A loss is only a loss if you sell at a loss"

Sorry, I don't get that. That's a head in the sand mentality IMO

Are you suggesting that if your shares are currently 25% below your buy price and you hold on to them you'll be no worse off if they fall another 25%, because you haven't liquidated the position?

Your shares are an asset and you've suffered a reduction in your wealth, whether or not you dispose of the shares.

Shares are just another asset class, along with cash. Why do you restrict the measurement of loss to your cash assets?

It's weird to me why you'd want to add to a losing position in order to 'average down'. Is averaging down a way of trying to kid yourself the loss isn't so bad really?

When deciding whether or not to buy more or to sell you should ignore the price you bought at. That's history, there's nothing you can do about that. Base your decision solely on where you think the price will be heading in the future and the risks. Would there be somewhere better to invest your money?

I agree @Ghini, I didn't intend to comment of the viability of the company's prospects and I did caveat with "as long as the market doesn't lose faith in the company".

It's market sentiment you need to be concerned about not dilution, which I'd argue is emotional and illogical.

EG68, what you're describing is known as tail swallowing.

Some people sell some of their nil paid rights in order to fund taking up the remaining rights. Some people sell some of their original holdings to fund taking up the rights. In this case the ex-rights value of the original holdings almost certainly won't be sufficient to take up all the rights, which will require 412p per original share.

Please understand that, in spite of the way they're portrayed, rights don't give existing holders any preferential price over anyone else buying the shares ex-rights next week. Existing holders pay for the rights 'discount' through the drop in value of their existing shares. Also, as I said earlier, the true cost of taking up your rights is not 103p, it's 103p plus what you could have otherwise received selling your rights. Market efficiency ensures that cost is much the same as anyone else buying in the market, apart from you saving dealing costs and 0.5% stamp duty.

The upshot is, only take up rights if you would have bought the shares anyway because they do not really offer you a special deal.

Yes, about 167p not the current market price. The current market price is cum rights, i.e. it includes the value of receiving the rights. Obviously they'll tumble on Monday when they trade ex-rights.

You don't get anything for nothing and anyone buying ex rights on Monday will be able to buy them just as cheaply as it costs someone taking up the rights. Therefore only take up rights if you were going to buy more shares anyway.

Rights is 4 for 1 at 103p. 10,000 * 4 = 40,000. Cost £41,200?

"If someone is holding 10.000 shares, what would be the number of shares, for how much if he picks up all his rights?"

Is it a trick question? Surely 40,000 rights for £41,200?

They'll end up with a total of 50,000 shares. As I type the share price is about 425p making TERP 167.4p. That means the value of their 10k holding is currently £42,500 and the value of their new 50k holding would be £83,700 (based on TERP).

"please explain why the SP is where it is today instead of going south?"

The fundraise and its size have been known about since they announced on 15 July so the market should have already factored it into the company valuation. As explained in another post, the rights price doesn't really matter to shareholders, other than being a reflection of the underwriters' risk appetite.

swingman: "You could sell the nil paid rights in the market like shares. So your investment is NOT completely wiped out."

Exactly, rights have value and are tradeable.

What many people forget is the cost of taking up your rights isn't 103p, it's 103p plus the value of the nil paid rights you could have otherwise sold. As it stands at the moment these would trade at about 66p. In fact, the true cost of taking up your rights is the same as simply buying the shares in the market, ex-rights, as anyone could do.

For a given size of fund raise (about £575m in this case) the rights price doesn't actually matter to most people, nor does the dilution. People have trouble visualising this and are more likley to take up 4 for 1 rights at 103p than they would 1 for 1 at 412p, yet it amounts to the same thing.

If you take up your rights in full the amount you have to cough up is the same if it's 4 for 1 at 103p or 1 for 1 at 412p.

If you sell rights in order to fund taking up the remaining rights (tail swallowing) the amount of dilution is the same if it's 4 for 1 at 103p or 1 for 1 at 412p.

Some people get worked up over dilution. Dilution means you end up with a smaller percentage stake in the company. However, they overlook that the company valuation increases. It means you end up with a smaller stake in a company which is worth more. As long as the market doesn't lose faith in the company, dilution should be offset by the increase in the market cap and you should be no worse off.

In order to qualify for the rights issue you need to be holding at close on Friday. You could then sell your qualifying shares from open on Monday

If you worry about 'dilution' and the rights issue price then you don't really understand how rights issues work. To be fair, I doubt most people do, including financial journalists.

Not really. It's what happens when you barely scrape into the index then lose 15% of market cap.

HBR was demoted from the FTSE 100 to the FTSE 250 today not because of any quarterly review but because of the HLN demerger from GSK. Both HLN and GSK are now in the FTSE 100 which meant the stock at the bottom (HBR) got booted out.

This situation may be completely different but I'm somehow reminded of Conviviality. There are always some willing to risk catching a falling knife and, remarkably, they always seem to manage to get out just in the nick of time!