Saturday, March 28, 2009

Nuplex rights decision a dilemna for shareholders




I have been chatting to a customer about his Nuplex Industries Ltd [NPX.NZ] shares for around a year now.

A year ago he was very positive about the company and its prospects for the long term.

He was also in the money because his shares had risen, up to over 8 bucks.

Oh how times have changed.

Since then then the stock has crashed 90% to finish at 89c today (it hit a low of 51 c on Mar 23) it has announced a big drop in profit and also a rights issue to raise more capital because of high debt levels and therefore a lack of cashflow for the day to day running of the company.

The rights issue key points are:

- Entitlement Ratio: 7 new shares for every 1 existing share
- Issue Price: NZ$0.23 per new share
- Total New Shares: 577,643,738 million new shares to be issued
- Gross Proceeds: NZ$132.8 million to be raised (fully underwritten)

My customer asked my advice on whether he should in effect chase good money after bad by participating in the issue.

I wasn't about to give him advice because everyone has different financial circumstances but I did tell him what I would do given the same situation.

It went sort of as follows.

You would have to consider that given they are in their current situation after the beginning of an economic downturn, then when things get worse will they have the cap out again in another 12 months for more money?

If the answer is no and the company will recover and you may get a recovery in profitability and share price.

Then and only then if I was sure about the long term viability of Nuplex then I would participate in the rights issue.

If not then the only other thing to consider is when to cut and run before the share price is diluted, presumably down to 23c, the rights issue price.

I am not sure if I was helpful at all to my client but I think he is erring on the side of pluncking down some more money.

I hope his hunch is right.


Related Links

NPX- Rights Issue Offer Doc

Nuplex Financial Data

Recent Share Investor Reading

Related Amazon Reading

The Share Owners' Handbook: A Simple Guide to Dividends, Bonus Issues, Consolidations, Rights Issues & Takeovers (Na)
The Share Owners' Handbook: A Simple Guide to Dividends, Bonus Issues, Consolidations, Rights Issues & Takeovers by Francis Groves
Buy new: $16.50


c Share Investor 2009