Wednesday, August 4, 2010

Allied Farmers: Rights Issue Decision

News that Allied Farmers Ltd [ALF.NZ] is asking shareholders to dip into their pockets to keep the company from being flushed down the financial toilet (I use this analogy for obvious reasons) is surely going to be a dilemna for them.

If they do put more money into the company they are risking more losses at a time they probably cant afford it but if they don't what is left of their current investment will be further diluted by a 1:3 rights issue at a 50% discount to yesterdays closing price of 4.2c per share. This must be put into the context though that Hanover investors who not only lost most of their dough while involved with that company then lost more than 80% of what remained when they decided to let Allied take over the assets of Hanover.

The company has a market capitalisation of almost $82 million as of close of market yesterday and this rights issue will add nearly 700 million shares to the current nearly 2 billion outstanding.

The market value of the company is less than 20% of what Allied management valued Hanover assets at in the latter part of 2009.

Investors in Allied must decide whether they are going to put good money after bad and this decision shouldn't be hard given the track record of CEO Rob Alloway and his company thus far.

The risk of investment dilution is far outweighed by the risk of losing even more money and investors, most of whom are 50 plus, should not feel pressured by the company or others to risk more of their money in this pig swill of a company.

The only hope you have of getting a return is for you to either sell now or hang on for a recovery at a undermined point somewhere in the future.

This will not be the last request for more money from shareholders as the company is cashflow poor and will need to bolster its balance sheet again least the banks decide to liquidate.

You must of course make your own decision of you are a ALF shareholder but if you are and have read this, please make the wise decision.

Allied @ Share Investor

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