20 cent issue, page-11

from today's Age....

'Safe buy' not quite so, as Ten raises capital again

Date December 13, 2012 Read later

Matthew Kidman

Sit and watch how Ten performs in the next six months. Photo: Simon Alekna

ONE of my worst calls this year was declaring Ten a safe buy after its capital raising at 51¢ a share. I believed the company had sufficiently recapitalised its balance sheet and, under a new chief executive, was ready to improve performance. The company had greater operational issues than I perceived and so here we are six months later with a 4 for 5 rights issue staring us in the face at 20¢ - 60 per cent lower than the previous issue.

What do existing shareholders do with the latest issue? Given the current issue is non-renounceable you either take up the 20¢ offer or get diluted. Luckily, for retail shareholders you have until January 18 to decide whether to put more money in. Given the stock will be trading and the institutions have already committed $180 million it should be an easy trading decision on whether to commit the money at 20¢. If the stock is trading above 20¢ a share in January, put the new funds in and look to exit for a profit. If the shares are trading below 20¢, walk away and get diluted.

For those people not shareholders, do you buy in now? To justify the current valuation of 25¢ a share it has to dramatically grow market share at a time when it has announced cost-cutting. Every 1 per cent gain in free-to-air commercial TV share is worth more than $20 million in earnings before interest, tax, depreciation and amortisation. But the programming line-up believers might have to wait until 2014 to see the earnings swell.

If the company can claw back 2 per cent of market share in two years, then at current prices it will trade at around seven times EBITDA - about a fair price for a TV asset. If it can gain more market share it becomes a bargain.

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All this adds up to sitting and watching how Ten performs in the next six months before making a decision to invest.


Read more: http://www.theage.com.au/business/safe-buy-not-quite-so-as-ten-raises-capital-again-20121212-2b9xx.html#ixzz2EyrfagMA