A bit more information via Intelligent Investor/Bristlemouth. Its a bit dated (12 Dec - before going ex-rights) but has some good info on the future of VEI
II are a substantial shareholder in VEI and it sounds like they were talking to management during the lead up to the capital raising. Interesting info is that there may be dividends from Aug 2013 and that possibly more than $15m of the $27m share raising will be used to pay down debt, subject to better terms from the banks.
From Bristlemouth website:
One Day Vision Opportunity We own a decent stake in ophthalmology business Vision Eye Institute (VEI) and have spent the past week working on a capital raising to fix the company’s balance sheet once and for all. For the most part, we’ve been working to stop broker Bell Potter from stitching us up (only partly successfully, unfortunately). But that’s all by the bye.
There’s an interesting opportunity on offer, potentially for today only. The company is undertaking a 2 for 3 rights issue which, in conjunction with a $4.5m placement, will raise about $27m. The deal was announced yesterday and the shares trade ex-rights tomorrow. The shares closed at $0.51 yesterday, and the rights are priced at $0.34. If you buy at $0.51 and take up your rights, your average cost per share will be $0.44.
Those investors who don’t want to take up their rights will be much better off selling on market today as the share price will drop tomorrow when they trade ex-rights. More importantly, those investors who can’t take up their rights have to sell on market today. Only investors who are resident of Australia or New Zealand are entitled to participate in the offer, so if you are an overseas holder of Vision you are being forced to sell your shares*.
I have no idea what percentage of the register they represent but, even if it’s relatively small, forced sellers create opportunities. Ingenia internalised its management back in June and issued new securities as part of the deal. The consequences were the same, non-residents of Australia and New Zealand were not allowed to purchase the securities – so were forced to sell prior to the meeting. The share price traded from $0.23 in March down to $0.18 at the time of the meeting, despite a significant amount of good news. Post the meeting it bounced back to $0.24 in less than six weeks.
I doubt we will see as pronounced an effect with Vision, but I reckon it will trade higher than the theoretical ex-price tomorrow and perhaps meaningfully higher over the next few weeks.
If not, today’s buyer will be left with a stock trading on a price-earnings ratio of 6-7 times, with a conservatively geared balance sheet, $27m of franking credits and likely to recommence dividends in August 2013. You could be stuck with worse.
*Vision has applied to ASIC to allow them to issue the ineligible shareholders’ rights to Bell Potter, for Bell Potter to exercise them and then sell the shares on market and pass the proceeds back to the original shareholder. This eases the pressure on forced sellers to an extent, but with ASIC approval yet to be received it is an uncomfortable option.
Both funds managed by Intelligent Investor Funds have interests in Vision Eye Institute, have participated in the placement and sub-underwritten a portion of the rights issue.
Comments (8) | Category: Investing| Tags: VEIVisionVision Eye| Post a comment | RSS feed More Sharing ServicesShare | Share on twitterShare on facebookShare on emailShare on print Comments Steve Johnson - IIF December 12, 2012 Price getting away from us this morning - please note the above was written with 51 in mind.
reply.David A December 12, 2012 I can't see it in the documentation, but will one have the option to subscribe for an amount greater than the pro-rata rights amount?
reply.Steve Johnson - IIF December 12, 2012 No, the shortfall is underwritten by Bell Potter
reply.David A December 12, 2012 Bugger.
reply.David A December 12, 2012 I was about to ask why the company would pay an underwriter for something they could get for free from their shareholders, but I think the answer's in the first paragraph of the post.
reply.Goodwill Ambassador December 12, 2012 Steve I had a look at the balance sheet included in their letter of offer. $124m of goodwill constitutes the majority of their assets (only $15m current assets and $16m non-current, versus $100m in liabilities). This is a company staving off bankruptcy and if they weren't profitable, I'm sure it would be a liquidation. My 2c worth but I'm giving this a miss.
reply.craig December 12, 2012 Thanks Steve, what do they need the dough for?
reply.Steve Johnson - IIF December 12, 2012 They have a couple of very small day surgeries they would like to buy but the primary purpose is repaying debt.
Part of the most recent refinance was a condition that the first $15m of any equity raised had to go to the banks. They will repay more (they raised $26m) but want to restructure (lower interest rate, less amortisation) before handing the cash over
VEI Price at posting:
49.0¢ Sentiment: None Disclosure: Held
