timpb oversold versus tim, page-18

watford - I was looking at the TIMPB this morning too, as well as the past couple of days. I just have a little too much uncertainty to do any more with this one right now. I also think the pricing of these is a little bizarre as well.

Have you considered the effect of dilution on your calculations?

I recall it being mentioned in this thread before, but I don't recall a price being placed on it. I think it should be taken into account as it has the potential to be significant. For example, if all the TIMPB shares were converted at the maximum of 4, then that means 160m more ordinary shares. Since I think that there are currently about 350m on issue, then at maximum conversion an ordinary share will now be worth only about two-thirds of what it used to be, eg if it is currently at 26 cents, then fully diluted it would be 17 cents.

I am not sure of the correct way in calculating the effect of the conversion though. Even though max conversion is at 4, TIMPB already has dibs on the profits so I am not sure all 40m shares should count in the dilution.

I think that as long as TIM is alive, that TIMPB is still underpriced relative to TIM even taking into account this dilution. In my simplistic way of looking at it, 55 cents for TIMPB equates to 13.75 cents each for 4 TIM shares in Sept09 plus two dividends of aout 13.5 cents.

The current price must reflect a high degree of uncertainty in the solvency of TIM, enough to convince me to not add right now.

On the other hand, I like the explanation yesterday that some of the price pressure was related to forced redemtions, but only because it says more about fear than reality.