BRM - New Warrant Issue for Barramundi

[Basil]

Hey Ricky I don't think there's any "normal" way this plays out.
I've observed the relative depth of the warrants and shares and while that's a bit unusual i think its symptomatic of the current trading environment with investors unsure if the recent recovery in share prices will continue or not.  October was a horrible month of Barramundi with a 7% downwards movement in the NTA, a lot worse than the market and while its somewhat recovered this month there is a pretty heavy tech component to their holdings and what we might be seeing play out is a slight loss of confidence in their strategy, hence a movement towards the optionality the warrants confer.

What we already know is that the shares confer good income (8% PIE is ~ 12% gross for 33% taxpayers) whereas the warrants have the advantage of conferring a lot of optionality on the market through to late October 2024 without putting much money down and hence are a good risk management tool, (a lot of potential upside and the most you can lose is ~ 4.5 cents).

Also worth noting that the exercise price is likely to be only either 63 or 64 cents depending upon the amount of dividends paid during the warrants term.
People need to decide for themselves what they prefer but for what its worth I am now holding twice as many warrants as shares as I like the risk management and optionality attributes of the warrants.
You have to be careful with warrants though, they are hit or miss, they can end up being worthless quite easily and sometimes you win big all depending upon how well Barramundi performs in the next year.  I only ever buy as many warrants as I am very comfortable exercising.
Have we hit the bottom and there's a recovery next year...frankly, who knows for sure...

[Ricky Bobby]

Thanks Basil, didn't realise the exercise price could come in below $0.69. That's def worth keeping in mind also. Yeh I'm in the same spot with warrants to actual shares..

[Basil]

You're welcome, Ricky.  Yes, the warrant exercise price is adjusted down for the value of the dividends paid during the warrants term. 8% on about 70 cents NTA = 5.6 cents so the exercise price will be adjusted down from 69 cents by either 5 or 6 cents whichever is the closer.

[Ricky Bobby]

Thanks for that! Has changed my thinking once again...

[Basil]

Current NTA according to my updated spreadsheet which models their portfolio as of just before the ASX opened at noon today was 70.09 cents, (unadjusted for differences in the exchange rate between last week and today).  Shares are available for 68 cents.  It's tempting but I have a LOT of shares and twice as many warrants already.

[snapiti]

I have sold my warrants and bought the head shares......I had always intended on adding more head shares so believe the warrants only offer options to gamblers who are unsure what they will do. Right now buying the head shares at 67 cent and collecting the divi payout between now and warrant date means you are currently paying equiv of about 61cps for head shares and I get to keep a couple of grand for my free warrants(which in turn gave me 2700 free head share. Seems to be the best way to play this given if you just hold the warrants you will be paying about 63cps and your warrants are worthless, although you could be receiving interest on the money in the bank(less plenty of tax)whilst you wait to exercise your warrants

[Ricky Bobby]

Big switch round today. Warrant buyers drying up and regular share buyers building

[Basil]

I made some changes. Head shares were a screaming buy at 63 and 64 cents  ex divvy

[snapiti]

I made some changes. Head shares were a screaming buy at 63 and 64 cents  ex divvy

yep been adding as well

[Ricky Bobby]

Haha same, prob should got more...

[winner (n)]

This interesting ....posted by Percy elsewhere

https://www.livewiremarkets.com/wires/why-the-asx-will-outperform-us-stocks-over-the-next-15-years?utm_medium=email&utm_campaign=Trending%20on%20Livewire%20-%20Tuesday%205%20December%202023&utm_content=Trending%20on%20Livewire%20-%20Tuesday%205%20December%202023+CID_e4111a89a0754d181762c19105762ccc&utm_source=campaign%20monitor&utm_term=FIND%20OUT

Hints BRM will do well if ASX does well ....seeing they are sticking with Credit Corp nothing can go wrong

[Basil]

Interesting, thanks for sharing.  Certainly, many bourses including many in Europe, some in Asia and the U.S have had a great year whereas the ASX has ostensibly gone nowhere for years.  I have a large position in Barramundi shares and warrants already but am tempted to increase it further.   Both represent a very good opportunity for outperformance in 2024 in my view as the shares currently trade at a material discount to NTA. 

Just crunching the yield numbers on this.  Updated my portfolio spreadsheet this morning, (I have a very high confidence level in its accuracy), which is unadjusted for currency movement between Kiwi- Aussie dollars because they are about 70% hedged.  NTA is currently 69.34 cents as at close of market in Australia yesterday. 

At 65 cents, (and there are plenty of offer at that price) that's a 6.3% discount to NTA, (slightly above the 6% level where they can initiate a buy-back of their own shares).  The 8% Tax free PIE yield is therefore boosted because the payout is based on NTA so your yield buying at 65 cents is 8/0.937 = 8.538% tax free.
If you take shares in lieu of dividend at a 3% discount your net yield becomes 8.538 / 0.97 = 8.8% tax free.  For 33% taxpayers that's equal to 8.8 / 0.67 = 13.13% Gross effective yield.

If you manage to get some at 64 cents like I did yesterday and take shares in lieu of dividend like I do, the net yield is 8.935% and gross yield 13.35%.
At 64 cents the discount to NTA is 7.7% so once we are out of the 5 day ex divvy trading period which ends today, at least in theory they are a prime candidate for the company to buy its own shares back, (must be over 6% discount to NTA before they consider this), so there should be support at that level.

Opportunity knocks for outperformance and fantastic yield in 2024?, you be the judge.

[Basil]

Well, I gave you guys a chance for a piece of the action but after the market in Australia opened up and got more than 1% up I couldn't resist any longer as the discount to NTA is even larger than what's detailed above.  I cleaned all remaining shares out at 65 cents and have remained on the bid for more there.  Beagle does not look gift horses in the mouth for very long before jumping on for a ride.  Bought more warrants today too. 

[snapiti]

right along side you Beagle, but I bought yesterday, also have a small amount to round up my holdings bid at 65

[snapiti]

divi reinvestment 62.5 cps......liken that