BRM - New Warrant Issue for Barramundi

[Basil]

I run such a spreadsheet. My inaccurate estimate for yesterdays close is a NTA of 0.7295

The unavoidable inaccuracy stems from the fact that we only know the weightings of the
components on 30-Sep. Any changes in the portfolio since then are mostly unknown to
us until the 31-Dec quarterly report which we will probably get end of January. So as
a quarter progresses our estimates get more inaccurate. I wonder if the accurate
weightings could be included in the monthly report, as a one-liner (csv).

This from the other channel, well said.
I note from yesterday's official announcement of NTA based on the day before NTA of 71.1 cps (i.e. before the huge surge in the Aussie market yesterday,) the shares are at a multiyear record discount to NTA of 9% (compares to their stated ability to buy-back their own shares at a discount of over 6%, (so we might see some buyback's soon).

I also run a spreadsheet and according to my update last evening the NTA was 72.847 cps.
66 cps, (trading this morning and plenty on the offer last time I looked) represents a whopping 9.5% discount to yesterday's estimated NTA.
Disc Significant holder of the shares and warrants..
Opportunity knocks for 2024 ?

[Dolcile]

Has anyone looked into the tax efficiency of the BRM structure? I see it is a PIE, what does that mean for dividend imputation?

[Hectorplains]

Has anyone looked into the tax efficiency of the BRM structure? I see it is a PIE, what does that mean for dividend imputation?

A listed PIE is taxed as a company at 28%. Distributions from a listed PIE are imputed. 

[Dolcile]

And since the entity holds AU shares I assume they pay tax on the dividends, but lose the benefit of the franking credits? And the gains / losses on the shares aren't taxable or deductible?

[snapiti]

This from the other channel, well said.
I note from yesterday's official announcement of NTA based on the day before NTA of 71.1 cps (i.e. before the huge surge in the Aussie market yesterday,) the shares are at a multiyear record discount to NTA of 9% (compares to their stated ability to buy-back their own shares at a discount of over 6%, (so we might see some buyback's soon).

I also run a spreadsheet and according to my update last evening the NTA was 72.847 cps.
66 cps, (trading this morning and plenty on the offer last time I looked) represents a whopping 9.5% discount to yesterday's estimated NTA.
Disc Significant holder of the shares and warrants..
Opportunity knocks for 2024 ?

the way the warrents are trading the market agrees with you.....warrents are trading at 5cps when face value they are worthless

[Basil]

Exercise price of the warrants is likely to be 63 cents.  Lot of optionality with them through to late Oct 2024. Worth all of 5 cents with current nta just over 73 cents. Both the shares and warrants are compelling at current prices in my opinion.

[snapiti]

come on basil brush you are the first to say don't be fooled by NTA.......the price is the price which is 67cps, with 3 more divi's attached, as of close yesterday, which means the warrants current underlying value are worthless

[winner (n)]

Think he meant to say NAV ...not NTA

[Basil]

Herewith a very brief synopsis of my thinking.
Before I outline this, full disclosure I have a lot of shares and warrants, more shares than warrants in a ratio of 9:6

Central to my thinking is that BRM shares sometimes trade at a premium and sometimes at a discount and its impossible to know which way they will be situated at the exercise date of the warrants in late October 2024 so I assume they trade at neither a premium or discount, i.e. at NTA.
I have posted extensively before how their performance after fees has beaten the index over the last 5 years for all three funds so I do not accept a discount is warranted.

I try and model a Bull, bear and base case on how I see the Australian market going over the term of the warrants.  At this point I think central banks will be rushing to cut rates in 2024 and the Aussie market has been flat for years so I am working on the assumption that on a blemded probability case the Australian market will increase at a rate commensurate with the dividend rate at which BRM pay, i.e. 8% per annum.  I'd like to think this is conservative, but we will see.

On that basis, (it could be a lot worse, Bear case, or a lot better, Bull case) I am assuming BRM's NTA in late October will be the same 73 cents it is now after them paying a further 3 dividends, (that 73 cent NTA is off my spreadsheet based on yesterday's close).

Nobody can convince me there's a valid case for the shares to stay at the current 8%+ discount to NTA and there's the 6%+ discount rate at which they can buy their own shares back to keep in mind) so taking into account the four dividends paid 73 x 8% by October 2024  (estimated 5.84 cents which gets rounded to 6 cents) the warrant exercise price will be 63 cents (69 - 6 cents) and with the shares at 73 cents significant value will accrue to the warrant holders.
Of course you can argue the shares are better value at present than the warrants, (no argument from me, see ratio I hold of each above) but on the other hand for only 5 cents you have optionality over the future direction of 73 cents worth of assets.

I'm not going to dive into the whole Black and Shoals option pricing model again...suffice to say the level of optionality these warrants confer, as well as the limited downside risk has value, as the market clearly believes.  Quite an art to pricing Warrants.

Let me just put it in terms like this.  If someone said to you, Snapper, you have the option, not obligation to buy a share in a fund at a fixed future price of 63 cents in late October 2024 and that fund has a current NTA of 73 cents, you think you might be interested in having that option?  Others do and are prepared to pay 5 cents for it.  Figure this for example as one of many possible future outcomes next year.  What if the Aussie market went up 20%, (net 12% after payment of 8% annual yield) between now and then and the NTA was 12% higher then 73+ 12% = 82 cents.  Gosh being able to buy in at only 63 cents would be a tremendous win with NTA at 82 cents.

In conclusion, pricing warrants involves modelling the path you see the shares going over the lifetime of the warrants.  It's all about predicting the future which as we all know, is best guess sort of stuff at the best of times.

Disc: I bought more warrants and shares this week.

 

[Mos]

I struggle to see the attractiveness of BRM shares or warrants. Both share price and NAV are lower than when BRM adopted the 2% per quarter dividend policy in August 2009. Over this 14 year period inflation has 2.4% per annum further lowering the real returns. The very high fee/cost structure in my view does warrant a significant discount to NAV.

[snapiti]

thanks Basil.....first of all I want to thank you for your response and for your ongoing sharing of wise knowledge on many threads.
I am not a fan of "what if" and if your what if happened I would be happy to be holding the head share.
In reality the head share looks very attractive at current discount and you are right the head share can trade at a discount or at a premium.
The longer the head share trades at a discount the better it is for the DRIP price, so having collected close to 14000 shares in the last DRIP at a price 0.625 which will have 3 divi's attached before the warrant exercise date, I like banking shares at a discount rather than gamble on the warrants, bird in the hand sought of stuff.
I am a great believer the ASX will outperform the NZX over the medium term (5 years) and have a large holding in RF1 on the ASX as well.....Regal the biggest sharks of them all when it comes to alternative investing 

[Basil]

Mos Its an income stock, no other company outside the Fisher group pays you 2% tax free each quarter, 8% tax free a year ~ 12% gross, ~13% gross if you buy the shares at a 8% discount to NTA and 13.4% gross if you take shares in lieu of divvy at the 3% discount.  You can't beat that on a consistent basis.  In addition, there is significant value unlocked over the years through the regular warrant programs.

Their payout is in the context of an Australian market that been ostensibly flat for many years.
http://nzx-prod-s7fsd7f98s.s3-website-ap-southeast-2.amazonaws.com/attachments/BRM/423381/409435.pdf
Bottom right corner page 3.    NAV return after fees on average in the last 5 years 12.5% v benchmark 9.2%. 

Fair enough Snapper me ol mate and sounds like you have a decent sized shareholding.  I got just over 10,000 shares in the latest DRIP, next one will be more than 20,000 at my current significantly enlarged sized holding so we're on the same page with a significant holding in the shares.  Warrants, I agree are hit or miss instruments....I've made substantial profits on some of the warrant issues before and got flushed down the toilet on other occasions, so I get the whole bird in the hand thing which is why I'm weighted more towards the shares. 

"I am a great believer the ASX will outperform the NZX over the medium term (5 years)

"I couldn't possibly agree more!

[snapiti]

I struggle to see the attractiveness of BRM shares or warrants. Both share price and NAV are lower than when BRM adopted the 2% per quarter dividend policy in August 2009. Over this 14 year period inflation has 2.4% per annum further lowering the real returns. The very high fee/cost structure in my view does warrant a significant discount to NAV.

BRM was at 60 cps beginning of August 2009, so 10% gain since then plus 8% per annum, plus interest on divi's or extra DRIP added to DRIP shares earned.
One must also calculate the 8% returns have been received on the SP fluctuation value which has average 70cps over the time you refer to, far better to get 8% off a 70cps ave than your initial 60cps @ 8%
I have a mandate to sell these sorts of investments after holding and being patient and the opportunity arises (and it has before and will) for a 12% over all return

[Hectorplains]

11% of their portfolio is CSL.  CSL share price is lower than it was at the start of the year but it has rallied strongly in the last two months from their 5 year low.  Double digit earnings growth and significantly lower capex are forecast.  On top of that is the potential for good news with the CSL 112 phase 3 readout due in the new year.  I can't see a lot of downside with CSL but it does have the potential for significant gains.  That alone would ignite the BRM NAV.

[Basil]

Speaking of igniting....NTA was announced on Thursday afternoon as at market close of Wednesday this week.  Was just on 71 cents from memory but at market close Friday according to my spreadsheet I set up to track the value of their portfolio was just over 73 cents.  Up 2.8% in the last two days of this week is pretty exciting.  Not quite Turners exciting but I'll take it none the less.  Some idiot gave me a fill at 63 cents for another 100,000 earlier this week...and some people say they don't believe in Santa Clause lol