Kingfish - Warrants

[winner (n)]

Hey Basil ..., gpget your abacus to a Black Scholes value

Be heaps more than 5 cents I reckon

[Basil]

Market was down 7% YTD, pretty safe assumption it recovers that and a bit more and that covers the 8% in dividends over the next year.  The bull case:  If the market goes up 20% from here (net 12% after dividends paid) NTA would be $1.41 X 1.12 = ~$1.58 and exercise price is $1.24 giving a difference of 34 cents.
I agree 100% Winner, see below.
The well regarded Black and Shoals option pricing model is here.  https://goodcalculators.com/black-scholes-calculator/

I entered the following variables, (which disregard the current ~ 7% discount to NTA) and treat the current share price as $1.32 as fair spot price for KFL
Current spot price $1.32
Strike Price $1.24
Term 1 year
Standard 15% volatility
4% risk free rate
8% dividend yield

Fair value is 8.64 cents per warrant.  Any view you have on the future closing of the current 7% discount KFL trades at to NAV, adds to that value.

Using estimated NAV of $1.415 as the current spot price raises the value to 14.57 cps.

[winner (n)]

If NTA gets to $1.58 Basil exercise price lower than $1.24?

[Basil]

Yes, thank you for highlighting that very good point Winner.  I assumed 8% divvies  x an average $1.37 NAV = ~ 11 cents comes off the face value exercise price of $1.35 = $1.24.  If NAV averages $1.50 over the course of the year, 12 cents ($1.50 x 8%) would come off and the exercise price would be $1.23.  Exercise price gets rounded up or down to the nearest cent so even $1.45 NAV average, ($1.45 x 8% = 11.6 cents), and we are not far off $1.45 already, would see an exercise price of only $1.23.

[Basil]

Closing NAV today I make $1.421 by my valuation model.  Barramundi shareholders will also be relived to know that my estimate of NAV it's almost back to 70 cents @ 69.9 cps.

Plenty of room to run, NAV started the year at $1.48 so there's a real chance that after a recovery of the NZX the exercise price of the warrants will only be $1.23.

[Basil]

Current spot price $1.32
Strike Price $1.24
Term 1 year
Standard 15% volatility
4% risk free rate
8% dividend yield

Fair value is 8.64 cents per warrant.

Interestingly, if you change those variables a bit, current share price $1.33, strike price of $1.23 that I have been talking about, Volatility 18% (what it ended at today on the US markets) and other factors remaining the same gives fair value of 11.13 cents.

[Basil]

Good post on the other channel.  I agree 100%.  If you can get them at a decent discount to NAV, you boost your income considerably as the 2% quarterly tax free divvies are paid out based on the NAV, not the share price.

The only con is convenience.

1. Yes you could mimic the portfolio as its all fluid companies and they dont trade all that often and save the management fees. BUT you would pay more tax on divvies if you are a 33/39% tax payer - for KFL this is more significant than BRM as divvies make up more of the gain. This offsets some of the fees
2. Various quoted figures for the gross equivalent didvidend do overstate it a bit as the portion that is capital gain would not be taxed anyway (ATM!)
3. KFL is very liquid - it is easy to take the divvies as DRM and then cash-up a few shares each month/quarter/year to provide you with a regular income.
4. warrants provide a small benefit for holders (but probably not worth much) - but they are nice for a hedge or useful to get a big position at a fixed known price
5. For those of us without the time/discipline to trade properly they are a good option - KFL have generally avoided most of the boom and bust NZ stocks over the past 20+ years.
6. KFL outperforms any NZ ETF over its lifetime

As Alokdhir and others (Mr B included) have said - these are an attractive stock in retirement:
1. Good track record
2. Regular income
3. As diversified as a NZ only fund can get (with big holdings of FPH/IFT/MFT/EBO they have good exposure to Aus/International economies)

Only advice I would add is to only buy them with >5% discount to nta.........

[Basil]

Presentation from annual meeting today.  I couldn't be bothered fighting the heavy Auckland traffic in the wet and wild wintry conditions to attend the KFL meeting this morning. https://api.nzx.com/public/announcement/456481/attachment/449056/456481-449056.pdf

[winner (n)]

Presentation from annual meeting today.  I couldn't be bothered fighting the heavy Auckland traffic in the wet and wild wintry conditions to attend the KFL meeting this morning. https://api.nzx.com/public/announcement/456481/attachment/449056/456481-449056.pdf

Matt will miss having a chat with you

You better ring him and talk him into Turners

[Basil]

Matt will miss having a chat with you

You better ring him and talk him into Turners

LOL, I tried that last year when they were $4.  I tried to get motivated this morning but in the end the filthy weather got the better of me.

[winner (n)]

Now EBO has become a market pariah time to dump them I reckon - like do what they did with Ryman and sell the lot

Might get $25m for them

Bit of a worry is Peek's recent history is what would he do with the proceeds - doesn't seem keen on the likes of HLG or Turners.

Probably double up on Vulcan Steel and try to resurrect the situation there.