D-day looms for iCar options

If you participated in iCar Asia's 2017 rights issue, you'll have received some options - and (if you haven't had it already) you should soon be getting a letter from the company telling you that they're due to expire on 12 June.

The options give shareholders the right to subscribe for a new share in the company at a price of 20 cents. So, if the shares can be sold on the market for more than that, then it will make sense to exercise them.

But that's tricker to determine than it sounds, due to the illiquidity of the shares and the wild volatility of their price. They last closed below 20 cents a couple of months ago; but the price regularly swings by a cent or two, or even more, in a day, so given the current price of 24 cents, it wouldn't take much to get there. There might also be a few optionholders that choose to sell soon after receiving their new shares, which could add to volatility.

So those with a nervous disposition might choose to give it miss (by doing nothing) at prices that are only a few cents or less above the 20 cent exercise price. But those with a nervous disposition should have sold this stock long ago (if they ever should have owned it).

For those comfortable with the risks then, with the price above 20 cents, there may be some value to be had - at least in the short term, and probably also in the longer term, although as ever that depends on management bringing the company to profitability.

If you wish to exercise all or some of your options, you'll need to complete the 'Applications for Shares on Exercise of Options' form, which the company should have sent you, and return it to the company's registrar, as detailed on the form. Payment can be made either with an accompanying cheque or via BPAY.

The later you leave it, the better you'll be able to assess the price and value on offer from exercising the options. However, if you want to exercise them, you need to make sure your form and payment are received by 5pm AEST on 12 June.

We don't actually think it changes the investment case greatly if the company gets the cash from the options. The reason the stock has rallied above the 20 cent mark is that investors are beginning to bet that it will reach breakeven (on an earnings before interest, tax, depreciation and amortisation basis) this year, in line with management guidance.

If it does so, then it probably won't need additional cash; if it doesn't, then it likely has deeper problems. There's some middle ground where the extra cash might buy a bit more time but, with such a polarised investment case, that middle ground may not be as large as it seems.

The news from yesterday's annual general meeting is that the company remains on track, with its Malaysian business banking a profit of $35,000 in the first quarter (compared to a loss of $145,000 a year ago), its Thai business making a profit of $11,000 (compared to a $200,000 loss a year ago) and its Indonesian business almost halving its loss from a year ago to around $0.5m. 

Weighing it all up, we'd estimate that the stock is worth 30-40 cents as things stand. However, there's a huge range of possible outcomes and the company stands on a knife-edge at the moment, with its business model being properly tested as it moves towards profitability (or not). So the value could change sharply over the course of this year. Right now, we'd probably recommend selling at a bit above 30 cents, but a good half-year result could bump that up and a bad one could knock it down.

Above all, we'd emphasise our 'very high' risk ratings and maximum recommended portfolio weighting of 2%. HOLD.

Disclosure: The author owns shares in iCar Asia.

Note: Our Model Growth Portfolio owns shares in iCar Asia.