Metcash

Metcash shareholders should by now have received documentation relating to the company’s Share Purchase Plan (SPP). This follows on from the recent $325m institutional placement. Retail shareholders are entitled to apply for up to $15,000 worth of shares at the lower of $3.335 or a 6.4% discount to the volume weighted average share price over the period 17-23 July.

Unless Metcash’s share price increases sharply over the next week, the second of these options is likely to apply. If the average share price over the period is $3.20, for example, then the SPP price will be $3.00.

Whilst it’s arguable whether the 6.4% discount is attractive enough, we don’t think it’s quite sufficient. You will be unable to sell your SPP shares until 1 August, so there’s some chance that the share price moves down significantly between the offer closing date of 23 July and the first trading date of 1 August.

If you’re willing to speculate on the price increasing after 23 July, though, then there’s the potential for short term profit. That’s not really our game and, despite the dilution shareholders will experience, we’re not keen to increase our stake in Metcash given recent events.

The stock is down 2% since Red flags waving for Metcash on 10 Jul 12 (Hold – $3.25) and the recommendation remains HOLD based on a portfolio weighting of 3%.