Model portfolios: Abacus Property Group share offer
Key Points
- Offer to subscribe for up to $15,000 worth of shares
- Price is a discount to current market price
- We'll apply for the maximum with a view to selling
The flood of new share issues continues, this time from Abacus Property Group (ABP). With a place in both our Moderate Portfolio and Aggressive Portfolio, let’s work out whether we should take it up.
In Model portfolios: Templeton Global Growth and Troy Resources share offers, we looked at the similar Troy Resources share offer, which ended up being an easy pass. The same principles are at play here, albeit with a different outcome.
The Abacus share placement offer
It’s a quirky offer, primarily because Abacus doesn’t let us know how much it’s raising. The company has the right to scale back applications but we’re left to guess whether it’s likely to be a little or lots.
Each of our model portfolios has the right to apply for up to $15,000 worth of shares at a discounted price of $2.26 (a 3.4% discount to yesterday’s closing price of $2.34). If we want to apply for less, it has to be done in $2,500 lots.
If successful, we don’t want to retain the entire stake. The Aggressive Portfolio currently holds a stake of just under $5,000 ($2,500 in the Moderate Portfolio) and a total of investment of almost $20,000 would be too much for either portfolio.
As we’d sell the shares bought under the offer, we need to make sure we’ve got the cost of brokerage – plus time and effort – covered. Fortunately, we stand to make just over $500 potential profit (6,637 shares multiplied by 8c per share) if we apply for $15,000, so we can even afford for the share price to dip a little between the application and sale date.
Of course, we can’t rule out the possibility the share price might dive before we exit, losing us money overall. But that’s a risk we’re willing to take – unlike TRY, ABP is a fairly stable stock. But the share price falling below $2.26 is a possibility so, if you’re applying with the intention of selling, you need to take this risk into account.
The main concern is that Abacus might scale significantly back our application. If we only get allocated $2,500 of stock and there’s a share price fall in the interim, our profit may not cover our brokerage, let alone time and effort. But with a reasonable cushion at the current share price that’s also a risk we’re willing to take.
The alternative strategy would be to apply for an amount we want to hold – say the $2,500 minimum – but that approach (with a potential ‘total discount of less than $100) leaves us well and truly in ‘why bother territory’. If you want to add to your stake it’s a good way to do so cheaply but we’re not looking to increase ours.
So we’ll stick with a strategy of applying for the maximum $15,000 shares and see how we fare. Of course, this strategy is predicated on the current $2.34 share price, so we’ll continue to keep an eye on it up until 9 April. The offer closes on 11 April but you need to allow 48 hours for the BPay payment to be processed.
If there’s any change in strategy, we’ll let you know.