Clime has the following share structures:
Th reason for the increase in dividends and conversion rate is that by selling more CAM shares, it dilutes NTA and therefore the negatively impacts CAMPA holders. The adjustments to dividends and conversion rate compensate CAMPA holders for this.
- Funds Management operating business: Clime Investment Management Ltd (CIW)
- Listed Investment Company (LIC): Clime Capital Ltd (CAM)
- Preference shares on CAM: Clime Capital Ltd Preference Shares (CAMPA)
CIW is an Australian funds manager and financial analysis software provider. I am not going to look at CIW today, and instead focus on CAM and CAMPA. CAMPA fits into the Listed Income Securities bucket and has an interesting structure and is not just an ordinary share.
CAMPA aren't anywhere near as attractive as AFIG notes, but interesting nonetheless. CAMPA were issued in 2007 at an issue price of $2.40. The shares pay a fixed interest rate, initially of 7.5% p.a. fully franked, therefore 10.7% p.a. grossed up. The actual dollar interest payment has since been upwardly reset following further rights issues of new CAM shares (I will explain this in a moment) so the current dividend is 19c per share. Based on the current price of $2.14 per share the yield equates to 8.9% p.a. or 12.7% p.a. including franking credits.
That's the first bit. CAMPA will convert into ordinary CAM shares 10 years from the issue date - which means 2017. Again, as new CAM shares have been issued and diluted value, the conversion rate from CAMPA to CAM has increased. Initially, the conversion rate was 1 for 1, however it has increased to 1.30967 shares for every 1 CAMPA share.
Th reason for the increase in dividends and conversion rate is that by selling more CAM shares, it dilutes NTA and therefore the negatively impacts CAMPA holders. The adjustments to dividends and conversion rate compensate CAMPA holders for this.
The overall return from CAMPA will depend to a very large extent on the underlying performance of the CAM price between now and 2017.
Let's put some numbers around that.
CAM is currently $1.04. So the current conversion value of each CAMPA share is $1.36 ($1.04 * 1.30967). That's an awfully long way down from the current CAMPA price of $2.14. Listed below are some scenarios based on assumed growth rates in the CAM price between now and 2017 and how that will translate into an overall Internal Rate of Return (IRR) for CAMPA. The IRR takes into account both the current yield and capital gains/losses.
Let's put some numbers around that.
CAM is currently $1.04. So the current conversion value of each CAMPA share is $1.36 ($1.04 * 1.30967). That's an awfully long way down from the current CAMPA price of $2.14. Listed below are some scenarios based on assumed growth rates in the CAM price between now and 2017 and how that will translate into an overall Internal Rate of Return (IRR) for CAMPA. The IRR takes into account both the current yield and capital gains/losses.
What stands out to me is the performance of CAMPA is dependant on a better performance from CAM. And that doesn't take into account dividends from CAM, where the CAMPA IRR does. I can't for the life of me understand why CAMPA is trading at these levels. Either I have missed something (always possible) or investors have been seduced by the high current yield, not knowing the equity risk lurking below.
The current pre-tax NTA of CAM is $1.17. You could make an argument that CAM price is undervalued, however if that's your view, you are still better off with CAM than CAMPA.
Kristian
Disclosure: do not own CIW, CAM, CAMPA
The current pre-tax NTA of CAM is $1.17. You could make an argument that CAM price is undervalued, however if that's your view, you are still better off with CAM than CAMPA.
Kristian
Disclosure: do not own CIW, CAM, CAMPA
CAMPA are paying a gross dividend of 27c pa - the dividend was increased some years ago to compensate for a year of missed payouts. I disagree with your IRR calcs. I get an IRR of 7.7% for 5%pa growth and 11.2% for 10%pa growth. That's why CAMPA is trading at current levels.
ReplyDeleteHowdi. I made a mistake in my spreadsheet: and thanks for picking this up.I neglected to multiply the FV by the additional number of shares issued at conversion (1.31). Your numbers are correct. This roughly means the expected IRR is the same as the growth rate of the CAM share price, which excludes dividends. So on an overall basis, CAM still stacks up better. Obviously CAMPA pay a really big dividend, so perhaps this is also the reason why the price is high.
ReplyDeleteThank you for the feedback.
Actually, more CAM bonus shares have just been issued, so the conversion rate has increased to 1.36206.
ReplyDelete