If thats right then they are issuing 160M shares against a 98M existing base. Investors will own 61% of the company and shareholders the rest. Looks like I was wrong about the 70-75%+ but that was because I forgot the interest expense. The effective ownership is bigger due that factor since you can always take the interest and buy shares in the market
Yes, if we assume 100 million of earnings a year, then the 40 million interest (10% of 400 million) takes a big bite into any valuation based on future profits. If we assume Indicative market cap of 258.21 million * $2.50 = $645 million Then maybe this is a (approx) 10x PE ratio on a company earning about 60 million a year (100 million current earnings less 40 million interest). But again, this is all speculation.
If the $60M in earnings trade at 10x it will be surprising given all the risks and the surprise effect. Probably will trade at 8X. Thats a value of $480M which shareholders get 39%, $187M market cap for the stock. This means a 55% of decline in the stock, probably overshoots in the short-run
Assuming the details are right my fair value for the stock is $1.8 per share but I believe the market will overshoot as people will panic
I agree with your logic, but in the short-term at least, there will be a strong Yahoo messageboard type bid at 2.50 (assuming that is the conversion price). It really does depend on how high the interest rate is. If it's below 10% then it could trade as high as $3 if there is sufficient retail interest, especially given that it is a sub 1 billion company.
In my experience this type of 'idiot' interest doesn't have the power to hold the initial panic selling, thats what I'm betting on. Stock rose a lot friday based on bullish expectations, all those people will be selling tomorrow. I plan to cover at some kind of selling climax tomorrow or tuesday
Looks like my thinking wasn't bearish enough. Existing stock holders will get less than 30% of the company and have net income reduced due interest payments. KCG stock will face a bloobath tomorrow
well traded Daal (assuming $1.50 is the price). I am long 5 puts and short 2.50 puts. Happy to give up profits below 2.50.
"The coupon on the preferred is 2 percent, but all the firms are expected to convert after 10 business days." In my view this will have the psychological effect of getting people to send the stock to bellow the conversion price
Issue here is if the stock is quite a bit above $1.5(say $2+), the investors can convert and sell at an immediate profit, this threat can depress the stock all way down to the conversion price Plus the initial panic factor. KCG might actually get to be undervalued at some point next week