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| Subject: Source: Aspect financials/Multex estimates as at 13/12/2002. | |
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Author: Huntley's views |
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Date Posted: Saturday, March 01, 05:15:53pm In reply to: Pre consolidation post consolidation. 24/1/03 's message, "Shares on issue ERG" on Thursday, January 23, 09:16:54am HUNTLEYS' VIEW POINTPUBLICATION DATE: 05/12/2002 ----------------------------------------------------------- Recommendation: Hold - Await further dvlpts ----------------------------------------------------------- COMPANY FINANCIALS & FORECASTS F/YNPATEPS% ChgDPSFr.%YieldPer 6/93(a)6.11.9n/a0-018 6/94(a)13.41.9-0.70-047.7 6/95(a)13.43.160.20.8-1.222 6/96(a)6.51.7-43.10.8-1.628.4 6/97(a)-59.3-4.4n/a0.3-0.7n/a 6/98(a)13.82.3n/a0.3-0.817.3 6/99(a)20.33310.5-116.8 6/00(a)35.24.964.50.6-0.253.4 6/01(a)6.12.7-45.11-0.486.1 6/02(a)-243.9-3.8n/an/a-n/an/a 6/03(e)-0.6-0.1n/an/a-0n/a 6/04(e)3.20.4n/an/a-030 ----------------------------------------------------------- Source: Aspect financials/Multex estimates as at 13/12/2002. ----------------------------------------------------------- Dilution is always disappointing! The most disappointing thing about ERG's flagged capital reconstruction is that in conversations with Peter Fogarty, Chief Executive, as recently as April this year, we understood that management appreciated the destructive impact of any further dilutions. ----------------------------------------------------------- With the proposed conversion of the $250m convertible notes into 1.66bn ordinary shares, or 63% of the enlarged capital, management have admitted that they need this balance sheet reconstruction to put them in a position to win further contracts next year. What happens if this floated transaction does not go ahead? At current prices, ordinary shareholders are entitled to suggest that ERG should take the risk that capital markets do not improve between now and October 2005, when repayment is due. ----------------------------------------------------------- Management maintain that the effects of 9/11 on the global insurance industry has meant that ERG has faced increasing difficulty in coming up with performance bonds for the various contract tenders that they are interested in. They intend to use the proceeds of a 1:8 rights issue, together with the reduction in overall debt by virtue of the proposed conversion of $250 million of the convertible notes, to put them in a position to win a substantial number of the five to ten major city projects up in the next 12 months. ------------------------------------------------------------ The shares issued for the Proton transaction - itself a substantial dilution for existing shareholders at the time- have yet to produce any notable return. The cash component of that transaction, together with further outstanding cash obligations arising out of that transaction which have increased as the share price has fallen, have been prime contributory factors in ERG's current distressed situation. ------------------------------------------------------------ It is too early to comment on the proposal as outlined in announcements. One of our subscribers contacted us to point out that there appeared to be a reason to sell the ordinary shares and purchase the convertible notes. By using a little basic algebra we can see that if this proposal goes ahead, the ratio of the convertible price to the ordinary price to ensure that there is no arbitrage between the two is a factor of 90 to 1 - calculated by dividing the nominal value of each convertible note ($13.50) by the proposed conversion price ($0.15). With the convertibles selling at $6.15, ERG ordinary shares should be selling for less than 7 cents. And, while management float draft proposals across the market, that is probably where the ordinary shares are heading. ------------------------------------------------------------ We would generally advise our subscribers to leave such arbitrage strategies to the professional traders, but the observant subscriber who contacted us is right that there is a potential opportunity. However, having completed that side of the deal which involves selling the ordinary shares, many of our subscribers would rightly hesitate before buying any further securities in this company. If the proposed capital reconstruction does not go ahead, the arbitrage does not work because there is no mechanism to swap the convertibles except at 3:1. Whether the convertibles have any residual value is impossible to determine at this stage. ----------------------------------------------------------- Until the uncertainty over the capital structure has been resolved, we would advise against making new purchases, but we do think that it's too late to sell the ordinaries, despite the obvious temptations, and despite the fact that there is still 100% to zero. © Copyright Aspect Financial Pty. Ltd. 28 February, 2003 - All rights reserved. No material may be reproduced, except as allowed by the Copyright Act, without the prior written approval of Aspect Financial. Some of the material provided through the Aspect Equity Review is copyright and is published under licence from ASX Operations Pty. Limited ACN 004 523 782 ("ASXO"). Aspect's beta information is calculated from information supplied by the Centre for Research in Finance, AGSM Limited. Consensus Forecast data is copyright Multex Global Estimates. Disclosure Officers and employees of Aspect Financial (or their associates) may hold securities reviewed in this report. The Aspect Equity Review is issued subject to the terms of the Aspect Equity Review Subscriber Agreement. [ Next Thread | Previous Thread | Next Message | Previous Message ] |
| Subject | Author | Date |
| Re: Shares on issue ERG | Regfree views post 3395 Ozestock--reply to Nicknat/ps To Micahel Irish.prelimary figures 1.47 | Saturday, March 01, 05:21:44pm |