Assignment on Ordinary and Rights Shares

[sheree]

I am in my first year of university this year. I am studying externally in the subject of Fundamentals of Finance. We have our first assignment due at the end of May 2005.

I have had to choose two companies:
One with Ordinary Shares
WORLEYPARSONS LIMITED (WOR)
One with Rights Share
I have found the following company's with rights issues (I think), by searching through the search engine, as I couldn't find any on ASX. But then when I searched for these same companies on ASX could not see that these companies were listed as rights??? From the research I have done though so far (which has purely just been trying to find one).
Flinders Diamonds (close date 29/4/05)
Xanadu Wines (april close date)
Tele-Ip Limited (april close date)

My online tutorer advised that these April rights issues are fine and to look in the stock market listing of tomorrow's Age or Financial Review newspapers and see if you can see the expression "rts" or "rgts" or similar against my suspected rights offerings below. This will confirm that I have picked a right that you can buy on the stock market. I could only get the Financial Review, and could not find this information he is taking about. Against Flinders Diamonds I could only see pref (which I assume is preference shares). Am I looking in the wrong place or is the Age a better newspaper to find my information?

The questions of the assignment are as follows:
1. What is the minimum qty that an investor can buy of each type of security (I ASSUME I WOULD FIND THIS INFO ON THE FINANCIAL STATEMENT OF THE COMPANY CHOSEN OR CAN I FIND THIS ON ASX??) WORLEYPARSONS LIMITED (WOR) I BELIEVE HAS A CURRENT SHARE PRICE OF $6.91 AS AT 29/4/05 (INFO FOUND ON ASX)
2. Briefly define and explain 2 characteristics of each of the 2 types of securities.
3. Discuss market (systematic) risk generally and then discuss at least three company (unsystematic) risks specific for each of the 2 companies. (I ASSUME THIS WOULD BE ANY COMPANY ANNOUNCEMENTS THAT HAVE AFFECTED THE SHARE PRICE ON THE MARKET???)
4. Is there any chance that an investor might lose their entire investment in any or all of these 2 securities? In the unfortunate event of liquidation, identify the relative order of (Ordinary/Preference/Options/Convertible Notes/Rights) of the possible return of some capital to an investor. (MY ORDER WOULD BE NOTES/PREFERENCE/ORDINARY/OPTIONS/RIGHTS - IS THIS RIGHT ORDER?)
5. If you had Aust $5000 to invest in any of the above securities in 1 of the securities (ie: Ordinary/Preference/Options/Convertible Notes/Rights), which companies security would you buy if you wanted to resell in one mth? Why? Provide 8 relevant arguments. (AM I ON THE RIGHT TRACK - CONVERTIBLE NOTES DUE TO THE FOLLOWING: GUARANTEE RETURN, AS THEY ARE LIKE A LOAN TO THE COMPANY, AND THEY PAY INTEREST ON INVESTMENT AND AT END OF TERM YOU CAN CONVERT VALUE OF NOTES TO ORDINARY SHARES. AND YOU ARE LIKE A SECURED CREDITOR/INVESTOR AND YOU ARE PAID BEFORE SHAREHOLDERS IF COMPANY GOES BROKE, BUT THEN WHEN YOU DO CONVERT FROM NOTES, YOU WILL BE THAT SHAREHOLDER.)

Please help. I do not expect you to answer these questions, but if you could point me in the right direction, that would be greatly appreciated.

Thanking you in advance
Sheree

 

[bvbfan]

Looking for rights issues, my choice would be to go to Tradingroom and do a Company Accouncement search for rights issue, go from News into Company Announcements then advanced search
You'll probably need to be a member which is free

You should get details of recent rights issues, then click the announcement and it should give details of the issue. ie. how many shares you need per right , it should also give the price and date for the issue

For part 4, the options would be last I think
Unfortunately my notes from these subjects that I've done are with ungrateful person who hasn't bothered to return them yet

Oh and please don't use capitals, its really hard to read

 

[sheree]

Thank you I did what you said and they have all expired. Need a current april or may rights issue. But as it turns out one of the companies I listed before ie: Tele-Ip Limited (TEE), are also listed on ASX, which is exactly what I wanted to see before I continued. ie: TEER, Rights Applications close 13/5/05.

And why is it that you think that options would be last and not rights? Does anyone else have an opinion?

Can anyone help me with any of the other questions or at least head me in the right direction.
Thanks again
Sheree

 

[sheree]

Please anyones help would be greatly appreciated.

Thanks again
Sheree

 

[tech/a]

Ok here is as much help as I can give.

A rights issue is a privilege granted to shareholders to buy new shares in the same company, usually at a discount to the prevailing market price.

Given that.
(1) $500
(2) One is an ordinary share and the other is a share offered to a current share holder at often a discount to entice more investment in the company IE raising funds----these shares are new issues.
So you would just nominate 2 characteristics of and Ordinary share and a rights Issue.
(3) I think issues like dilution of stocks hence liquidation of rights leading to a lower value.--------Risks are similar for both ordinary and rights.
(4) Yes---I like your order
(5) Most of your choices would have a period of over 30 days to have an effect.
Id say either ordinary or options would be the best short term as they are immediately liquidated.

This is about the best I can do as its been a long time since I was at school.
Im abuilder not an advisor.But seems help is scarce----and they say people cant get tradesmen!!!!!

Id call a broker or an accountant or a licienced advisor.
Send Moneytree an email he's an advisor,although it appears he doesnt like to give out "Freebies".

 

[bvbfan]

Okay found some other notes I have

1- $500 as an initial purchase of any security then no set amount, but brokers may have own limits
2- Rights are issued to ordinary shareholders, registered on the companys share register on a certain date set by the company. Rights are issued at a rate also determined by the company (ie. 1 for 4 means for ever 4 shares you own you earn 1 right to buy a share)
3- Systematic risk is risk that can not be diverisfied. Unsystematic risk is the risk of price change due to individual companys circumstances, this can be diversified away
4 - Company options have no standing in the event of liquidation, they would be last, unfortunately I have no notes on rights issues
I'm guessing they would also have no standing until exercised which would then make them ordinary shares
5- Ordinary shares would be more liquid, for one month hold they would be most suitable, but could argue for options if you were more risk tolerant and had belief company would rise in price (but depends on options exercise price and current market price)

 

[sheree]

I thank you greatly for your help.

You both said $500 for Question 1 is this for the Ordinary Share security for the Compnay WorleyParsons Limited that I chose? If so, where do I find this information. Is it on the ASX, or is this a standard intial price requested for any security, no matter how many shares this buys?



Thanks again, you help has been greatly appreciated.
Sheree

 

[tech/a]

is this a standard intial price requested for any security, no matter how many shares this buys?

YES

Sheree

----

 

[sheree]

Thanks again

Sheree

 

[sheree]

Hi Tech/a

Can you please clarify what you meant by no. 3 - Are you taking about systemic or unsystematic risk?

Thanks again
Sheree

 

[sheree]

If anyone has any ideas, please feel free to reply. Your help would be so greatly appreciated.

Ta
Sheree

 

[bvbfan]

Systematic risk is risk that can not be diverisfied, thats it common to any listed security

Unsystematic risk is the risk of price change due to individual companys circumstances, this can be diversified away. It can be from what the company does to company annoucements etc

Basically systematic risk is something you can't do anything about, unsystematic risk however can be managed/reduced

You should have some details in your notes for both these which will outline the differences. If not google the two references and you should get some results.

 

[sheree]

Yes I knew all that, thank you very much. I am just not sure what they are wanting us to answer in the question related to our companies for unsystematic risk. Do you think they are asking us to research the company announcements for each company we have chosen (whether good / bad announcements) that could be affecting the way the share price rises or falls?

Sheree

 

[bvbfan]

No I doubt they are looking at company announcements, more what the company does and may be also operating environment (eg. in Australia or OS)

Something that is specific to the company like a strike by workers, a factory fire, a mining company where there is a shutdown so that no mining takes place
These sort of possibilities occuring to the chosen company.

Actually should have mentioned that unsystematic risk is sometimes called specific risk, which as it implies is specfic to the company.

 

[sheree]

Thank you so much you have been more than helpful.

How would you find those types of specific risks? Wouldn't the only place be company announcements. I can't seem to find anything else, and we are asked to give 3 for each company we have chosen. That is why I gathered it might also be company announcements, like winning a big project or something (but obviously this would only affect share price in going up). So you think we are to be looking for negatives that may be affecting the share price to be unstable?

Sorry I have sent a message to the Uni also, but haven't heard anything yet.

Thanks for your help.

Sheree

 

[bvbfan]

Company profile should give an idea to specific risks, which you'd need to work out based on the industry they are in

Technology companies may have a risk with contracts, signing one would be positive , losing a contract negative

Biotech - finding that trails have a positive effect on targeted disease, getting FDA approval for product would be positives
Finding that trials caused more problems - side-effects, or it didn't not meet expectations, FDA banning or not being approved could be negatives

 

[sheree]

Thank you again bvbfan, you have been so helpful.

Thanks
Sheree

 

[ob1kenobi]

The questions of the assignment are as follows:
1. What is the minimum qty that an investor can buy of each type of security (I ASSUME I WOULD FIND THIS INFO ON THE FINANCIAL STATEMENT OF THE COMPANY CHOSEN OR CAN I FIND THIS ON ASX??) WORLEYPARSONS LIMITED (WOR) I BELIEVE HAS A CURRENT SHARE PRICE OF $6.91 AS AT 29/4/05 (INFO FOUND ON ASX)
2. Briefly define and explain 2 characteristics of each of the 2 types of securities.
3. Discuss market (systematic) risk generally and then discuss at least three company (unsystematic) risks specific for each of the 2 companies. (I ASSUME THIS WOULD BE ANY COMPANY ANNOUNCEMENTS THAT HAVE AFFECTED THE SHARE PRICE ON THE MARKET???)
4. Is there any chance that an investor might lose their entire investment in any or all of these 2 securities? In the unfortunate event of liquidation, identify the relative order of (Ordinary/Preference/Options/Convertible Notes/Rights) of the possible return of some capital to an investor. (MY ORDER WOULD BE NOTES/PREFERENCE/ORDINARY/OPTIONS/RIGHTS - IS THIS RIGHT ORDER?)
5. If you had Aust $5000 to invest in any of the above securities in 1 of the securities (ie: Ordinary/Preference/Options/Convertible Notes/Rights), which companies security would you buy if you wanted to resell in one mth? Why? Provide 8 relevant arguments. (AM I ON THE RIGHT TRACK - CONVERTIBLE NOTES DUE TO THE FOLLOWING: GUARANTEE RETURN, AS THEY ARE LIKE A LOAN TO THE COMPANY, AND THEY PAY INTEREST ON INVESTMENT AND AT END OF TERM YOU CAN CONVERT VALUE OF NOTES TO ORDINARY SHARES. AND YOU ARE LIKE A SECURED CREDITOR/INVESTOR AND YOU ARE PAID BEFORE SHAREHOLDERS IF COMPANY GOES BROKE, BUT THEN WHEN YOU DO CONVERT FROM NOTES, YOU WILL BE THAT SHAREHOLDER.)

Please help. I do not expect you to answer these questions, but if you could point me in the right direction, that would be greatly appreciated.

Thanking you in advance
Sheree

Q1. The minimum size is $500.00 (ASX Rules). Therefore if you want to buy ANZ Bank shares at say $20.00 you would need a minimum purchase of 25 shares.
Q2 Ordinary shares form the bulk of a company's capital. These rank after everything else in the event of a company being wound up and may be fully paid or contributing shares. A right is an entitlement given to existing ordinary shareholders in a company to take up nerw shares at a specific price and by a specific date. Rights are issued pro rata to existing shareholdings and may be either renounceable or non-renounceable. (see Renton's Dictionary of Stock Exchange and Investment Terms P243 and P230).
Q3. Risk is the uncvertainty that the actual return from an investment will vary from the expected return. It is made up of systematic and unsystematic risk. The latter can be reduced but not eliminated by diversification. Some risks can be insured against, at a price, by hedging techniques (see Renton's Dictionary of Stock Exchange and Investment Terms P230). One way of insuring / hedging would be the use of Options trading. I would also suggest that you use tradingroom to find the specific risks to the company's you are interested in. A Goggle search can also be revealing.
Q4. Any form of investment, including Term Deposits at a Bank has the risk of losing money (eg. the Bank could get wound up!). So the obvious answer is yes but the likelihood is reduced through risk minimization strategies such as diversification of the portfolio and hedging. In the event of a company be wound up, preference shares rank ahead of ordinary shares. Convertible notes are a form of debt securities and thus would rank ahead of shares in the event of a company being wound up. Options are a contract to buy or sell at a certain price in the future in that security. I doubt it would have any effect in the event of a company being wound up. My order would be: Convertible notes, Preference shares, Ordinary Shares, Options, Rights.
Q5. Probably Ordinary shares, maybe using a portion of the $5000 to secure an options contract for a future sale price. However you would want to be sure that the price in a months time will see you get your money back plus some.

Hope this helps.

 

[sheree]

Wow,

That is really nice, thank you so much for your help.

I am ever so grateful. :bananasmi

Sheree

 

[ob1kenobi]

No problem. I'm looking at a chart on my wall "Australian Share Price Movements 1900-2003" put out by the ASX. The OPEC oil crisis in 1975 had a much greater impact (negative) than september 11. Both of which are systemic risks!

Good luck with the assignment!