BSL - Bluescope Steel

[MrBurns]

I made a small loss on them a few weeks ago, everything else has gone up and they still go backwards, another Charlie Aitken special tip

 

[Taltan]

First I cried, than I googled and your right $1.55. I sure am sorry I got involved with this one.............

 

[M34N]

How do you think its going to open on thursday. Up or Down. And after 1 for 1 offer how is the stock price going to be impacted.

Hmmm, $2.00 open would be a random guess from me, but I wouldn't bet on it to be honest. That would be a 20% fall, otherwise I'd say even as low as $1.80 (-30%) or beyond wouldn't be ruled out, I think OneSteel had a fall close to that when they got out of their trading halt so I would price in something large. It's lowest price ever is $2.05 or thereabouts in March so I'm unsure if that price will provide any support, it depends really.

I read their capital raising plan and it looks interesting indeed, one of the rumours I did hear about the capital raising being under $2.00 have been confirmed, but $1.55 is IMO a very sharp discount considering they already done some capital raising from $4 to $3 a while back. Why not seek some foreign investment instead of share placements, one has to ask?

 

[alphaman]

This is actually good timing.

BSL has high debt and poor cash flows, a deadly combo. Without this market rally BSL's share price would have been under $2 anyway, so this is not that big a discount. Yes EPS gets diluted, but that's a very cheap price to buy survival.

 

[Real1ty]

They have also decided to suspend their dividend

Consistent with BlueScope Steel’s other actions to strengthen its balance sheet and maintain financial flexibility in light of current market conditions, BlueScope Steel does not believe it would be appropriate to propose a final dividend for the year ending 30 June 2009.

A lot of research is needed before entering into this stock imho.

I'm not a holder.

 

[Sir Osisofliver]

Page 5 of the presentation guys...

"Consistent with BlueScope Steel’s other actions to preserve capital in light of current market conditions BlueScope Steel does not believe it would be appropriate to propose a dividend for the half year ending 30 June 2009"

Noice. (I watched Borat on the weekend)

Cheers
Sir O

 

[johannlo]

Unless you're trapped like me (bought @ 2.62).

Holding on for the long term, still with some of the earlier posters re: undervalued in the long term. Have to think about 1.55, even with dilution it still looks pretty darned cheap

But yes I would much rather make quick 10-20% small-mid cap hay whilst the sun is still shining.... one for the lessons book.

 

[captluthra]

$1.55 1 for 1 isnt a bad deal after all. Two shares at $3.10 and if the stock trades at $1.8 then its a sweet gain of $.25 per share.

Correct me if I am wrong.

 

[ands]

$1.55 1 for 1 isnt a bad deal after all. Two shares at $3.10 and if the stock trades at $1.8 then its a sweet gain of $.25 per share.

Correct me if I am wrong.

It's might be an okay deal for the shares you buy through the SPP but what about the shares people have bought from $2-$12. Not to forget that this is a massive dillution of shares (if everyone takes it up that is). I'm sure they wished they had raised money when it was around $11-$12...

 

[oldblue]

Note that it's not a SPP but a non-renounceable pro-rata one for one issue.
The big discount means that a shareholder who doesn't take it up will be heavily diluted so there's a big incentive to find the wherewithall, even if one has to sell something else to do so.

 

[captluthra]

It's might be an okay deal for the shares you buy through the SPP but what about the shares people have bought from $2-$12. Not to forget that this is a massive dillution of shares (if everyone takes it up that is). I'm sure they wished they had raised money when it was around $11-$12...

Thats what I am saying even if the new stock reduces to 1.55 still now you got two (1 for 1) at 3.10 v/s earlier two at 5.00.

Am I overlooking something......

 

[oldblue]

Thats what I am saying even if the new stock reduces to 1.55 still now you got two (1 for 1) at 3.10 v/s earlier two at 5.00.

Am I overlooking something......

Correct as far as that goes.

Where the downside comes in is that to get your new share at $1-55 you have had to buy another ( one for one issue) at a price presumably well north of $1-55, depending on when you bought, of course.
The big discount to $1-55, and the one for one ratio results in the heavy dilution that we've been talking about. And, of course, there's no guarantees as to what the market will value the heavily diluted shares at, after the issue. One would hope for a better price than $1-55 but how much better is a bit of a guess, IMO.

 

[captluthra]

Correct as far as that goes.

Where the downside comes in is that to get your new share at $1-55 you have had to buy another ( one for one issue) at a price presumably well north of $1-55, depending on when you bought, of course.
The big discount to $1-55, and the one for one ratio results in the heavy dilution that we've been talking about. And, of course, there's no guarantees as to what the market will value the heavily diluted shares at, after the issue. One would hope for a better price than $1-55 but how much better is a bit of a guess, IMO.

If that be the case shouldnt we expect a lot of stock movement on thursday as the investors will buy in hope of doubling their stocks for only 1.55 each.

 

[skc]

If that be the case shouldnt we expect a lot of stock movement on thursday as the investors will buy in hope of doubling their stocks for only 1.55 each.

I think in most instances the rights are given to only existing shareholders (before the halt). That is, if you bought on Thursday open you won't be able to purchase at $1.55.

The way to think about the new share price would be... total number of shares increase 2 fold (assuming everyone takes up their rights, which is unlikely). So EPS falls by ~50%, but each new share still has cash of $1.55/2.

So a possible price is $2.57/2 + $1.55/2 = $2.06, assuming market applies the same PE ratio to the stock. The EPS is probably reduced with the latest market update, but the risk of BSL running into debt problem is reduced, plus they would save some interest costs. So my punt is that a fair opening price is somewhere ~$2.

 

[ozbecool]

BSL - Bluescope Steel - 1 for 1 offer

POINT1:
First of all : this placement shows that BLS management is really BAD :
- the offer is almost a black mail - buy more at $1.55 or if you don't then you will be hit by an instant loss. Why didn't they say offer is 5-10% discount to the market price and offer is eg. "3 for 5) ? They didn't because they want to FORCE shareholders to buy more.
- didn't those CEOs, MDs etc from BSL board know WHAT their debt structure was ? They created it !!!
- W.Buffett places companies with such a poor management into a disposal bin.

POINT2: RE: the rights are given to only existing shareholders ....
The offer doc says that RECORD DATE for retail holders is FRI 8 May, 7pm, so entitlements will be taken as of that date.

Similar thing was on 17Apr09 with OST;
- offer was "2 for 5"
- and OST price at the time when the offer was announced was : $2.56.
- then on ex-entitlement date (20Apr09) price went down to $2.23.
But note that the equivalent theoretical ex-entitl. price for OST was : $2.34 [ =(2*$1.8+5*$2.56)/(2+5) ]. And that above $2.34 agrees with own OST estimate of the price.

But on 20Apr09 (the first day after the entitlement date) market closed at $2.23 i.e. approx 5% below theoret. price.

So we could expect that BSL will be trading near $1.96 or so [ = $2.06 (theoret. ex-ent. price) * 0.95 ].


POINT3:
But who knows at what price it will be trading on 7 May and 8 May as those days BSL stock is to trade as pre-entitlement ? Probably in between $2.0 and $2.5. But here we might have an interesting phenomena :
- OST did NOT have those 2 days of pre-entitlement as BSL is to have on 7/8 May.
- and BSL has those 2 days, therefore this offers a 'deal' : << buy me now at any price below $2.57 and if the ex-entitl. price on/after 10 May is above $2.06 then you will have an instant gain>> So it is a kind of an CFD/options trading.

POINT4:
Consider this break-even scenario:
- you keep you shares till Mon 10 May (or buy some on 7/8 May if you do not have any yet)
- this way you are entitled to buy "new shares" at $1.55
- then you sell on Mon at - lets assume that market will settle at $2.06 per share
- when you become the owner (~ 2-3 weeks from now) of the "new shares" you sell them - for simplicity lets assume that market price will still be $2.06 (but probably they will be higher - as OST are now).
- this way you paid: $2.57 + $1.55 = $4.12 for 2 shares
- then you sell at $2.06 (on 10May) + $2.06 (~ 20-25 May) = $4.12

WHICH MEANS THAT :
If you bought in the past or you can buy shares on 7/8 May significantly lower than @ $2.57 / ea and then sell them at or above $2.06 after 9 May then you will have some profit (trading fees excluded)

But : why bother buying BSL now with so many 'ifs' when there are so many better opportunities in the market ?

People who are somehow in a trouble are those who already have BSL shares. 7/8 May might offer them some 'cut losses' exit opportunities IF THE PRICE hits $2.30 or more.

 

[Taltan]

Interesting to note that the shares went from 2.39 to 2.57 on Monday. People on the inside knew about the raising that day so it looks like they were buying to ensure their 1.55 entitlement as per Point 3 made by ozbecool. Thus the market didn't really value BSL at 2.57 prior to the announcement but really somewhere between 2.39-2.57.

Lets say 2.5 and now the number of shares are doubled so we go to 1.25. Of course the market will like the debt reduction and not everyone will take up the SPP, nevertheless once the fun and games of Thu & Fri are over I dont see the stock trading above $2. Hopefully $1.96

Point one regarding amangement is of course also valid

 

[M34N]

Re: BSL - Bluescope Steel - 1 for 1 offer

First of all...

Agree with a lot of what's said here, but you're assuming the price will settle at around $2.06 or thereabouts, which is the main argument in your case. I personally wouldn't be shocked to see it well under $2.00 level.

But otherwise I am unsure as to when people are entitled to receive part of the SPP, is it on the record date or do you already need to be on the books to receive it? Reading their restructure plan yesterday I wasn't sure of this either, but assumed by record date you needed to be already settled by your broker and on BSL's book's by 08/05/09?

Either way, I'm expecting a massive swing in this stock come tomorrow, will be watching like a hawk for any massive move down, and I think any dip below $2.00 like you said may provide a nice opportunity to buy - even for the longer term (one of the first time's I've thought about a long-term buy in a while to be honest). This is most likely the last buyback they will have so I expect the price to settle from here, but that's my best guess!

 

[oldblue]

This is most likely the last buyback they will have so I expect the price to settle from here, but that's my best guess! QUOTE.

Unfortunately, a SPP is the exact opposite of a buyback but I agree with the sentiment ( if intended) that this is likely to be their last capital raising for a while.
There's a good chance that the SP will gradually recover somewhat once the dust settles as has happened with a few other SPP's recently, eg TSE, FBU,CSR etc.

 

[alphaman]

Re: BSL - Bluescope Steel - 1 for 1 offer

POINT1:

- didn't those CEOs, MDs etc from BSL board know WHAT their debt structure was ? They created it !!!
- W.Buffett places companies with such a poor management into a disposal bin.

I agree. But when you are the CEO of a public company, and you see your competitors loading up debt and getting rewarded by the market, you would probably have done the same. In fact BSL probably would not have gone up to $12 without the debt leverage.

 

[skc]

Re: BSL - Bluescope Steel - 1 for 1 offer

But otherwise I am unsure as to when people are entitled to receive part of the SPP, is it on the record date or do you already need to be on the books to receive it? Reading their restructure plan yesterday I wasn't sure of this either, but assumed by record date you needed to be already settled by your broker and on BSL's book's by 08/05/09?

Typically the Ex date is 3 days before the record date. This is the same as in dividends. So I actually didn't think shares purchased on open tomorrow will be entitled to the rights. I could be wrong of course...