No brainer: Abacus explains the value of TECH warrants

Published by Bilyonaryo

Shareholders of Cirtek Holdings Philippines Corp. are probably scratching their heads over the stock’s underwhelming performance in the middle of its P1.4B stock rights offering.

Shares of TECH closed at P5.21 per share during Friday’s trading, down 25 percent from an intra-day high and below the P5.50 subscription price for the SRO.

Should shareholders subscribe when they can buy shares for cheaper at market?

Nicky Franco, the head of research of Abacus Securities, said taking up the TECH rights with its bonus warrants should be a “no brainer.”

Franco estimated that the warrants, which comes with the subscription of the rights shares, were worth between P0.99 and P2.82 based on Bloomberg’s warrant valuation model.

This means that even at P5.21 plus the minimum P.99, the stock is well above the strike price of P5.50. The warrants come free of charge, as a bonus, to those who subscribe to the offering.

Franco cited the history of Leisure Resorts and its warrants, LRW, to illustrate his point that share price should not only be compared to the strike price.

The report pointed out that LRW, which has an exercise price of P15, rose to as high as P7 even though shares of LR itself maxed out at P12.

Franco expected TECH’s second quarter earnings “to be as good” as the first three months when the firm posted wide margins and on the back of higher orders (boosted by the current chip shortage) and the extension of Quintel’s master supply agreement with two major US telcos (five-years from the original one year deal).

Abacus Capital and Investment and PNB Capital Investment are TECH joint issue managers and lead underwriters.