Article Author : Speculator
Preface:
I don’t know why but I always prefer to go for hard things. After reading the bxpharma news I tried interpret the news immediately and did so. But I kept on thinking what might be the effect of the news in the long run. No need to say, analyzing news which is very uncommon is very tough to predict because not enough data can be found for the purpose and therefore the chance of mistake is greater. So it’s requested to all, please keep in mind about the probability of mistake which is very high in the analysis.
News summary:
Bxpharma will give 10% preference share subject to approval of all related parties at face value of 1000 which at dividend rate of 2.5% per quarter and fully convertible at the 75% market rate (Weighted average price) of bxpharma of the concerned period. However the condition remains one year lock in period for the sale of the shares at mkt.
Prediction of the price:
For predicting the price, we need to remember the few things.
1. Technical trend of the share
2. Fundamental change of the company
3. Expected Change of demand and supply of concerned period
Historical price movement:
Please see the graph of 2007 below and you will observe that the year is bullish and the month from September to November there was almost 50% price hike
Then please look at graph of bxpharma at 2008 and you will find that from month of September to November, the period was bullish for bxpharma. There was again around 50% return during the 3 months period.This 2 year is just precedent to this year(2009) and we may expect similar price hike this year too during September to November assuming that there is the presence of CYCLICAL EFFECT
Now, we come to add the 2.75 years graph of the bxpharma as (this is just September so yet 3rd year not completed.
Fundamental change of the company:
Bxpharma going to invest in its expansion and in same industry so we may assume its ROE is going to same for future as well.
Let say, bxpharma will use same debt equity ratio as previous so there will not significance change in any ratio. Last thing is they are going to issue share at 75% of market rate. So in the long run, they will earn almost similar for each share ( may be 25 % less if everything is constant). But we hope due to horizontal integration there will be more profit for each taka equity (or ROE is expected to be better).
If so, there is no reason for price fall due to change of fundamentals.
YAAP ITS P/E RATIO IS HIGH BUT IF IT WERE THE SOLE REASON TO FALL OF THE SHARE THEN IT MIGHT NOT HAVE REACHED AT PRESENT RATE. SURPRISINGLY IT’S STAYNG HERE FOR LONG PERIOD. THUS THERE MUST BE OTHER THING THAT IS PULLING THE PRICE UP. SO WE SHOULD FOUCUS ON THAT FACTOR FOR PRICE CHANGE (FALL).
Demand and Supply:
Due to lock in period of one year, we do not expect increase of supply an element of price fall. So there is less probability of price fall due to supply increase.
Conclusion:
As a result, our analysis concludes Bxpharma share price have less chance of price fall rather have greater chance of price hike. So we hope this is to be a sound investment.
Expected return:
Capital gain: undetermined. (a)
Preference dividend: 5%
Discount of market price: 25 %
Common dividend: unknown
EXPECTED RETURN ANALYSIS
To do the cost benefit analysis, we need many data specificly which is not found for the period.
for example, we need to know, what will be the price in november 2010? What will be dividend give on my existing common shares?
However, if we assume that we will sell our original holdings that we buy before record date after record date, that can be easier.
Here is my assumptions.
We buy beximco pharma at rate of 160 tomorrow or day after tomorrow. As (today mkt was downward we hope we can buy below todays rate).
After record date, we hope we can sell the shares at the same rate ( as there is no bonus or cash dividend nor even right at the moment) we assume its treated no corporate benefit. Second point, beximco pharma now on support level so we hope no more corrections.
So after record date we sell on breakeven ( although i assume due to cyclical effect of 2007 and 2008 we can get some capital gain in 2009 as well if we hold till november).
Now, we assume we get one preferred share at 1000. We calculate 3 probabilities of return in 3 different situations.
LOWER EXPECTATIONS :
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first we get 5% dividend on 1000 means = 50 taka.
Second, we get 25% discount to get the shares so let say, in 2010 we have 8.33 shares buy price 120 taka(75% of 160 taka).
So we can sell them at 160 taka minimum so total sell price =8.33X160 = 1333 taka.
so total revenue = 1333+50 = 1383 taka.
Rate of return = ((1383-1000)/1000)X100% = 38. 3 %.
This is the minimum return we can expect from the right offer.
MODERATE LEVEL EXPECTATIONS :
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As bexpharma already came back from 200 level we hope we can sell our shares at 200. In that case , we say mid point of 200 and 160 will be weighted average price or 180. so issue price will be 180X.75 = 135
So we will get 1000/135 = 7.40 shares.
So sell price at 2010 will be = 200X7.40 = 1481
dividend gain(50) + 1481 = 1531
So gain will be = ((1531-1000)/1000)X 100% = 53.1%.
HIGHER LEVEL EXPECTATIONS :
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FOR THIS METHOD WE USE SAME CAPITAL GAIN AS IT GAVE ON 2007 AND 2008 .
2007 2ND SEPTEMBER PRICE WAS 52 TAKA AND 2008 2ND SEPTEMBER PRICE WAS = 107 TAKA.
SO CAPITAL GAIN = (107-52)/52 =105 %. FROM SEPTMEBER 2007 TO SEPTEMBER 2008.
SEPTEMBER 2009 PRICE IS 166 TAKA. SO CAPITAL GAIN = (166-107) = 55 %.
HOPE NEXT YEAR CAPITAL GAIN WILL BE AVERAGE OF 2 YEAR = ( 1O5+55)/2 = 80%.
SO, 2010 PRICE OF SHARES WILL BE = 166+ 80 % OF 166 = 298 TAKA. ( IF YOU REMEBER GEM WAS ABOUT TO PURCHASE AT 312 TAKA PER SHARE).
SO SELL VALUE OF SHARE = (FROM MID LEVEL ASSUMPTION) 7.40 x 298= 2213 TAKA
TOTAL GAIN = (2213-1000) + 50 TAKA = 1263 Tk.
RETURN = 126. 3 %.
so LETS ASSUME ALL THE 3 POSSIBILITY IS POSSIBLE AND HAVE EQUAL PROBABILITY. THUS EXPECTED RETURN =0.33x 38.3% = 0.33x 53.1% +0.33 x126.3% = 72%.
SO SUMMARY : EXPECTED RETURN MINIMUM = 38% TO MAXIMUM 126 % WITH MEDIAN 72 %
not a bad idea to invest !!!!!!!!!! alas i dont have lot of money to make some long term investment as i am a very small trader!!
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