Post by
Obscure1 on Nov 10, 2023 4:34pm
A heads up
The share price for ENS has outperformed the NAV the last two days which has increased the Premium to 15.74%
The Premium today is not in any danger of triggering a Raise by Middlefield as the Premium is well under the 20% threshold which allows Middlefield to do a Raise withough lowering the NAV.
However, there are potential storm clouds on the horizon when it comes to the potential of a Raise being announced next Friday. When a fund manager does a Raise, it doesn't hurt the NAV but it always kicks the share price in the teeth.
Why is there a risk of a raise in the near future?
You can skip the next couple of paragraphs if you want to get straight to the bottom line:
First off, ENB will trade ex-dividend next Tuesday (Nov 14th). Almost every time ENB goes ex-dividend, its share price drops $2 to $3. The ENB share price should only drop by the amount as the dividend ($0.88) but that is almost never the case. Therefore, ENB shareholders should sell just before the ex-dividend date every quarter and then buy back at a discount for the win. However, most ENB shareholders don't want to sell because it will initiate a significant capital gain Many ENB shareholders have held the shares for a very long time and their cost base is much lower.
On the other hand some investors like to buy shares of a company that is going to be paying a dividend in the near term for income planning purposes so the share price gradually moves up prior to the ex-dividend date. When I owned ENB, I traded the drop in share price every quarter for over two years and made money every time.
Back on track now.
Given that the NAV for ENS is based upon the ENB share price, then the ENS share price should drop by 44% of the drop in the price of ENB. If ENB drops by $2.50 for example, then the price of ENS should drop by $1.10
However, the ENS share price typically doesn't drop after ENB goes ex-dividend even though it should.
Why?
Generally, the ENB share price recovers back up to its pre-ex-dividend price in a couple of weeks, so ENS shareholders just hold tight.
When the ENB price drops and the ENS price holds firm, the Premium to the NAV goes up. If the Premium gets above and stays above 20%, Middlefield may pull the trigger on a Raise because it can build up its asset base without reducing the NAV.
Middlefield won't do a Raise in the last ten days of a month. They also like to do a Raise on a Thursday or Friday to give brokers time to put away a deal over the weekend if needed.
I'm not saying Middlefield will do a Raise next week as I think the appetite for Split shares is at a low at the moment. However, it is always good to know how the game is played. If the Premium jumps up hard after ENB goes ex-dividend, you might want to slip to the sidelines for a couple of weeks as there is a real possiblility that you might be able to buy ENS shares cheaper if a Raise is announced.