New share price "Assuming the deal goes through, I predict the final closing price of the existing common shares will be between 8 and 10 cents and the closing price of the new common shares at the end of day 1 will be between $10 and $15."
Pinning the new trading price really will be anyone's guess due to competing forces.
Some factors to consider, ignoring the effects of dilution from warrants and new deb conversion:
- If the closing price of the shares is 8c to 10c, then at 200:1, that will translate to an opening of $16 to $20.
- The new debentures will be exchangeable into new common shares at $20.27. When converted, debt will decrease upto $100 million and if fully converted will add 4.93 million common shares.
- debt conversion price is established at $29.25 per new common share. The debt the banks and MTN's are wiping off the books is based on this price. This can viewed as an IPO where the banks and MTN's are paying $29.25 per new common share. On this basis, the old common may close at 15c on Oct 31.
- the enterprise value according to the corporate fact sheet for Aug 2012, prior to the recap, was $2.4 Billion, when the market cap was $31 million. If you use this figure, stated in post recap numbers, the enterprise value works out to approximately $85 per share. In pre-recap terms, this is over $4 per share. IMHO, the enterprise value post-recap should be at least equal to the pre-recap due to much less debt and no preferred shares.
- with Q2 earnings of $67 million (annualized= $268 million), the post-recap EPS will be $9.58 per share and the P/E will be just over 3.0 based on a new common share price of $29.25. This is very low. BCE has a P/E of 13.5, the banks about 11.0, TRP=22.6. Earnings, I suspect will increase due to the efficiencies not fully reflected with the printing consolidation/rationalization.
- free cash flow will increase due to the lower interest payments and lack of dividends on preferred and common shares. FCF for Q2 is estimated at $90 million so annualized, we are looking at $300 to $350 million to be somewhat conservative. FCF per share will be approx $10 to $12.50, so a 5X multiple will translate into a share price of $50 to $62.
On the negative side:
- S&P / DBRS ratings are junk. This will likely be reviewed in Q1 2013, if not before. Remember, there has been no default so the Q3 numbers, assuming they are good, may prompt the review post-recap.
- there may be some initial selling pressure as the funds rebalance, but the fundamentals IMHO, should drive YLO higher in the new year. This assumes the recap survives.
- YLO will not be on any indices when the new shares begin trading. When it is added, however, demand by the funds will drive the SP higher.
Like I said, where YLO will trade is anyones guess...