When dealing with this capital repayment, we must ask the question whether this "good news" has been fully factored into the market price. The news was announced after the close of trading on February 24, when TM share price closed at RM3.34. The next day, the share price jumped to a high of RM3.76, before closing at RM3.48. Since then, TM share price has been inching higher. It closed at RM3.64 yesterday. While one should not expect TM share price to fully incorporate the RM0.98 capital repayment into its share price, an increase of RM0.30 (i.e. yesterday's close of RM3.64 less the closing price of RM3.34 on February 24) seems a bit low. How much more should the share price go up?
One thing that I have observed in our market in the past is that, when the entitlement date of the capital repayment is finally announced, the market will react. This may come very soon.
Chart: TM's daily chart as at 21/4/2009 (Source: Quickcharts)
7 comments:
Hi Alex,
Wouldn't the capital repayment of 98sen will cause the share px be adjusted accordingly, ie say RM3.70 - RM0.98 = RM2.72 after ex. How would then investor can profits from such capital repayment scheme. Unless after ex, he keep the TM shares for long-term, and d share px will have to run-up from RM2.72. Pls share your thoughts. Thanks.
Hi Brian,
The share price will adjust after the capital repayment has been effected. Normally, the share price will run up ahead of the entitlement date. After the entitlement date, the price will adjust downward by a quantum that's likely to be less than the amount of the capital repayment.
So, there is two ways to play this. Firstly, buy early & go through the capital repayment (plus, dividend). Your TM shares will have a lower cost, if you still hold onto them for long-term. Secondly, buy for short-term trade where you can cash out just before the entitlement date of the capital repayment.
Hi Brian,
On further thought, there is one more play that you can try out and this is the safest play.
Buy for the dividend only. If the entitlement date for the capital repayment is fixed on a date later than the entitlement date of the 14.25-sen dividend (a likely case), the share price is unlikely to adjust after the dividend but before the capital repayment. The reason is the market tends to ignore the 'small' dividend & concentrate only on the juicy capital repayment.
Alex,
How's TM's financial result expected 2 b? Shld b quite flat without much excitement as the industry is oledi mature and taper off, right.
Thanks for sharing.
Hi Alex
Need your advice.
Do you think that TM will reach 3.80 within this 2-3 days or maybe before 28 Apr? I need to sell my share before end of this month to get payment before 1st May. Right now, TM already reached 3.72 for today. Tq
Hi Bzz,
I don't know when the stock will move higher. My guess is that it may happen when the entitlement date for the capital repayment is announced.
Hi Brian,
I did not look into TM's financials. I assume that the market has valued it properly, except for the two payouts.
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