Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 370

Share Purchase Plans brickbats and bouquets

Introduction: Stephen Mayne is compiling the most comprehensive database of retail Share Purchase Plans (SPP), maintained on his website hereFirstlinks previously published Mayne's explanation of the inequity of many raisings, where large institutions were given the vast majority of the discounted allocation and retail investors were heavily scaled back. This week in The Eureka Report, he highlighted two stocks in the buy-now-pay-later sector. 

Afterpay received $136 million in applications, which was below the $150 million cap, and the SPP outcome announcement included:

"The SPP was sent to 53,465 eligible shareholders and 10,110 valid applications were received, representing a participation rate of 19% based registered holdings. The average application was $13,300."

Retail subscribers to Afterpay's $66 SPP received full allocations, and with the stock currently above $70, it was a contrast to the previous heavy scale backs. However, Mayne called Sezzle's treatment of retail shareholders 'appalling' when it announced a $79.1 million placement at $5.30, but with a $7.2 million cap in the retail SPP. Applications worth $78.2 million were received, but they stuck with the cap and will refund $71 million or 92% of application monies. The shares closed last week at $7.42, giving the undisclosed recipients of the $79 million placement paper gains of $31.6 million or 40%.

In this summary, Mayne gives out his brickbats (criticisms) and bouquets (praise) for the ways SPPs have been managed.

Brickbats

To Mesoblast, Temple & Webster, Open Pay, Salt Lake Potash, De Grey Mining and Red 5 Mining for all conducting institutional placements exceeding $20 million during the COVID-19 pandemic without offering retail investors a chance to participate on the same terms through a Share Purchase Plan. Retail investors have collectively lost billions through capital raising dilution so far in 2020 and placements, especially at big discounts, without SPPs are the most egregious form of offering.

To Super Retail Group, Southern Cross Media, Australian Finance Group and Ooh!media which banned retail investors from applying for any 'additional shares' in their discounted non-renounceable entitlement offers, meaning that the in-the-money offers all finished under-subscribed delivering windfall gains for the institutional underwriters and further diluting retail investors.

To the following companies for refusing to lift the caps on their Share Purchase Plans despite each of them being heavily oversubscribed:

  • Atlas Arteria: after a $420 million institutional placement, capped the SPP at $75 million and stuck rigidly to that cap even after receiving $180 million in applications.
  • Breville: after a $94 million placement, stuck with its $10 million SPP cap despite receiving $54.7 million in applications.
  • Capitol Health: after a $30 million placement, stuck rigidly to its $10 million cap, scaling everyone back to a maximum of around $16,300. Also failed to disclose total applications.

There was a larger cohort of companies which expanded their capped SPPs in the face of strong demand but still imposed heavy scale-backs. A couple deserving brickbats for very limited expansions include Megaport which expanded its SPP from $15 million to $22.5 million but still refunded 77% of all applications after $99 million came through the door. Similarly, Dicker Data only expanded its SPP from $5 million to $15 million after $53.7 million came through the door meaning that 72% of all applications were refunded.

Surely a base case for popular SPPs should be that at least half the applications are accepted.

Bouquets

To all the companies which improved disclosure to give investors greater insight into the participation rates for their Share Purchase Plans. Specifically, here are ten examples of healthy SPP participation rates above 20% which wouldn’t have been previously disclosed. Annoyingly, particularly for smaller holders, all of these offers (with the exception of Next DC) were scaled back based on size of shareholding:

  • Ramsay Health Care: 52% (41,877 out of 80,273 applied for the SPP)
  • Next DC: 51% (8,684 out of 17,015)
  • Cochlear: 45% (16,651 out of 36,724)
  • Breville:25% (3,104 out of 7,015)
  • Lend Lease:7% (24,700 out of 60,688)
  • Atlas Arteria:7% (9,300 out of 26,000)
  • Iress:4% (2,800 out of 9,200)
  • NAB: 25% (155,000 out of 615,000)
  • United Malt: 25% (3,273 out of 13,092)
  • Newcrest Mining: 23% (15,574 out of 54,107)

To all the companies which cranked up the regularity and detail of their ASX disclosures to keep investors fully informed about the impact of COVID-19. Payments company Tyro was a standout, effectively releasing monthly management accounts to the ASX showing how payments were travelling. Qantas was also commendable in terms of making regular and comprehensive disclosures to the market as events unfolded. Qantas CEO Alan Joyce also deserve credits for working for free during the June quarter.

Whilst renounceable pro-rata capital raising offers are preferred, these have been few and far between during the recent deluge of offers. This means the better structured non-renounceable pro-rata raisings are those that allow retail investors to apply for an unlimited number of additional shares to take up any shortfall left by fellow retail investors. In this regard, we give bouquets to the likes of Dacian Gold, Decmil, Reece, Kathmandu and Novonix for not limiting 'overs'.

To Ingenia, ARENA REIT, Charter Hall Retail, Charter Hall Social Infrastructure and National Storage for uncapping their SPPs after receiving total applications which exceeded the capped amount disclosed in the offer document. There have been far too many heavy scale-backs in 2020, so companies which end up doing an uncapped SPP should be congratulated, particularly if it means retail shareholders collectively increase their overall ownership of the company at the expense of the normally preferred institutional investors. Kudos also to Reece and Next DC for offering uncapped SPPs, which were always going to accept all applications from the outset.

 

Stephen Mayne is the Founder of Crikey, and also updates data and writes at The Mayne Report. This article first appeared in the ASA's Equity Magazine of July/August 2020.

 

8 Comments
Stephen Campbell
August 16, 2020

I rang the Super Retail Group SPP information line to complain about limiting retail shareholder applications and giving a 'free ride' to the underwriters and received the biggest load of garbage as an answer that did not even answer mine question. So much for concerns from retail investors.

matt
August 16, 2020

If all of the register get offered shares in equal proportion to their holding, I don’t see the issue. I think it’s only untoward when it sways from that. exclusive insto placements (also eg Rhipe) are not fair and should be banned unless there is an urgent cash burn issue - in which case they should make a subsequent retail offer anyway. If there’s undersubscriptions as to who takes up the surplus it would be nice to offer it to all but not so important because ultimately if you took your pro-rata offer up in the first place then whether another retail punter takes up his/her allocation or an insto takes it up instead is moot from a dilution perspective.

John Lansell
August 16, 2020

If I remember correctly several years ago in a Share Purchase Plan, a company/share registry office(both) refused to electronically refund the surplus of of SPP after I had sent the original money by that method. They will sent a cheque and advised that this takes upwards of two weeks to process and then the clearing. The phone calls/emails ended with a 'get lost'. And ever since that time I love arguing with slow bureaucratic share registries or I don't anymore trying to converse with the individual company's CEO.

Alan
August 13, 2020

We can gripe all we like about some of these practices, but ultimately it is the current rules that allow them. So much for a share being worth the same as any other share in the business. With the technology available these days, it shouldn't be too hard to make the opportunity available to all shareholders pro rata.

As for Alan Joyce deserving credit for "working for free during the June quarter", come back down to earth Stephen.

peter riddell
August 13, 2020

Again the management and boards of these companies show little regard for their loyal small shareholders. Increased equity should be offered to shareholders first not the mates of the CEO and board.

Been there B4
August 13, 2020

Regrettably a large proportion of shareholders ignore SPPs ( and other corporate actions) as they are not really engaged with their investments. Also the receipt of notification of corporate actions "by email" makes it easy to overlook.

As an adviser, where possible, I let my clients know about upcoming SPPs and to look out for the documentation ... and what-do -you-know, most of them take action.

Another creepy trick is to close SPPs when the target funds are reached, and before the scheduled closing date ... of course this is allowable because it is in the small print. So the "winners" are the smarties who are ahead in this game.

I agree with S Mayne that it is inequitable for retail shareholders to miss out on cap raisings arranged as placements to instos at discounted prices with no retail offer.

Yes, a renounceable rights entitlement issue is the equitable way to go, but it takes more time.

Richard W
August 13, 2020

Has Mr Mayne done any research as to finding out how companies determine the size of their SPP offering cap? It seems to me from Mr Mayne's findings that the figure seems to be random!

Gary M
August 13, 2020

And there's no indication from the company at the start of the SPP that even if only 20% of retail shareholders participate, they will send back 75% of your money. Meanwhile, you have no idea how much has been committed to the company for a month when you could have had your money invested in the market.

 

Leave a Comment:

     

RELATED ARTICLES

Small investors miss out as institutions and banks cash in

Easy money: download Robinhood, buy stonks, bro down

Corporate activity helps build a small cap portfolio

banner

Most viewed in recent weeks

Who's next? Discounts on LICs force managers to pivot

The boards and managers of six high-profile LICs, frustrated by their shares trading at large discounts to asset value, have embarked on radical strategies to fix the problems. Will they work?

Four simple things to do right now

Markets have recovered in the last six months but most investors remain nervous about the economic outlook. Morningstar analysts provide four quick tips on how to navigate this uncertainty.

Welcome to Firstlinks Edition 374

Suddenly, it's the middle of September and we don't hear much about 'snap back' anymore. Now we have 'wind backs' and 'road maps'. Six months ago, I was flying back from Antarctica after two weeks aboard the ill-fated Greg Mortimer cruise ship, and then the world changed. So it's time to take your temperature again. Our survey checks your reaction to recent policies and your COVID-19 responses.

  • 9 September 2020

Reporting season winners and losers in listed property trusts

Many property trust results are better than expected, with the A-REIT sector on a dividend yield of 4.8%. But there's a wide variation by sector and the ability of tenants to pay the rent.

Have stock markets become a giant Ponzi scheme?

A global financial casino has been created where investors ignore realistic valuations in the low growth, high-risk environment. At some point, analysis of fundamental value will be rewarded.

Every SMSF trustee should have an Enduring Power of Attorney

COVID-19 and the events of 2020 show why, more than ever, SMSF trustees need to prepare for the ‘unexpected’ by having an Enduring Power of Attorney in place. A Power of Attorney is not enough.

Latest Updates

Weekly Editorial

Welcome to Firstlinks Edition 376

The US tech index, the NASDAQ, peaked on 2 September 2020 at 12,058 and three weeks later closed at 10,632. On the same days, Apple hit US$137.98 and then fell to US$107.12. These falls of over 10% and 20% seem high but both were simply returning to their early August levels. It's hardly a rout when a month's gains are given back. The bigger issue is whether such stock corrections will scare off the retail 'Robinhood' traders.

  • 24 September 2020
  • 2
Interviews

Interview on new technologies with more potential to grow

For many global tech companies, COVID has boosted their revenues and pushed share prices to all-time highs. We are on the cusp of amazing technical advances and there are plenty of new opportunities.

Shares

Five reasons why Tesla is the everything bubble

As fewer professionals actively research the merits of a company’s prospects, stocks become disproportionately driven by capital flows. Prices disconnect from fundamentals and there's no better example than Tesla.

Retirement

Three retirement checks for when you have enough

Not every retiree needs to gun for higher returns, but a conservative portfolio can court its own risks, especially with bond rates so low. But some retirees prefer to settle for a lower income.

Shares

Hide and seek: the FX impact on global equity investments

As more Australians tilt their investments to global equities, they often overlook the exchange rate risk and fees. The move from US57 cents to US73 cents in six months shows the unhedged impact.

Economy

When America sneezes, the world catches a ...

The recovery from COVID-19 is looking more like a K-shape, with some companies doing well while others struggle. The pandemic seems more akin to a black swan, exogenous shock than a structural downturn.

Retirement

How the age pension helps retirees cope with losses

It's often overlooked how wealthier couples can fall back on the age pension if a market loss hits their portfolio. The reassurance is never greater than in a financial (and now epidemic) crisis.

Sponsors

Alliances

© 2020 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use.
Any general advice or class service prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, has been prepared by without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.