Thin-slicing Atlas’ next market price
“Thin-slicing” is defined to essentially mean “knowing the very few things that matter to make a decision.” In his nonfiction book “Blink” (published in 2005), Malcolm Gladwell called it the concept of “thinking without thinking.”
In academic disciplines, thin-slicing is a term used in psychology and philosophy as the ability of making very quick decisions with small amounts of information called “thin slices or narrow windows of experience,” terms first used by Professors Nalini Ambady and Robert Rosenthal in their revealing work on the subject in 1992.
Great decision-makers are said to be gifted with this ability. Alexander III of Macedon, more popularly known as Alexander the Great (356-323 BC), was said to have mastered this skill. He “conquered much of what was then [called] the civilized world” because he had the ability to make quick and effective decisions that made him win battles against opposing armies with enormous odds in their favor.
More significantly, thin-slicing is a skill that can be acquired and developed. It is, as well, a faculty that can be applicable to all practical situations like reading market psychology, which accounts for 60 percent of the time in your success to winning and making money in your stock trading play.
AT price play
One stock game that could be subjected to a timely thin-slicing is the ongoing market play on Atlas Consolidated Mining & Development Corp. (AT), whose price broke out into a run-up following latest developments in the company to enhance corporate growth, profitability and, most importantly, stockholders’ value.
In its recent deal, AT entered into a financing package to obtain 100-percent ownership of subsidiary Carmen Copper Corp. (CCC). This involved the infusion of equity and debt money that would amount to approximately $390 million.
Significant in this transaction was the entry of “target investors” who were to subscribe and/or purchase new AT shares at P19.56 each (a price equivalent to 8.5-percent premium over the 30-day weighted average price of P18.0339.).
When the financial deal was rumored to be signed, the market price of AT traded from a low of P16.50 to a high of P21.35 from June 14 to July 1.
The next three days in the week after July 1, the share price of AT underwent some profit-taking. This was stopped and reversed as the public became more aware that it was long-term “target investors” that committed to buy AT shares at P19.56, one of which was the publicly listed flagship company of the Henry Sy group—SM Investments Corp. (SM).
At the end of trading last Friday, AT shares registered a high of P23.45, a low of P22.80 and a closing price of P23.20.
Bottom-line spin
The financial arrangements so far done may form part of a possible overall financing scheme that will enable AT to pursue its plan for continued company growth and profitability.
As of the moment, this financial arrangement raised $390 million only, an amount that was enough to pay for the $368-million price tag demanded by its private equity partners CASOP Atlas Corp. and CASOP Atlas BV to have 100-percent (from 54.46-percent) effective control of CCC. The remaining balance of $22 million was for CCC’s general working capital requirement.
In other words, the financial package did not yet address the needed money to increase production capacity to 100,000 tons a day from 42,000 tons in the next three years and, thus, attain added growth and profitability.
To the credit of the deal makers, the financial package increased AT’s revenue and income equivalent to 84 percent without any change in CCC’s operating capacity. But, again, the fund-raising exercise will not contribute to spur real growth and profitability in CCC which, according to company estimates, would amount to an additional $200 million.
Considering AT’s resultant financial condition after the already concluded financing package, it would seem more practical for AT to raise the needed $200 million through the issuance of additional new shares.
The new share issuance, however, must again take into consideration present stockholders’ complaints on dilution. The new financial scheme should be popularly acceptable like the previous financial package, where while present stockholders’ interest was diluted by 33 percent, they stood to benefit in the instant fortune of the company to realize increased revenue and earnings up to the extent of 84 percent.
Under these circumstances, the alternative left to AT is but to come up with a public offer (through rights issue or otherwise) that will entail the issuance of a smaller number of shares, where in this case, AT must exact a higher offer price that will still look attractive to the general investing public.
The new issued and outstanding shares of AT, after imputing the full impact of the present financial package, will be approximately 2.1 billion shares (1.4 billion existing shares plus 700 million shares). Taking this into consideration as well as AT’s current price play and balance sheet picture, we can possibly arrive at what offer price the investment advisors may possibly set to raise the needed $200 million.
The valuation of a stock basically arises from at least two means. The first is on the basis of how much investors are willing to pay for it, which is referred to as the stock’s “market price.” The second is on the basis of how much it is valued based on the overall prospects of the stock’s company business, expected returns on profitability plus some other factors that represent its intrinsic or what is called “fundamental value.”
Thin-slicing the situation, the offer price of AT may be fixed by the investment advisors at P25 a share.
At the exchange rate of $1 to P43.50, this price will entail the issuance of about 380 million additional shares, whose dilution effect is about 18 percent only (0.38 billion divided by 2.1 billion shares)—a relatively small trade-off to effect company growth and profitability to more than 100 percent.
You may reach the Market Rider at [email protected] or directly at www.kapitaltek.com.
