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SMDS rights

Practical discussions about equity High-Yield Portfolios (HYP) for income
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tjh290633
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SMDS rights

#151391

Postby tjh290633 » July 10th, 2018, 9:40 am

SMDS have gone ex-rights this morning. The nil-paid rights are SMDN. It seems hard to find that at the moment. Maybe tomorrow.

TJH

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Re: SMDS rights

#151395

Postby kempiejon » July 10th, 2018, 9:57 am

I have the rights in my Halifax accounts.

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Re: SMDS rights

#151410

Postby monabri » July 10th, 2018, 10:42 am


daveh
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Re: SMDS rights

#151433

Postby daveh » July 10th, 2018, 12:05 pm

tjh290633 wrote:SMDS have gone ex-rights this morning. The nil-paid rights are SMDN. It seems hard to find that at the moment. Maybe tomorrow.

TJH


They appear in my Halifax account too - not sure they are priced correctly yet - seem to have yesterdays SMDS closing price up, but it is asterixed, and so far no options or corporate action notice up on the HSDL site. Will probably take up the rights once the option is available. (All as of my check of my account at about 10am).

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Re: SMDS rights

#151437

Postby Breelander » July 10th, 2018, 12:16 pm

tjh290633 wrote:SMDS have gone ex-rights this morning. The nil-paid rights are SMDN. It seems hard to find that at the moment...


Seems to be available here...

https://www.bloomberg.com/quote/SMDN:LN

tjh290633
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Re: SMDS rights

#151511

Postby tjh290633 » July 10th, 2018, 4:07 pm

Bloomberg don't seem to want to let me add it to my watchlist, ADVFN says it does not exist and Lloyd's Sharedealing echo Halifax with a starred price. A total blank in the information page, but I do have the message giving me the four options.

Thank you for that link, Bree.

TJH

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Re: SMDS rights

#151576

Postby Breelander » July 10th, 2018, 7:12 pm

tjh290633 wrote:Bloomberg don't seem to want to let me add it to my watchlist...


Try the London Stock Exchange that monabri gave earlier https://www.londonstockexchange.com/exc ... ml?lang=en

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Re: SMDS rights

#151582

Postby GeoffF100 » July 10th, 2018, 7:25 pm

My holding was getting a little overweight, so I am happy to sell the rights. The cGT treatment is outlined here:

https://www.gov.uk/guidance/capital-gai ... -or-merger

"Rights that you give up or sell on

You usually accept a rights offer by paying for the shares. But you may decide to sell your right to get new shares to someone else. Or turn down the offer and take cash instead. The cash you get is treated as a part disposal of your shareholding.

There is no Capital Gains Tax to pay on the cash you get if both of the following apply:

* you get a ‘small’ amount of cash, usually less than £3,000 or an amount less than 5% of the value of your shares in the company - valued just before the rights issue

* the cash you get is less than the cost of your original shares

Later, when you sell or dispose of your shares you must work out your Capital Gains Tax. Your allowable cost will be the cost of the original shares less the amount of cash you got.

If the amount you get for the sale of rights is greater than the amounts shown above the sale is treated as a disposal. You’ll need to work out the Capital Gains Tax."

tjh290633
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Re: SMDS rights

#151643

Postby tjh290633 » July 10th, 2018, 11:02 pm

Breelander wrote:
tjh290633 wrote:Bloomberg don't seem to want to let me add it to my watchlist...


Try the London Stock Exchange that monabri gave earlier https://www.londonstockexchange.com/exc ... ml?lang=en

Bloomberg still don't want to know, but ADVFN recognised it eventually.

Anyway I plan to sell the rights as the XR holding is still about 10% above the median value. Adding another 3/11ths would take it near the level for trimming back, so I might as well save myself the effort.

TJH

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Re: SMDS rights

#151661

Postby kempiejon » July 11th, 2018, 6:53 am

tjh290633 wrote:Anyway I plan to sell the rights as the XR holding is still about 10% above the median value. Adding another 3/11ths would take it near the level for trimming back, so I might as well save myself the effort.


Initially I had a thought that perhaps I'd sell/lapse the unsheltered holdings and take up those in my ISA, using the action as a bit of natural trading. getting some extra cash without an impact on either my annual dividend allowance nor capital gains. I checked the dividend yield and at around 3% there are probably better places for the value of the sheltered rights too - SMDS has shown a good record of dividend growth multiplying with a 4 fold recovery since the 50% cut in 2009 - just a couple of years after my 1st purchase.

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Re: SMDS rights

#151702

Postby GeoffF100 » July 11th, 2018, 10:32 am

I have just been notified that my rights have been sold.

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Re: SMDS rights

#151839

Postby thomas2017 » July 11th, 2018, 7:06 pm

Sorry to ask I seem to be at a loss of what to do.
I have the rights now in my account the price is about 125p, SMDS is about 480p. Thats closing prices today. To buy the rights I have to pay 530p a share. They had a high today of 144p for the rights and 493p for the main share. The value of my holding if I don't take the rights is reduced by 3/11.
Can someone explain how this all works out please?

Thomas

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Re: SMDS rights

#151852

Postby gawabsky » July 11th, 2018, 9:07 pm

Hi Thomas,

"Sorry to ask I seem to be at a loss of what to do."......"Can someone explain how this all works out please?"

Likewise initially I found rights Issues tricky to navigate, this is my understanding.

A Nil paid rights share entitlement is issued on the ex-rights date,the approximate value of each existing share
on that date is reduced by the value of each Nil paid share,nothing lost nothing gained.

In this rights issue there are 4 options:

1. Take up each right for a new share at a cost of £3.50p each (plus the inherent value of the Nil paid share).

2. Take up some of the rights for new shares and keep the cash when the remaining rights are sold.

3. Sell your nil paid rights shares and keep the cash.

4.Or sell a portion of your rights to raise the cash to purchase the new shares from the remaining rights.(Commonly termed a Tail Swallow I think)

Each investor will base their choice to suit their circumstances.

Perhaps more experienced Hypers may have more in depth understanding

Hope that`s some help,

Gawabsky

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Re: SMDS rights

#151870

Postby Breelander » July 11th, 2018, 11:38 pm

gawabsky wrote: 2. Take up some of the rights for new shares and keep the cash when the remaining rights are sold.

There is a 5th option (or a variant of your option 2 where you take up none). That is to do nothing and let your rights lapse. The underwriters will sell the shares you didn't want and you are entitled to the cash raised, less the cost of making the nil-paid rights into fully paid shares.

This is the equivalent of selling all your right, except you don't pay dealing costs and you don't get the cash until a little while after the rights issue has closed.

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Re: SMDS rights

#151876

Postby Gengulphus » July 12th, 2018, 5:40 am

thomas2017 wrote:Sorry to ask I seem to be at a loss of what to do.
I have the rights now in my account the price is about 125p, SMDS is about 480p. Thats closing prices today. To buy the rights I have to pay 530p a share. They had a high today of 144p for the rights and 493p for the main share. The value of my holding if I don't take the rights is reduced by 3/11.
Can someone explain how this all works out please?

To correct some possible misunderstandings, etc:

* There is no point at which the value of your SMDS shareholding either has dropped or is expected to drop by 3/11ths. The only way the fraction 3/11ths enters into it is that the number of SMDN rights you received was 3/11ths of the number of SMDS shares you had when they went ex-rights, rounded down if it doesn't come out as a whole number. (That rounding down won't occur on an account that supports fractional shares, but most don't.)

* When the SMDN rights were split off from the SMDS shares (which happened overnight between Monday and Tuesday this week), the value of your holding of SMDS shares dropped, but at the same time you got a holding of SMDN rights that was worth about the amount of the drop ("about" simply because the market values of all holdings are constantly fluctuating). For instance if you had 1100 SMDS shares at the close on Monday, and therefore 1100 SMDS shares and 300 SMDN rights at the opening on Tuesday, your SMDS holding would have been worth 1100 * 518.2p = £5,700.20 at the Monday close, while it was worth 1100 * 482.5p = £5,307.50 and your SMDN holding worth 300 * 132.76p = £398.28 at the opening on Tuesday, totalling £5,705.78. So overall, it would have gained £5.58 overnight, or slightly under 0.1% - but of course changes (in both directions) of that sort of size are always happening, including overnight between the close one day and the opening the next.

* That's the only unusual reduction in the value of your existing SMDS shareholding you should expect from the rights issue - i.e. there's nothing more to be expected, other than normal share price fluctuations and any changes you make by buying or selling shares (including taking up your rights).

* The price to take up a right is 350p, not 530p - almost certainly just a typo, but an important one!

As you observe, the market prices are currently (at the close on Wednesday) 125p for a SMDN right and 479.7p for a SMDS share. So at present, you can acquire an extra SMDS share either by paying 479.7p for it on the market or by taking up a right, which basically uses a right as part-payment for the share and adds 350p as the balance of the payment required, for a total cost of 125p + 350p = 475p. The latter is slightly cheaper, especially as it doesn't attract stamp duty (about another 2.4p per share) and most brokers don't charge any sort of commission or other fee for taking up a rights issue, so it is currently the way to go if you want more SMDS shares for your HYP at about the current market price.

But it's only slightly cheaper, so it's unlikely to make any real difference to whether you do want the extra SMDS shares for your HYP. And the underlying market price difference could just as easily be slightly in favour of buying the shares on the market once you actually get the opportunity to trade again after the market opens, though the savings in stamp duty and (probably) commission should always be in favour of taking up the rights. But all these slight differences aren't worth spending a great deal of thought on: one very rarely buys shares for one's HYP at exactly the price one used in one's planning, so why should this occasion be any different?

So my suggestion is that you simply decide whether you want more SMDS shares for your HYP at the current market price, and if so, how many. If you do, get them by taking up the appropriate number of rights (or by taking up all your rights and making an additional market purchase if you want more shares than you have rights): it might not be the cheapest route, but the odds are that it is because of the stamp duty / commission savings.

If you have any rights left over after doing that, you have the choice of selling them or letting them lapse. If you let them lapse, you can expect to get a lapsed-right payment from the company, which will be about what they could have been sold for shortly after the rights issue closes if there were still a market for them at that point (*). The result is that if the share price rises significantly between now and the rights issue closing, it will be better to let them lapse; if the share price falls significantly between now and the rights issue closing, it will be better to sell them; if it neither rises nor falls significantly between now and the rights issue closing, there will be little difference - but I would generally expect what difference there is to be in favour of letting them lapse in the case of individual shareholders, as the value of the rights that might be sold will generally be quite low, making the percentage effect of the selling commission quite high.

So my rule of thumb for dealing with this rights issue (and highly probably any other) is that once the shares have gone ex-rights, I should:

1) Decide whether I want more shares for my HYP at the current market price, and if so, how many.

2) Acquire as many shares as I want (possibly zero!) by taking up rights (preferably) and buying shares on the market (if necessary).

3) If I have rights left over, let them lapse unless either I need the cash now (e.g. to fund taking up some of the rights) or I strongly expect the shares to fall significantly before the rights issue closes (which I very rarely do, as it involves short-term prediction of market price changes). In either of those two cases, sell the rights instead of letting them lapse.

FWIW, SMDS was 37th out of 38 shares in the top-up order for my HYP when I last checked, a couple of weeks ago. I need to bring the spreadsheet up to date, but if it looks anything like that when I do, my decision will be that I don't want any more shares at the current market price, don't have any urgent need for the cash and don 't have any particular short-term views on where the share price is going, so I'll let all the rights lapse. That decision might change if something I'm not yet aware of has markedly changed the top-up order, or if a check of the CGT consequences says that there's a problem to be avoided.

CGT consequences of rights issues are something I haven't gone into above, but briefly: they're usually quite simple, but they're significantly messier if the rights produced by non-tax-sheltered SMDS shares are worth more than both £3,000 and 5% of the value of the shares that produced them. In this case, the rights produced by shares seem to be worth about 7% of the value of the shares that produced them, so the complications will kick in if the rights produced by non-tax-sheltered SMDS shares are worth more than £3,000. With the rights price at 125p, that means if one has more than about 2400 rights produced by such shares, or more than about 8800 non-tax-sheltered SMDS shares. The "about"s in that are because market price changes can alter whether the £3,000 limit is exceeded - and indeed, that produces a third reason why one might want to sell rights rather than let them lapse, namely if one wanted to make certain the limit was not exceeded even if prices were to rise.

(*) More exactly, it will be the share price minus 350p and the company's selling costs shortly after the rights issue closes. Since the rights price can generally be expected to be the share price minus 350p, plus or minus a little bit, what you can get for the rights is roughly the share price minus 350p and your selling costs at some time (of your choosing) before the rights issue closes.

Gengulphus

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Re: SMDS rights

#151918

Postby thomas2017 » July 12th, 2018, 10:57 am

Thanks all for the information about the rights issue very informative and yes I did make an error with the price for the rights it should have been 350p.
I have decided to let my rights lapse.

Thomas

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Re: SMDS rights

#151963

Postby Breelander » July 12th, 2018, 1:12 pm

thomas2017 wrote:I have decided to let my rights lapse.


Over the 15+ years I've been HYP'ing I've had more than half a dozen rights issues to deal with. For almost all of them that was my decision too. In general, anything extra I could have raised by selling the rights early would not have been enough to cover the dealing costs, so letting them lapse was more cost effective.

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Re: SMDS rights

#152090

Postby torata » July 13th, 2018, 12:53 am

Gengulphus wrote:So my rule of thumb for dealing with this rights issue (and highly probably any other) is that once the shares have gone ex-rights, I should:

1) Decide whether I want more shares for my HYP at the current market price, and if so, how many.



Thanks Gengulphus (above) and Breelander (later post). I've bookmarked your comments for future reference.

Please correct me if I'm wrong, but wouldn't I want to take up the rights if I wanted to "maintain" the dividend income amount compared to the previous year. If not, I'm faced with effectively a dividend cut, aren't I? (I know the money raised in the rights issue should generate more income, but that's not guaranteed)

torata

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Re: SMDS rights

#152091

Postby Breelander » July 13th, 2018, 1:21 am

torata wrote: ...wouldn't I want to take up the rights if I wanted to "maintain" the dividend income amount compared to the previous year.


Yes, but redeploying the cash from the lapsed rights into another share would do that too.

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Re: SMDS rights

#152098

Postby gawabsky » July 13th, 2018, 7:01 am

Thanks for the additional Information all.

I decided to take my option 4 (Tail swallow) as the D.S.Smith shares are a below average holding anyway

and the additional shares will hopefully maintain dividend payment amounts.One to watch.

Gawabsky


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