A couple of weeks ago the Punter was wondering just how useful are those voluminous prospectuses that have to be issued when a company wants to sell shares.
Valuations and forecasts too often prove to be wildly wrong. A prospectus issued on Tuesday last week has provided an example of how well intentioned regulation designed to protect investors can result in bureaucratic nonsense.
The prospectus for the current offer of Archer Exploration options contains the warning: “You should be aware that subscribing for SPP options in the company involves a number of risks.” Excuse me? The options are free.
The options are being offered on a one-for-two basis to shareholders who subscribed to the recent share purchase plan, which has raised $3 million (less expenses) for Archer (ASX code AXE). However, prospectuses do also provide valuable information. Duxton Broadacre Farms (DBF) is currently inviting investors to put up to $22m into three groups of farms in NSW by buying shares at $1.50 each.
The offer closes on December 22. The farms, near Forbes and West Wyalong, are valued at some $58.3m. Net assets are $66.39m, and if the issue is fully subscribed there will be 44.13 million shares in the company. Net assets per share: $1.50.
The Punter reckons an offer price equal to the net asset value is hardly generous. The prospectus is exceptionally long – 190 pages – most of which is a comprehensive historical review of the grain industry globally and in Australia.
The suggestion is that wheat prices in particular may be at the bottom of the cycle, and that Aussie farmland by world standards is cheap. But the company’s financial data shows that it made a loss of $4.6m last year, and expects a net profit in the year to next June of just $821,000.
It is so short of cash that if it raises the minimum $12m, it will still have only $7m in the bank.The Punter has decided not to buy the shares.
- The Punter has no financial qualifications and no links to the financial services industry. He owns shares in a number of companies featured in this column.
