Well it seems that the firm has secured sales of $400 million dollars worth of convertible/preference shares which can be converted to common stocks at $1.50. The major investors are Getco, Blackstone, Jefferies, TD Ameritrade, Stephens and Stifel.
If we just calculate a theoretical price based on number of shares and current price,
| millions | Current Price | |
| Total convertible issued | 267 | 1.5 |
| Current Outstanding Shares | 98.21 | 3.04 |
| Theoritical price | 1.91 | |
| Potential Upside on Short | 37.04% |
We get to this figure of $1.91 as the expected share price of Knight Capital. However for Getco and Blackstone to continue having a member on the board, they have to keep at least 25% of the preference shares subscribed. Same goes to Jefferies if they want to have a say on the third additional board member. So theo price should be higher, calculated by my system to be $2.19.
Another way of looking at this is using projection of earnings and divide by the number of new outstanding shares to get the EPS. Use a P/E to project where the price would be.
Did a very simple example
| Based on P/E | P/E 10 | P/E 15 |
| EPS | 0.199 | 0.199 |
| P/E | 12 | 15 |
| Price | 2.39 | 2.98 |
| Potential Upside on Short | 21.32% | 1.65% |
Well, I would think that it would be highly unlikely that the P/E would be at 15, but there is a small chance of it going back there.
More like it will take some time to recover to those levels. I am looking to short Knight.
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