REFS is
a mine of invaluable information for the private investor.
Selecting shares without its help is like trying to
clap with one hand tied behind your back.
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Rights
issues and Open Offers
Formula
for calculating a rights factor:
(OLD SHARES
X CUM (NEW SHARES X
RIGHTS PRICE)
+ ISSUE PRICE)
---------------------------------------------------------
(OLD SHARES
+ NEW SHARES) X CUM RIGHTS PRICE
Example
of rights issue details:
A company
offers to issue 2 new shares for every 5 already held, in a
2 for 5 rights issue:
Issue price: 255p
Ex-rights date: 19th April
Last cum rights price on 18th April: 325p
Calculating
a rights factor for the above example:
(5 X 325)
+ (2 X 255p) 1625 + 510
-----------------------------
= --------------
(5 + 2) X
325p 7 X 325
2135
= ---------
= 0.938
2275
Applying
the rights factor:
If, for example,
the dividend per share for the previous period was 15.5p, and
the rights issue above occurred after the year-end, the rights
factor of 0.938 would be applied to give the following adjusted
dividend per share:
15.5p X 0.938
= 14.5p
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