According to CGS-CIMB analyst Lock Mun Yee, the rights issue price of $1.18/unit is a 4.8% discount to FPL’s last traded price. It also represents a 3.6% discount to the stock’s estimated post-rights issue price of $1.224. The rights issue price is also a 47.5% discount to FPL’s pro forma adjusted December 2020 net asset value of $2.25 per share. “In terms of financial impact, the rights issue is likely to expand FPL’s issued share base by around 37% to 4,018.5m shares,” Lock writes in a Feb 11 broker’s report. She sees the firm’s pro-forma net debt-to-equity ratio declining from 1.05 in September 2020 to 0.81 following the rights issue and relevant transaction, strengthening FPL’s balance sheet. “Meanwhile, proforma FY2020 earnings per share (EPS) could be reduced by 13% on a similar basis while proforma FY20 book NAV/share could dip from $2.58 to $2.20,” warns Lock. Lock has maintained her “add call” on FPL despite lower EPS expectations. “We lower our FY21-23F EPS estimates to factor in dilution from the expansion in share base and interest cost savings assuming the proceeds are utilised to reduce debt in the near term,” says the analyst. Redeployment of proceeds into new investments have not been priced into this estimate.
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Based on this share base dilution, Lock has lowered her estimated revalued NAV and target price by 17% to $2.57 and $1.41 respectively.“We view the rights issue as an attractive entry opportunity to participate in the growth prospects of the company,” she concludes. As of the lunchtime market close, FPL is trading 0.83% higher at $1.21. P/E ratio is 32.1 and dividend yield 1.24%.