Equities Flashcards
4 basic rights of shareholders
Receive accounts
Attend and vote
Share profits
Paid on wind up
4 Stat rights of shareholders
AGM one pa
10% EGM
5% propose resolution
Petition the court
Offer for sale fixed price (4)
Large stable cos
Pre determined price
institutions agree to buy at the offer price any shares that are not sold.
offer price set slightly under to encourage oversubscription to put upward pressure on the share price after issue.
Offer for sale - Tender price (5)
Difficult to price accurately so:
When inviting bids, a minimum ‘indicative’ price is usually stipulated
Book building - invite institutions only
Strike price - lower but not as many shares
Price bid - get as many as bid for
Offer for subscription (2)
Used by new ventures eg investment trust
Tender bids but does not go through unless certain demand met
Placings (2)
Fastest/cheapest
Decide price then approach institutions
Introductions (3)
Foreign cos and large privates
Get authorised -> no new shares, no new money
Can now trade on exchange
Demutualisation process (2)
reserves were used to pay for the free shares issued to members
simultaneously gained a listing on the stock exchange
what is deemed best execution for retail and professional client?
Total consideration
Give 3 reasons for a rights issue:
funding specific expansion plans
strengthening the balance sheet
refinancing the company after a crisis,
Why must rights issues be offered to existing shareholders?
the value of their investment could
be diluted
What is the ex rights price?
Reduced price after rights issue
What is the rights premium?
ex rights minus rights price i.e what each right is worth
Why do companies do a bonus issue?
bring the company’s share capital in line with its real
worth
reduce the share price to make it more marketable.
How do share splits differ from bonus issues?
without the transfer from revenue reserves - increases share value by splitting the par value
How do capital reorgs give excess capital back to SH?
For each existing holding of ten oldordinary shares, instead it issues nine new
ordinary shares and ten new B shares.
The B shares are redeemable preference shares to realise the return of capital.
Result: Reduce ord shares by 10%, pays out 10%
3 main equity risks
price
liquidity
issuer
6 factors affecting share price
profit expectations
investor sentiment
External economic
Dividend expectations
takeover activity
management track record
Who regulates floating of cos?
UKLA
Do you pay stamp duty on aim?
No
When is stamp duty paid?
0.5% on over paper £1,000 at 0.5% (rounded up to £5)
When is SDRT paid?
0.5% on first paid made through CREST
What is the PTM levy?
£1 on all trades over £10,000
Ordinary b shares?
redeemable shares issued as part of a capital return to
shareholders.
Deferred shares?
founders of a company and only pay a dividend
after a certain period of years or once all other dividends have been paid.
Cumulative preference shares?
the dividend is not paid, the right rolls over and arrears
have to be paid before any ordinary dividends.
Participating preference shares?
additional dividends may be paid if the company
exceeds certain levels of profit.
Redeemable shares?
they may be
issued with a specified redemption date when the company will pay the nominal value.
Convertible shares?
conversion rights allowing the preference shares to be
converted into ordinary shares.
A shares?
non voting ordinary shares
what are dividend tax rates?
Tax band Tax rate on dividends over £1,000
Basic rate 8.75%
Higher rate 33.75%
Additional rate 39.35%
7 risks of shares
Regulatory risk
Liquidity risk
Fund managers and insurance cos
Dividend volatility
Currency risk
Counterparty risk
Capital risk
