Flagship Investments Limited (FSI) has launched a listed redeemable, unsecured convertible note issuance (FSIGA), seeking to raise up to $20m. With a 5 year maturity date (Oct 2026), the security will pay quarterly income fixed at 5.5% unfranked until the year 3 call date, which will increase to 6.5% provided that the 2 year BBSW is above 1.2832% if not redeemed at year 3, otherwise the interest rate will remain fixed at 5.5%. FSIGA holders have the option to convert into FSI shares via lodging a Conversion Notice at a price of $2.70 at any time from the second anniversary of the issue date until 10 business days prior to maturity, reflecting the NTA of FSI before estimated tax on unrealised gains as at 31 Jul 2021. Those FSI Notes not converted by the maturity date will be redeemed by FSI at the issue price together with the payment of any accrued but unpaid interest.
Application will be made for the FSI Notes to be quoted on ASX under the ticker FSIGA. Proceeds from the issuance will be fully incorporated into the parent company’s investment portfolio, being deployed in accordance with the Manager’s investment mandate and investment process.
FSIGA is a suitable investment for conservative investors seeking equity exposure with an embedded conversion option that provides the potential for investors to participate in material market upside if the FSI share price increases above the $2.70 conversion price (i.e. an 8% premium to the last close). A compounded annual growth rate of 1.6% would be required for the option to be in the money come maturity. Downside risk is limited by the 5.5%/6.5% call fixed unfranked distribution with redemption in Oct 2026. Pro forma gearing post the $20m raise would be 21.2% (using 30 Jun 2021 adjusted figures).
As the proposed issue of convertible notes falls outside FSI’s current 15% placement capacity, the Offer is conditional on FSI obtaining the relevant shareholder approval. In the case that shareholder approval is not obtained, FSI will not proceed with the Offer, no FSI Notes will be issued and application monies will be returned to applicants without interest. With an incorporated history dating back to Apr 1998, FSI is one of Australia’s longest-standing LICs with a $71.4m portfolio managed by EC Pohl & Co that provides high-conviction exposure to quality Australian listed equities (as at 30 Jun 2021). The Manager facilitates genuine differentiation and seeks to invest in companies with an ability to grow sales and earnings at rates above GDP that will produce superior investment returns over the long-term. The company also has a unique fee structure where only performance fees are paid, with no traditional base management fee calculated as a fixed percentage of FUM being attributed to the Manager. This alignment seeks to ensure that absolute returns are consistently delivered to shareholders. FSI’s investment performance has been nothing short of exceptional, outperforming both peers and the All Ordinaries Accumulation Index on a trailing 3, 5, 7 and 10 year basis. We recently spoke to Dr Emmanuel Pohl, FSI Managing Director and Chairman/CIO of ECP Asset Management here.
Bell Potter’s Indicative NTA tracks the ‘indicative’ movement of a LIC’s underlying NTA each month by monitoring the percentage movements of the disclosed holdings and using an index to track the movement of the remaining positions. The Indicative NTA works best with LICs that have a high percentage of investments concentrated in its Top 20, regular disclosure of its Top 20, lower turnover of investments, regular disclosure of its cash position and the absence of a performance fee. We have also included an adjusted indicative NTA and adjusted discount that removes the LIC distribution from the ex-dividend date until the receipt of the new NTA post the payment date. This report is published each Monday prior to the market open and is available on a daily basis. Intraday indicative NTAs will be available on request through your adviser.
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