Sunday, October 10, 2010

QRN - QR National Share Offer Document Now Available

Finally the big day for prospective QR National investors has arrived. The offer document has been released and now we get a chance to see what the 'big' fuss has all been about (don't tell me you haven't seen the ads). What follows are some of the highlights from the QR National prospectus.

How Much?

The indicative price range is between $2.50 and $3.00 per share with the final price paid by institutions (fund managers and the like) to be set by way of an institutional book build (kind of like an auction for the big boys). Retail investors will pay 10 cents per share less than the institutions up to a price of $2.80. I guess that means we will pay somewhere between $2.40 and $2.80 per share.

Retail shareholders are also eligible to receive 1 loyalty bonus share for every 20 shares up to 500 loyalty bonus shares provided shares bought in the float are held until December next year.

What do you get?

As smart investors will know, price is only one part of the value equation. What will we get for our money? Well, the offer document has a forecast price to earnings ratio of between 21 and 25 times for FY2011 and 16.5 and 20 times for FY2012. As you have probably deduced from those figures, earnings are expected to have significant growth over the next couple of years. Earnings per share is expected to grow from 11.8 cents next year to 15.1 cents in the following year. I think part of the rationale for the earnings growth is that the company has not been run as efficiently in the past under government ownership as it will be when publicly listed.

With regard to dividends, a dividend yield of 2.1% to 2.5% is forecast next year rising to between 2.8% and 3.3% the year after. However investors will have to wait until September 2010 to receive any dividends when the company expects to pay out 3.7 cents per share. Also, if you refer to the Dividend Policy in Section 2.7, you'll notice that dividends will be unfranked for the next couple of years and only partly franked after that.

Based on these figures, an investment in QRN doesn't strike me as a screaming bargain but I guess time will tell.

What Are The Risks?

I wont go into all of the risks but if you flip to page 117 of the offer document you'll get the complete run-down. Apart from the standard investment related risks there is plenty for future shareholders to worry about. A couple which caught my eye were the potential impact of the Resource Super Profits Tax (RSPT) and the possible shortfall in the defined benefit superannuation scheme of some of the employees.

One other point of note is the reported strong interest in the upcoming float as indicated by the high number of pre-registrations. After having received a letter from a stock broking company assuring me they had kindly pre-registered interest in the float on my behalf, I wonder how many of these reported pre-registrations were from unwitting clients of large brokerage houses. In other words, how much real interest has there been in the QR National Float and how much of the reported demand has been generated by kind stock brokers like mine. Food for thought.

If you have any interest in this investment, make sure you read and understand the offer document before investing. The retail offer is now open and is expected to close at COB on 12 November. QR National shares should start trading in early December.