The results looked solid, but apparently, there seems to be some concern among investors related to an expense of $2,871 mln (FY 2023), related to the increase in fair value of the redeemable preferred/special shares and dividend payable. LMN also intends to issue new common shares on March 25, 2024 to satisfy
(1) mandatory conversion of the large block of preferred and special shares held by CSU/Others at a predetermined ratio
(2) payment of $87 mln of dividend on these shares and number of such common shares, to be based on average trading price of LMN for 60 days prior to March 25.
My understanding is that the loss related to “Increase in FMV of preferred shares” is only a “Book Loss” and will extinguish completely, with no effect on company profitability (Existing and Future) once the preferred shares are converted to LMN’s subordinate voting shares on March 25.
Thus, the only relevant factor here should be the impending issue of new common shares (How many and the final total o/s shares), which would result in increase of the share count, possibly impacting the Net Income and CFO per share and further elevating the PE ratio.
So, is the market concern justified or it’s more of a sentiment issue, which should resolve itself with more clarity over next few quarters?
Based on your assessment, do you believe that nothing has changed to its mini CSU profile? And if so, is it a good opportunity to take advantage of this uncertainty and to add LMN shares at current level ?
Thank You
The preferred share loss should not be a surprise to investors as it was fully disclosed in the spin out. Nothing really changes there, and the loss is an accounting, one-time charge only. Going forward it will be a non-event. The dividend was surprising to some as investors assumed (as did we) the share count was never going to rise. We will need to see if LMN buys these shares back in the future when it has more capital (note it would do a regular share buyback, it would not likely just buy back the newly issued shares to CSU). But we would see the dip as a buying opportunity. Also, for a relatively small company with big gains, we would essentially see the dip as not overly noteworthy. The drop takes the stock only back to where it was less than a month ago, and it remains higher than the TSX for the year still.