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Orbotech Ltd. (ORBK) Message Board

  • pajacobsen pajacobsen May 18, 2011 7:10 PM Flag

    Bizare after hours reaction to offering announcement

    Hello All,

    Today's announcement of the secondary offering, a completely expected announcement given the shelf offering, was followed by a bizare reaction in the after hours market with a 5% drop in per share price on (for after hours trading) relatively high volume of 13,500 shares.

    I was quite surprised by the market's reaction since the shelf offering, authorizing the issuance of up to $150,000,000 worth of common stock, had been in place since December of 2009 (and, so, was hardly news); the company and its equity has been trending up on all fronts (income, earnings, balance sheet, and per share price); the proceeds are truly cheap capital, and, assuming a reasonable offering price, the dilutive effect would be neglible.

    In fact, I would have expected that the market should display a positive reaction, since 1) the overall busines is cash-flow positive (and, so, the raised capital will simply add to the balance sheet strength,) *and* 2) the company at the same time as it announced the offering updated its strategic plan and provided new (and improved) indicative numbers relative to current guidance and past results:

    Gross Margin: 43.0%-45.0%
    EBITDA Margin 20.0%-21.0%
    Non-GAAP Net Margin 16.0%-17.0%
    GAAP Net Margin 13.5%-14.5%

    So, assuming the market is always right, what am I missing? Is the offering per share price known/assumed to be poor?

    Best,

    pajacobsen

    SortNewest  |  Oldest  |  Most Replied Expand all replies
    • What they will use the $ from the SPO for sure is the big question. You never know, but I wouldn't think that they are going to just sit on the money or give it to themselves . The general corporate purposes statement is standard boilerplate. Hopefully management will soon announce what their intentions are. With the annual meeting taking place on June 26, it would seem that there will be some news before then.

    • Not really - Shelf offerings are not always used. They send a signal that the stock is well valued, or even overvalued, and they don't have enough cash from their general operations. "for general corporate purposes""?" probably means management wants to have more equity in the company via gifts - As soon as they see $$$ they dive into the trough. It means dilution. I don't think potential offerings are counted in the fully diluted numbers. Correct me if I'm wrong. This is an offering and will dilute the shares by more than 15%. Unless the money is invested with an ROI equivalent to their current return on for example assets, or capital, then it will weaken their earnings. Makes management feel comfy, but not shareholders. I dumped my shared and expect it to drop - but will keep this on my radar - overall comapny has promise, but right now maybe expensive at least compared to before the offering.

      • 1 Reply to jackgotney
      • Jackgotny,

        You wrote: "Shelf offerings ... send a signal that the stock is well valued, or even overvalued, and they don't have enough cash from their general operations. "for general corporate purposes""?" probably means management wants to have more equity in the company via gifts - As soon as they see $$$ they dive into the trough. It means dilution. I don't think potential offerings are counted in the fully diluted numbers. Correct me if I'm wrong. This is an offering and will dilute the shares by more than 15%. "

        Thank you for your comments.

        As we now know the price is set at $12.50 per share, pretty close to the pre-announcement pricing. As could be expected, the market price has also settled at $12.50, and, unless there are some spectacular news before the offering's execution, then I would expect the price to remain in the $12.50 vicinity until the offering is executed - which is very soon.

        In aggregate this should bring between $79 million and $92 million in proceeds, less, of course, expenses and commissions, depending on whether or not the underwriters exercises their right to buy 1 million extra shares, resulting in the cash and cash equivalent line items being at or above $270 million.

        In view of the 2008 PDI acquisition and the recent aggresive growth and investments, I welcome the strenghtening of the balance sheet at this, the optimum time. Also, I think that the price of $12.50 is all right if it will help the underwriters move the large number of shares rapidly, and as a block (the shares are "ready" on May 31st, 2011.)

        With the company's recent explosive top and bottom line growth and its current long term loan balance of $88 million (stemming from the loan taken out for the PDI acquisition,) I think the offering makes a lot of sense, and I fully expect that very rapidly after the excution of the offering, the per share price will propel to and above the $15 mark where we were in the January/February timeframe. Certainly, with the adjusted guidance and the incredible uptick in business, I fully expect significant growth after the next earnings announcement.

        Basically, my view is that given the excellents results in Q1 and a remarkable outlook for the fiscal year, the per share price ought to be much higher than it is, and once the liquidity increases as part of the offering, the price will rapidly grow to the point where it should be (my personal feeling is that ORBK should be in the $15 to $20 range given the current fundamentals.)

        With respect to your comments, I disagree with you on the dilution issue. First because the company as part of the offering will get even more capital (it has plenty) and will get the ability to immediately terminate the loan without adversely depleating our pre-offering cash balance. Second, because the 15% you cite is completely wrong.

        With respect to your comments about the management's intentions, I have to say that I think you are wrong. Indeed if these were actually the intentions, the company's management's attention would be directed at the +1 million treasury shares, not towards an offering.

        Best,

        pajacobsen

    • Hi, do you have a link to the company's updated guidance numbers?

      Thanks

      • 1 Reply to greenid
      • Greenid,

        In response to, I think, my posting you wrote: "Re: Bizare after hours reaction to offering announcement 24-May-11 11:56 am Hi, do you have a link to the company's updated guidance numbers?"

        Look at SEC Edgar for the 6K posting for May 18, 2011 (commission file number 000-12790.) You can reach it from the company's web site, the Yahoo.com website, or the Nasdaq.com web site.

        Best,

        pajacobsen

    • To be honest, I am just happy for this excellent buying opportunity. ORBK's shareholders are relatively tough though, and the stock's only problem is a lack of sufficient attention to maintain momentum when it attains it off earnings. I'm an options person though, so figuring out a derivatives strategy with this one short or intermediate term gains has been tough due to the lack of volume. ORBK seems perfect for the type of investor who wants to just let the money ride for more than 6 months without having to really worry much about it. Also, there is hardly any shorting with this one, which is comforting for those long.

      • 1 Reply to raiseconsciousness
      • Re: Bizare after hours reaction to offering announcement 19-May-11 12:19 am To be honest, RaiseC,

        You wrote: "I am just happy for this excellent buying opportunity. ORBK's shareholders are relatively tough though, and the stock's only problem is a lack of sufficient attention to maintain momentum when it attains it off earnings. I'm an options person though, so figuring out a derivatives strategy with this one short or intermediate term gains has been tough due to the lack of volume. ORBK seems perfect for the type of investor who wants to just let the money ride for more than 6 months without having to really worry much about it. Also, there is hardly any shorting with this one, which is comforting for those long."

        Thank you for your note. I guess we will know soon enough.

        I did not really (at all) consider the option market for ORBK as tradeable given the volume. What is your experience in placing option orders for ORBK, if you don't mind me asking?

        Thanks,

        pajacobsen

    • Maybe it is a reaction by the people who are so concerned about dilution that they just panic and toss the shares out the door without actually thinking about the situation?

 
ORBK
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