WCM Global Growth Limited (ASX:WQG) has seen a significant increase in its portfolio size following the exercise and partial underwriting of its options, which were set to expire on 24 June 2019. When it listed in June 2017, WQG issued 90.9 million options on a 1 for 1 basis with its ordinary shares.
Almost half these options were exercised by the holders before the expiry date, with the Board entering into an underwriting agreement for the remaining options. An additional 41.9 million shares were exercised as part of the underwriting agreement leaving 3.8 million options to lapse. This led to a total of circa $96 million of additional capital being raised via the option issue, pushing the LIC’s portfolio value to approximately $230 million. We expect the proceeds to be invested in accordance with WQG’s mandate to invest in quality global growth stocks.
We do not generally favour options underwriting arrangements by LICs as they can be dilutive to shareholders that don’t take up options. This was particularly so with WQG given the option exercise price of $1.10 was below the 30 June pre-tax NTA of $1.347. Diluted pre-tax NTA was $1.288 after the options exercise. We do note that the market price was at a very small premium to the options exercise price, with the shares trading at a sizable discount to pre-tax NTA. Despite the dilutive nature of the options underwriting arrangement, we acknowledge that the larger capital base increases scale which should improve market liquidity, lower fixed costs per share and increase the LIC’s profile with investors and advisors. This, along with the continued strong portfolio outperformance (7% outperformance since inception to 30 June 2019) may go some way towards narrowing the current discount to pre-tax NTA over the medium-term
WQG will pay its maiden dividend in August with a final FY2019 dividend of 2cps unfranked. The Board announced its intentions to make ongoing interim and final dividend payments with the intention to pay 2cps interim and final dividends for FY2020. WQG also announced an extension of its on-market buy back for a further 12 months. Our rating for WQG is Recommended Plus.
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