Today, I am going to share with you how to participate in delisting based special situation opportunities using the live example of Allcargo Logistics (NSE - ALLCARGO).
Note - This is not a recommendation to buy/sell Allcargo and is only being used as an example. We recommended Allcargo to our Alpha + members at 120 and they are still holding the same.
So, making money in stock markets is about recognizing patterns. Finding the ones which work and then investing whenever an opportunity with a similar pattern emerges.
With respect to delisting, there are 2 patterns we believe work. First one is just after the delisting is announced by the company. We have discussed this often through multiple cases and you can read about (4 cases) them in our presentation, 6th page onwards HERE
In fact, the opportunity on Allcargo was initiated based on the same pattern and you can read the initiation report HERE
Coming to the 2nd way one can make money in delisting opportunities and this we realized only recently after going through failed delisting opportunities of the past. So, our observation is as below:
Every time a company comes up with a delisting offer, expect something positive to happen in the business/sector in 2-3 years. In fact, a failed delisting can throw up a good investment opportunity.
Correction, post a failed delisting, usually marks the bottom of the stock.
Examples - Allcargo, Vedanta, Ineos Styrosolution, Linde, etc
Why do we think the above observation works - Well, when the promoters come up with a delisting offer, they have to buy shares from public shareholders. As a buyer of shares, they would like to pay the lowest possible price.
Thus, most of the time promoters come up with a delisting offer when the industry cycle is down or when their recent performance has been bad but they expect a major improvement going forward.
We observed the above pattern in several cases like Vedanta, Ineos Styrosolution, Linde, etc. In fact, we made use of this to our advantage in Allcargo by not selling when the delisting failed and adopting a trailing stop loss strategy.
On 13th Sep'21 Allcargo informed exchanges about the failure of the delisting proposal. The stock opened 7% lower, but soon recovered and closed only 2.5% down indicating strength in the stock despite the adverse news. We asked our members to hold on to the stock with a trailing SL of 210.
Recently the company announced good set of results and the stock has shot up to 348.
Other examples - Similarly, Ineos Styro delisting failed in Jul'20. Stock corrected from 870 odd levels to 500 odd levels and since then has recovered to 1500 with major improvement in operating performance.
Linde India delisting failed in Jan'19. Stock corrected from 780 odd levels to 400-420 and since then has appreciated to 2,500 with major improvement in numbers.
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SEBI Research Analyst Registration No. INH100001690
Research Analyst Details
Name: Ekansh Mittal Email Id: [email protected]
Disclosure (SEBI RA Regulations)
Whether the research analyst or research entity or his associate or his relative has any financial interest in the subject company/companies and the nature of such financial interest – No
Whether the research analyst or research entity or his associates or his relatives have actual/beneficial ownership of 1% or more securities of the subject company (at the end of the month immediately preceding the date of publication of the research report or date of the public appearance) – No
Whether the research analyst or research entity or his associate or his relative has any other material conflict of interest at the time of publication of the research report or at the time of public appearance – No
Whether it or its associates have received any compensation from the subject company in the past twelve months – No
Whether it or its associates have managed or co-managed public offering of securities for the subject company in the past 12 months – No
Whether it or its associates have received any compensation for investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether it or its associates have received any compensation for products or services other than investment banking or merchant banking or brokerage services from the subject company in the past 12 months – No
Whether the subject company is or was a client during twelve months preceding the date of distribution of the research report and the types of services provided – No
Whether the research analyst has served as an officer, director or employee of the subject company – No
Whether the research analyst or research entity has been engaged in market making activity for the subject company – No
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