Q: ERE today announced the sale of over 1 Billion in housing and commercial units. In addition a 41.13 special dividend and a 50% reduction in the dividend. I realize this will significantly improve the balance sheets, yet the company is small and will become much smaller. The stock price is up by 23c today. Is the stock worth keeping or should I sell it now. Will the share price gradually climb as it gets closer to the special dividend? What do you think of this sale?.
5i Research Answer:
It is difficult. We do not like to question management's process; they obviously know their market more than we do. But the reduction in the dividend with a 'bribe' of a special dividend leaves us with a bad taste. The company will become even smaller, yet its usual risks remain. The balance sheet of course improves, but growth may still be weak. We would expect some uptick towards the special dividend ex-dividend date (not by the full amount) and think we would 'target' ERE for a sale if this transpires.