Afterpay Touch Group Ltd's (ASX: APT) evangelical-like following of retail shareholders will have to wait to buy more shares in the business after it confirmed its share purchase plan will be delayed until at least after the outcome of its compliance audit of its obligations to AUSTRAC under the AML / CTF Act 2006 and other financial services laws.
The retail offer is only scheduled to be a paltry $30 million and the news comes after it allowed institutional investors to help themselves to $317 million worth of new shares at a discounted $23 a pop, which means those instos are already sitting on millions of dollars of profits, with Afterpay shares at $26.80 today.
In fairness Afterpay appears to be claiming an adverse audit outcome could see the share price bomb and then leave it open to allegations it offered the SPP to retail investors at $23 a share when it was aware that its shares might be about to bomb as it hurtled towards a failed audit. A kind of buy-now-complain-later scenario.
To be clear though I've written a couple of times before about how the external audit should not be a big problem for Afterpay assuming its senior management know what they're doing in this space, with the client ID verification issue the key one to watch in the final auditor's report.
As such I expect retail shareholders will still get a chance to buy shares, but later down the line. Again though they can expect to be heavily scaled back in their applications given it's offering just $30 million worth of scrip up to a maximum subscription of $15,000 per shareholder.
In yesterday's announcement Afterpay also somewhat confusingly stated the "ability of all eligible shareholders to apply for the full $15,000 entitlement regardless of any allocation made to them during the 2018 SPP " will change without clarifying how or what exactly it intends to do. It did reference this was partly "(because 12 months will have passed between the two offers)".
It also warned again it may move to scrap the SPP altogether if for example it decides it's not worth the additional costs and administration.
This could be an even bigger disappointment to shareholders given a positive AUSTRAC audit result could see shares rocket north of $30 with the offer price set at $23.
In other words any cancellation would see Afterpay closing the door on some potentially juicy profits to its base of hardcore retail shareholder fans.
For example if we assume a big scale back of say 66% then every applicant would only gets $5,000 worth of shares, but that would still be 217 new shares at $23 each with a $7 spread to a theoretical post-AUSTRAC audit exchange traded price of $30 in September 2019.
This would mean an instant $1,500 profit to all SPP applicants and that's assuming a big scale back. Please note though this is all just speculation over different potential outcomes for entertainment purposes only.
It's also possible at the other end of the spectrum that Afterpay's auditors report its existing systems fail to meet client ID verification requirements, in which case we could see the share price well below the $23 placement price.
