Understanding A Share Purchase Plan - ELMO under spotlight

Share Purchase Plan is an offer extended to existing shareholders to purchase further shares at a discounted price. These share purchase plans are a new way to raise new capital without taking up debt. There are 2 kinds of SPP or Share purchase plan-(a) renounceable and (b) non-renounceable. A renounceable stock is one where the investor is able to transfer the rights to new shares under the offer whereas, the non-renounceable means the investor is not able to transfer the rights.

Benefits:

Share purchase plans have certain benefits:

• No Brokerage: Share purchase plans are offered directly to the shareholders and hence does not account for additional charges of the third-party involvement.
• Discount: Share Purchase offers are offered at a discounted price in order to attract current shareholders to participate.
• No Prospectus: In order to issue the plan, the company does not have to issue the prospectus inviting applications, thus saving the cost.
• Less Debt: Issuing debt increases the interest payment which further decreases the net earnings. Issuing the share purchase plan may not want the companies to raise more debt.

Disadvantages:

Despite the numerous advantages of Share Purchase Plan, it is also important to know about the drawbacks:

• Unfair distributions: Investors are offered up to $15,000 of shares regardless of the number of shares investor holds. This raises the concern of fair distribution within the shareholders.
• No Certainty: There is no certainty that the shareholders will get the number of shares they applied for in the initial application, dependent on market conditions.
• Can’t sell if non renounceable: If the share purchase plan is non renounceable then the shareholders are not able to sell the shares in the market and if the shares are not taken up then it will lapse.
• Dilution of shares: In the scenario where the stakeholder does not pick up the rights issue then they may reduce the shareholders rights since additional shares have been issued to the other stakeholders.

Let us now have a look on a stock with Share purchase plan!

ELMO Software Limited (ASX: ELO)

ELMO Software Limited (ASX:ELO) is one of the leading providers of integrated cloud human resources, payroll and rostering, time and attendance software solutions in Australia and New Zealand.

Successful completion of Share Purchase Plan: ELMO has completed its share purchase plan to existing eligible shareholders at an offer price of $6.00 per share. The SPP was oversubscribed due to the strong demand from shareholders, totalling around $18 million and hence the company decided to increase the size of the SPP from $5 million to $15 million. ELO has raised $70 million from the SPP and the Institutional Placement. The company will issue new shares under SPP on 18 October 2019.

SPP Offer Booklet and confirmation of despatch: ELMO announced that it has despatched the share purchase plan offer booklet which contains important information for shareholders and application form. ELO has given the prospect to purchase up to $30,000 worth of new fully paid ordinary shares.

ELO completes $55m placement and secondary sell down:

ELMO Software completed its institutional placement of $55 million at an offer price of $6.00 per new share. Also, the current IPO stakeholders sold approx. 5.8 million ELMO shares under a secondary sell-down at the Placement Price, representing an increase of the total secondary sell-down to $35 million.

ELMO partnering with UTS to develop an AI driven solution: ELMO joined hands with UTS, Australia’s leading technology university on an innovative product development project. The partnership will allow ELMO to leverage world class data science faculty at the UTS and their deep expertise in Artificial Intelligence to create a Predictive Analytics solution for ELMO customers. This will also provide an additional synergy opportunity and increased competitive advantage to ELMO. This would also allow ELMO to provide HR and payroll specialists with a greater knowledge of their personnel, so that they would be able to better choices in the business at a quicker rate.

Annual General Meeting: 2019 Annual general meeting of ELMO will be conducted on 26 November 2019.

FY19 Financial Performance (as at 30 June 2019)

• During the year, ELO showed a strong growth of 47.8% in ARR to $46 million from FY18, which was driven by a combination of new contracts and the contribution from the FY19 acquisition of HROnboard BoxSuite.
• The number of customers went up by 30.1% to 1,341 as of 30 June 2019 and retained 92.1% of their customers.
• In FY closed 30 June this year, ELMO reported an increase in revenue from $26.5 million (FY18 period) to stand at $40.1 million.
• The loss incurred during the FY period came down to $13.2m, followed by the risen employee costs from further hires to aid the growing business and associated costs of acquiring 2 businesses in the year.

Financial Performance (Snapshot Source: Company’s Presentation)

Business Achievements:

ELMO offered new product offerings including rostering/time and attendance and technology enhancement. ELO also acquired HROnboard BoxSuite, which enhanced competitive advantage from a broader suite with the total work force of 277 employees. ELO ensured long term sustainable growth with continued research and development (R&D) investment in product, functionality and modules.

Outlook

• ELO is expecting a strong momentum in FY20 with positive outlook for organic growth and ARR to range between $61 – $63 million.
• ELMO Software is also anticipating a large market opportunity with more multi modules and increased traction in new market segment.
• ELMO is likely to spend in sustainable growth in the areas like sales and marketing, research and development and so forth.
• It is also anticipating its revenue to be in the range of $53 million to $55 million and EBITDA to lie in between $1 million to $3 million.
• ELMO has a strategy to speed up its market penetration in the Australia and New Zealand by expanding investment into ELO’s sales and marketing capabilities and initiatives to push new consumer wins.

Stock Performance: The stock of the company last traded at $6.12, down by 4.075 percent from its previous close on 18 October 2019. The market cap of the stock is $462.1 million, performance of which has increased by 12.52% in the past 6 months.

Disclaimer

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