A key Covid-19 health indicator for ASX Companies: Capital raisings

Summary

• Equity Capital Raise has picked up momentum as companies feel that they can be highly geared through debt accentuation.
• The investor’s evaluation of the diverse factors, including the Company’s capital raise ability makes it as a wholesome measure for gauging performance.
• Start-ups for managing the finances may target the niche investors during the capital raise.

The impulse to lash out the ‘inner shopaholic beast’ and indulge in some leisure shopping post the relaxations contradicts against the ‘sombre cognitive guide’ which advises us to adopt a rational conservative attitude. The same logical sense when struck by job losses or impending financial insecurities seems to have overpowered the prodigal nature of the Australian buyers.

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The low trade-in May due to consumer’s spending apprehensions has affected many companies. The growth plans of many organisations were curbed by the faltering demands and declining sales when Covid-19 hit the market. Meanwhile, several SMEs due to extreme liquidity crunch are fighting to stay afloat as the economic downturn has threatened their survivability.

The critical time has instigated the need for the money flow to stave off the business risks as sufficient liquidity becomes the holy grail for the businesses. Capital Raising during the unprecedented circumstances has emerged as an answer to financial woes of the organisations that post the relaxations are eyeing green shoots.

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Ongoing Capital Raising Trend

Why Not Bank Debt?

In the current turbulent times, injecting cash into the business through borrowed bank-debts may not be a viable option as it demands steady cash flow for regular payments while also increasing the bankruptcy risk of the companies. Thus, despite the massive bargains and discounted funding rounds driving corporate finance, the benefactors’ support is critical for sailing smoothly through a difficult time.

Capital Raising- How come a Health Indicator?

The start-ups vigorously planning their capital runway are demonstrating sustainability and lucrativeness of their offerings in the upcoming context to lure the investors. At the same time, large corporations have also resorted to narrate their success story for raising money through institutional placements. Yet, the cautious investors are gauging at various facets before placing their hard-earned bucks into the share placement rounds. The considerations from the different angles in one fell swoop have made ‘Capital Raising’ as the ‘health indicator’ for ASX Companies.

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Many investors, rather than evaluating a long list of factors to analyse the business performance, are cutting corners by merely looking at the success of the capital raising. So, why is corporate financing success serving as a yardstick for the company’s future potential and share performance prospects?

Let us look at some key indicators which primarily backs the thriving capital raising thereby aiding it to give a wholesome picture of the businesses during the Covid-19 Scenario.

Overall Financial Performance- The investors are seeking evidence of the Company’s financial wellness through their annual performance in the different markets they serve. The robust financial statements for the past one or two years typically have become indicative of the Company’s long-term potentials, often leading to oversubscription of equity raise.

Sales Growth- The sustainability of the businesses and the growth potentials are continually evaluated by comparing the sales of the corresponding periods. A consistent escalation in sales is serving as a signpost for picking-up trends in favour of the Company.

Customer attention during the Pandemic- The paradigm shifts through Covid-19 has fuelled many opportunities while also suppressing demands in many areas and industries. The transformations in the consumer movement are primarily guiding the success of the share placement.

Current Undertakings – The response to the crisis to manage the finances, cutting the expenses without the adoption of unpopular policies towards employees, society or existing investors highlight the overall stance of the companies. Capital raising initiatives of companies are affected by the direction and the degree of response to dodge the downturns.

Operational Plans for future- The future guidance, ongoing projects and the strategic partnerships signify the organic growth plans for the Company which can come handy to the investors choosing to be the part of shareholder’s equity.

Capital raising, therefore, is amalgamating impacts of both micro and macro factors which together conventionally serves to analyse the overall health of the business

Companies Going for Capital Raise

Covid-19 crisis has hit across all sectors as consumer spending has dropped. Both large and small companies are looking for ways to carry forward their operations. Let us look at the organisations from different industries that are utilising the capital raise for sustained business performance.

NEXTDC Limited (ASX:NXT)

Australia’s data centre provider, NEXTDC Limited (ASX:NXT) raised $191 million through the issue of the 24.6 million new fully paid ordinary shares in May 2020. The fundraise would assist the company to continue its growth momentum that includes commencing Phase 1 of its Sydney-based new data centre development. As of 4 June 2020, NXT stock in the past 6-months has given the return of ~46%. And closed at $9.34 per share.

National Australia Bank (ASX:NAB)

National Australia Bank (ASX:NAB) completed the institutional placement worth $3 billion in late April as it received substantial attention from both the domestic and offshore institutional investors. Moreover, the bank decided to add another $750 million to its Share purchase plan size, which was earlier of $500 million. The company announced on issuing new 88 million shares at an issue price of $14.15 per SPP Share. NAB stock as on 4 June 2020 has given a month return of 13.61% to close at $18.92.

Blackmores Limited (ASX: BKL)

Australia’s leading brand for natural and health products, Blackmores Limited (ASX:BKL) raised $92 million in May through the fully underwritten institutional placement of ~1.3 million new fully paid ordinary shares at the issue price of $72.50 per share. Following the completion, the company also has all eligible New Zealand and Australian shareholders to take part in its share purchase plan, which aims to raise $25 million. As on 4 June 2020, BKL stock appreciated by over 10% in the month to close at $84.41.

Striving to sail through with flying colours in the trying times, several companies from other sectors such as healthcare, mining, financials, real estate etc. have also adopted the vogue of capital raising. Meanwhile, for the investors and analysers, the success in the initial attempts at maintaining the liquidity can be a harbinger of the company’s growth prospects.