ASX listed telecom carrier 5G Networks, raises AU$30 million, is this a catalyst for growth?

Summary

• Numerous entities are resorting to raising additional capital for the business to prepare their war chest to stay afloat and thrive in the ever-changing business environment.
• ASX listed Company, 5G Networks has recently unveiled its plan to undertake Institutional Placement worth ~AU$30 million and bolster its cash position.
• The proceeds would be utilised to boost the Company’s balance sheet flexibility and assist further in the funding of the purchase of Webcentral (WCG).
• 5GN also announced that it acquired a strategic interest of 10% in Webcentral Group Limited (ASX:WCG) on 3 September 2020. This has emerged as a noteworthy turnaround opportunity for 5GN.

Owing to the ever-changing business environment, numerous entities resort to raise additional capital for boosting their liquidity as well as bolster their balance sheet.

Additionally, Businesses are constructing their war chest to seize several strategic and operational opportunities in the market, predominantly to thrive and outpace their competitors.

With an aim to provide flexibility to the balance sheet and accessibility to distinctive growth prospects during and after COVID-19 pandemic, one of Australia operated telecom carrier 5GN Networks Limited (ASX:5GN) unveiled its plans to raise ~ AU$30 million via institutional Placement on 4 September 2020.

The Placement comprised of issuance of ~16.2 million new (fully paid ordinary) shares at a price of AU$1.85 per new share.

The offer price represents a 13.1% reduction to 5GN’s last closing price of AU$2.13, as on 3 September 2020 and a discount of 15% to the five-day Volume Weighted Average Price (VWAP) up to and comprising 3 September 2020.

The raised capital would further administer funding acquisition of Webcentral Group Limited (ASX:WCG) and finance WCG’s outstanding debt. If WCG deal does not go through, then funding will be used for other highly accretive M&A opportunities in its pipeline and cashing potential growth opportunities.

Notably, new shares are projected to be settled on 9 September 2020 and begin trading on ASX on 10 September 2020.

Did you read; 5GN – A Rising Star in Communication Services Segment with 5G and Cloud Services' Prospects

With this backdrop, let us quickly scroll through the other latest news of the ASX listed 5GN Networks:

Skimming through 10 per cent strategic interest secured in Webcentral Group on 3 September 2020

5GN Networks secured a 10 per cent strategic interest in an Australian full-service digital services partner for SMEs (small and medium entities), Webcentral Group Limited (ASX:WCG) (formerly ARQ Group Limited) on 3 September 2020.

The acquired strategic interest has emerged as a noteworthy turnaround opportunity for 5GN, wherein the Company can utilise its asset base and competence to add considerable value. Furthermore, with a background in both domain name as well as hosting, Webcentral’s business is complementing the offerings of 5GN, with substantial opportunities to both unify and further enhance the profitability of both the firms.

Request of a trading halt on 4 September 2020

Notably, the Company requested for a trading halt to be applied to its securities, effective 4 September 2020, as 5GN plans to raise capital. Furthermore, the trading halt would remain in place until the release of announcement concerning capital raise or would end no later than the beginning of trading on 10 September 2020.

5GN’s shares last traded at AU$2.130 on 3 September 2020.

Sell-down of 3 million shares by 5GN’s Managing Director

Coexistent with the Placement, Mr Joe Demase, Managing Director of 5GN decided to sell off 16% of his shareholding in the Company at the same price as under the Placement of AU$1.85 per share.

The MD has cited to meet personal tax obligation and funding of any 5GN options/performance rights excised going forth through the selling of his stock.

Mr Joe Demase is believed to endure largest shareholding of 5GN with an appropriate interest in ~ 16.2 million shares portraying ~15 per cent of the extended capital of the Company, subject to Sell-down and new shares allotment under the Placement.

Mr Demase intends to remain committed towards the Company and possesses no further shares sell-down plans.

Did you read; Everything You Need to Know about 5G Rollouts post Coronavirus Outbreak

Business performance

On 30 April 2020, 5GN provided a business update for the year ended 30 June 2020 and highlighted the following:

• 5GN noted a plunge of 2.8% (y-o-y) in its revenue and was recorded at AU$8 million.
• The Company achieved a gross margin of 59.6%, demonstrating realisation of synergies.
• 5GN’s Net loss after tax was noted at AU$1.5 million at the end of FY20.
• 5GN Networks witnessed a whopping upsurge of 6% (y-o-y) in EBITDA and stood at AU$4.2 million.
• The Company noted a substantial increment of 700% (y-o-y) in the Operating Cashflow and was recorded at AU$5 million.
• 5GN noted cash and cash equivalents of AU$23.5 million, as of 30 June 2020. Furthermore, the Company’s cash position was boosted by the completion of capital raise of AU$18.2 million and AU$3.9 million SPP on 11 June 2020 and 21 July 2020, respectively.
• 5GN had declared a fully franked cash dividend of 1 cent per share.

Noteworthy, on the earning guidance front for FY21, the Company projects the following-

• Revenue (before material acquisitions) to surge amid AU$60 - AU$65 million; and
• EBITDA (before material acquisitions), between AU$8 - AU$8.5 million