A Brief About Value Investing and Recent Equity Raising Amid Uncertainty

As we all know, there has been a pandemic situation around the world which has caused volatility in the financial markets and economic uncertainty around the world. However, this pandemic should not affect your long-term financial goal. So now, how should an investor approach in these times of uncertainty? Well, the answer is Value Investing.

What is value investing?

In the current times, it is very important to learn the art of investing. After the coronavirus outbreak, the investors are worrying about their investments and it can be said that they are not able to decide where to allocate funds. Generally, the term value investing focuses on the idea of purchasing a stock that is trading less than it actual worth.

The outbreak of coronavirus has impacted global stock markets and several sectors. Generally, in such an environment the investors tend to park their investable capital towards safer asset classes and they decide to liquidate their holdings in equity. It can be said that investors tend to liquidate their equity holdings primarily because of the risks associated. When the global growth is questioned, investors to sell their positions in risky assets. Since the stock markets have been severely impacted, it can be said that most of the companies are now actually creating some buying opportunities.

Now, let us quickly have a look at two companies which have been recently notified the market about the fund raising.

Z Energy Limited (NZX: ZEL)

The company has decided to launch an equity raising to garner up to NZ$350 million. The equity raise comprises of:

  • $290 Mn of fully underwritten placement;
  • Non-underwritten SPP to garner up to NZ$60 Mn

The company has planned this equity raising with the purpose to provide a robust capital structure during this current market conditions while constructively placing the company to take advantage of chances as the country’s economy start to regain from the impacts of Covid-19.

On May 12, 2020, ZEL notified that it has wrapped up NZ$290 Mn fully underwritten placement of the new shares. As per the release,

  • Placement was fully underwritten at $2.75 per share. The shares were allocated to current shareholders and new investors.
  • Allocation was done at the price amounting to NZ$2.90 per share
  • As a result, there was an issuance of 100 Mn new fully paid ordinary shares.

Release of FY 2020 Results: A Quick Look

For the year ended 31st March 2020, ZEL reported Historical Net Profit after Tax (HC NPAT) loss amounting to $(88) Mn, as compared to the profit of $186 Mn in pcp. The major decline in HC NPAT is because of many factors, which includes reduced refining margins and lower retail fuel margins.

At an operating level, Replacement Cost EBITDAF (RC EBITDAF) stood at $366 million for the full year representing a decrease of $68 million (-15%) against the pcp.

The company also stated that lower earnings affected leverage ratios, which at the end of FY 2020 stood at 2.7x RC EBITDAF, reflecting a rise from 2.4x at the end of 1H FY 2020 and 2.1x at the end of March 2019. Notably, debt repayments amounting to $23 Mn were made during the year.

Financial Performance (Source: Company Reports)

Financial Performance (Source: Company Reports)

The Board of the company has decided to cancel final dividend for FY20. As a result, full dividend for the year consists 16.5 cps interim dividend which has been already paid.

The company also added that retail market conditions which were witnessed during middle of 2019 were challenging. Industry profits were adversely affected because retail margins decreased due to price-led competition, which led to the slowdown of the rate of new to industry (or NTI) builds throughout the industry.

KMD Successfully Wraps Up Retail Entitlement Offer

Kathmandu Holdings Limited plans to raise about NZ$207 million through a NZ$30 million underwritten placement to certain institutional investors, combined with about NZ$177 million underwritten 1.2 for 1 pro-rata accelerated entitlement offer.

The proceeds raised will be used to deleverage the company’s balance sheet and offer liquidity and funding for medium-term operating requirements.

In the release dated April 22, 2020, Kathmandu Holdings Limited stated that it has wrapped up the retail entitlement offer component of its fully underwritten 1.2 for 1 pro-rata accelerated entitlement offer of new fully paid ordinary shares in the company.

The Retail Entitlement Offer closed on 17th April 2020 and raised about NZ$53 million of gross proceeds.

KMD has been implementing several actions in order to reduce costs as well as further strengthen the financial position:

  • Reviewing all the operating expenses for the purposes of potential savings
  • Using government subsidies in ANZ and Europe
  • Negotiating with the landlord partners in order to achieve the fair outcome that sees rental costs aligned to the performance of sales
  • Delaying as well as cancelling existing inventory orders wherever it is possible, based on reduced levels of anticipated demand over the medium term
  • Cancelling or deferring all the capital projects which are non-essential.

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