Could the Cochlear Limited (ASX:COH) share price fall to $140?

The Cochlear Limited (ASX: COH) share price was trading flat today following news of a successful capital raising.

Companies like Flight Centre Travel Ltd (ASX: FLT) and Webjet Limited (ASX: WEB) will be hoping they can do the same thing.

For context, the broader Australian share market or S&P/ASX 200 (ASX: XJO) was trading up 1.64%.

Cochlear Limited

Cochlear is one of the world’s leading medical businesses. Cochlear designs, manufactures and supplies the Nucleus cochlear implant, the Hybrid electro-acoustic implant and the Baha bone conduction implant. Graeme Clark invented the first device in 1982, allowing first-user Graham Carrick to hear for the first time for 17 years. Some of the most recent modifications allow users to play sound from their phone directly into their implant.

Cochlear Limited’s capital raising

The Rask Education video above explains capital raisings, including institutional capital raisings and share purchase plans (SPP). It also tells you what you can expect to happen next. Click here to subscribe (it’s free) to all of Rask Australia’s videos and stock analysis videos.

Cochlear’s ASX capital raising success

In the face of the current market crisis, it’s a testament to Cochlear’s quality that the company was today able to tell its shareholders that it sold $880 million worth of new shares at $140 apiece to institutional investors.

Earlier this week, Cochlear told investors it expected a “significant negative impact from COVID-19 for an uncertain period of time” and will also face a penalty from its long-running patent infringement in the USA.

“While Cochlear commenced the year with a strong balance sheet and conservative gearing levels, the expected impact of COVID-19 on sales, combined with the likely cost of an adverse judgment in a long-running litigation case, is expected to lift gearing to a level that the Board is not comfortable with,” Cochlear Chair Rick Holliday-Smith said.

“To ensure we emerge from this global health pandemic in an even stronger competitive position than before, we are strengthening the balance sheet by raising equity.”

Following the successful sale of new shares to institutions, Cochlear plans to sell another $50 million of shares to smaller investors, who can individually purchase up to $30,000 of shares each.

What happens next for Cochlear shares?

Normally when a company floods the market with nearly $1 billion of new shares it would dilute existing investors and push the share price down towards the capital raising price ($140). For Cochlear, in the midst of everything that’s happening in the market right now, the injection of capital is a good thing.

That said, I find it difficult to imagine how Cochlear can rebound from this global downturn quickly. While the company undoubtedly has long-term potential in helping more people with hearing loss, we’ve written at length that the sale of Cochlear’s products are dependent on two things:

  1. Doctors/surgeons who are trained and incentivised to make the surgeries, and
  2. Health insurers or rebates from Government coffers to cover some or all of the costs.

With a drawn-out or protracted COVID-19 response from Western Governments very likely, it could still be an uphill battle for Cochlear from here.

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Disclosure: the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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