As expected and highlighted in our previous article, the returns and results have been mixed from the ASX’s most recent spate of capital raisings.
Interestingly, it has been those businesses that were relying on a successful capital raising just to survive that have recovered most strongly. Webjet Limited (ASX: WEB) and Ooh!Media Ltd (ASX: OML) are both up over 100% and Flight Centre Travel Ltd (ASX: FLT) around 49%.
The big question, however, is will these companies require another round of capital before 2020 is out?
With the threat of Job Keeper being pulled, spiking inflation and continued border closures, it’s difficult to see the travel industry recovering anytime soon.
Some of the higher-quality raisings in our view have been Qube Holdings (ASX: QUB) and Ramsay Health (ASX: RHC), which are closing this week. Both companies suggested the proceeds would be used for further acquisitions and organic growth, delivering a return of 35% and 21% each to date.
The outlook is very difficult for the banking sector and its more than likely the other majors will seek to raise in the months ahead, with hundreds of thousands of mortgage repayments put on hold, queries over the commercial property and small business loans.
So what’s the lesson?
The most leverage tends to come from the most desperate businesses, but there are solid profits to be made for those supporting high-quality companies. According to Deal Logic, the ASX had actually seen more capital raised than the NASDAQ or London Exchange in April, interesting given how successful the containment strategy has been in Australia.
Have Australian shareholders benefitted from discounts, or have they lost capital?
In each of the capital raisings we have tracked below, the shareholder has been better off, at least in the short term, except for long-suffering Metcash and QBE investors as we mentioned previously.
NAB remains slightly above water following the recent weakness, whilst anyone willing to invest in travel has done incredibly well. Importantly, these returns reflect only a very short period of time and don’t consider the capital lost prior to their announcement. I’d suggest the companies not showing up on this list are where investors should really be looking.
1st & 2nd derivative sectors
Most have closed this week, so it is more about looking towards those businesses likely to require more capital.
There are a few first derivative sectors that will clearly remain under pressure and may soon be cap-in-hand to investors, including companies in oil and gas, discretionary retailers, and travel companies.
The second derivative sectors is where it gets more interesting and investors need to start thinking longer-term.
How will property owners, particularly retail, apartment and commercial landlords, deal with an influx of rent reduction requests or defaults?
What about smaller lenders?
Or technology companies running at losses?
Many companies, including Woolworths Ltd (ASX: WOW) and Macquarie (ASX: MQG), have sought capital through alternative means, being debt and preferred equity, but there is plenty of water still to go under the bridge.