Companies to be agile with regards to capital raisings when there is increased demand for the stock. Cannings Purple’s Investor Insight team explain.
This often used broker quote describes the need for companies to be agile with regards to capital raisings when there is increased demand for the stock.
Most company directors understand the need to balance additional cash versus dilution.
However, after a few lean years in the resources sector, many also understand that when a broker starts offering money, its a good idea to sit up and take notice. Market conditions can change very quickly and funds that are on offer today may not be in three months’ time.
We are seeing a lot more capital raisings being completed, with many of the raisings either being oversubscribed or being done at larger levels in the past.
Interestingly, these larger raisings, while appearing more dilutive and detrimental to existing shareholders, sometimes have the opposite effect with stronger balance sheets and funded work programs providing a platform for share price appreciation.
Another feature of recent capital raisings is that many of these companies are not in immediate need of funding. Instead, they are now working from a position of strength, invoking the other broker saying ‘the best time to raise funds is when you don’t need it’.
Brokers can sense a desperate company a mile off and their actions tend to exacerbate the issues. Conversely, great companies with good potential can find themselves fighting off suitors on all fronts.
Which brings us back to the headline of the story. Brokers and investors can be fickle and unpredictable. If there’s ducks quacking around you, it might be worth considering feeding them.