September & December Quarterlies, page-7

I have a small comment regarding the annual report, namely this statement:

“The Directors are of the opinion that whilst current funding levels are sufficient to address working capital requirements required, the Company will seek to conduct additional capital raising activities in the next twelve (12) months.”

I’ve had a think about it and want to just run my line of thinking past you guys. My assumptions:

1.    We don’t need a CR to manage current operations and some level of organic growth.
2.    We have demand that is driving that organic growth, potentially incentivising an acquisition to enhance growth
3.    The share price is on the low side, we could say undervalued, and probably won’t move until the revenues start to show the milestones are coming into play without having to “trust” management. I think these guys are legit but the market doesn’t have to.
4.    Any CR prior to the market pricing in all relevant information to current performance would probably be relatively detrimental to shareholders – as in it would have to be a hell of an acquisition to be worth more market cap than a re-rate due to strong performance at this level.
5.    Assuming they are true, the first four assumptions are obvious to those in the know and the directors are no fools.

I was very surprised to see affirmative language around a CR and the 12 month timeline. I think that timeline is critical. To me, with my assumptions in mind, all this says that the directors believe that within 12 months (less as a CR takes time) the market will have all it needs to know to price the company fairly in their eyes, including forecasted growth. I don’t think you’d look to do a CR until you thought dilution would be minimal, obviously.

So for me we’ll see the following:

Strong Quarterly Report(s) -> Re-rate in SP -> CR to expand growth in a manner that is worth the dilution.

I was very conflicted on whether to post to HC or just email PC for feedback on my thoughts. Let’s see how we go.

p.s. Best of luck Samurai!