I prefer to focus on how to value the company once the announcement details drop.
The CR is an entitlement offer vs an SPP.
Generally an SPP, with an upfront institutional component, allows the company to raise all the funds required with the intsos, and they throw retail a bone with the SPP that really won't affect the business i.e. 50M to instos + 5M to SPP. When an SPP is retail focused it signals big trouble i.e. 10M to instos + 20M SPP.
An entitlement issue can be perceived as instos don't want to take the lead on the CR i.e they may be happy to participate and maintain their % holding, but aren't keen to increase their ownership level. If and Who is underwriting the entitlement issue becomes very important, is it a sub-holder or just another broker looking to offload at the first chance they get.
Is it a symmetrical raise i.e. 10% SP discount for 10% increase in SOI.
If an insto heavy SPP has it's closing date extended then it's not a big deal. If a retail heavy SPP or entitlement offer closing date gets extended, then the CR can be considered a failure and the SP will respond accordingly.
Does the entitlement offer have attaching options? This raises three issues:
1. The CR price needed a sweetener to get it over the line with the instos/sub holders. Not a good look.
2. The effective CR price is lower than the advertised CR price, and varies widely depending on strike price and expiry date.
3. Encourages holders to dump the heads down to CR price and below IOT free carry just the options.
What are the funds to be used for?
Purchasing an asset where most of the CR funds are instantly spent on an asset that now needs it's own valuation applied to it and hence the EV doesn't overly change? Is it for drilling which will be a slower spend rate over a number of months? Is for a step change in the company i.e. final raise to get into production?
The notional scenario below has a 10% SOI increase at a 20% discount with nil options. There are several ways to value the company post CR I could average out the cost base (green) or I could simply assume that management now values my 8.7c shares at 7c (red) because this is the price they are raising at.
A SP that dips 20% below the CR price has been a regular target to keep an eye on for an entry over the years.
