Good morning, it's Paul here with the SCVR for Friday.

Timing - FYI, Jack and I are both working on some sections now, which should start to appear at about 11:30 - apologies for any inconvenience, Friday's a slow news day, so we tend to take a more leisurely approach.

Agenda -

Paul's comments on fundraisings, dilution, etc.

Hollywood Bowl (LON:BOWL) - fundraising

Begbies Traynor (LON:BEG) - fundraising & another acquisition


Paul’s Section


We’re seeing a deluge of fresh equity fundraisings at the moment. I might focus on that today, as it’s a really important issue for investors. There are so many companies on the stock market which have stretched their creditors, and run up heavy losses over the last year. Hence it’s only a matter of time until they have to repair the balance sheet at the expense of shareholders, and often prompted by banks seeking to reduce their risk.

We’re in very buoyant markets, and institutions & high net worth individuals seem happy to pour money into the coffers of almost any listed company that asks. There are 2 risks though;

  1. Dilution - raising equity by definition increases the number of shares in issue. Yet earnings remain roughly the same, improving a little if interest-bearing debt is reduced. Therefore EPS (and divis per share) in the future are usually going to be lower. That means the share price probably won’t recover to previous levels, and if it does, the shares would probably then be over-priced. People following momentum & drawing lines on the charts, could therefore be in for a rude awakening when results are published, and everyone realises that due to the higher share count, the shares are now over-valued. Therefore I think there’s a risk of price corrections occurring in some shares where the share count has risen a lot. It takes a while for dilution to feed through into broker forecasts, but it does mean that future years EPS forecasts are likely to be reduced, as the higher share count feeds through the analysts spreadsheets.
  2. Discount - I don’t mind if a company gets a placing away which doesn’t dilute existing holders too much, and is at or near the current market price. However, if the company is seen as poorly performing, and/or with an uncertain outlook, then existing & new shareholders may not be happy…

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